Latest / Choppin’ It Up by Bloomberg Intelligence / Loop’s Tumuluru on Restaurant Delivery Trends

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Loop’s Tumuluru on Restaurant Delivery Trends · Choppin’ It Up by Bloomberg Intelligence

0:00
Speaker 1: Welcome to Chopping It Up. I'm your host, Mike Halon,
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Speaker 1: the senior Restaurant and Food Service analyst at Bloomberg Intelligence.
0:06
Speaker 1: Our research and that a bi's five hundred analysts around
0:09
Speaker 1: the globe can be found exclusively on the Bloomberg terminal.
0:13
Speaker 1: If you enjoy the pod, please do me a solid
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Speaker 1: and give us a five star review on Apple or Spotify.
0:19
Speaker 1: It'll help us with the algorithm. Today we're joined by
0:23
Speaker 1: a non Toumuluru, co founder and CEO at Loop, a
0:27
Speaker 1: delivery intelligence platform. Welcome to the pod, Mike. It's an
0:31
Speaker 1: absolute pleasure to be here. A longtime listener and first
0:34
Speaker 1: time here, so I'm super excited. Yeah, me too, Man,
0:38
Speaker 1: this was a long time in the making, so I'm
0:41
Speaker 1: glad to finally get you on here. You have a
0:44
Speaker 1: lot of strong opinions, which I love, our listeners love,
0:48
Speaker 1: so this is going to be fun.
0:49
Speaker 2: Super excited. Yeah.
0:50
Speaker 1: Let's start with just letting everyone know how Loop came
0:53
Speaker 1: to be.
0:54
Speaker 2: Absolutely, we were bon out of the pandemic.
0:57
Speaker 3: So just like many of us out there who were
1:01
Speaker 3: helping our communities, me and my co founders, we stepped
1:05
Speaker 3: out to help a couple of our favorite restaurants out
1:08
Speaker 3: here in the Bay Area, and their theme was very.
1:14
Speaker 2: Straightforward.
1:15
Speaker 3: It was that their restaurant now entirely depended on law
1:21
Speaker 3: marketplaces and it was very hard for them to understand
1:27
Speaker 3: how to work with that revenue channel and business model.
1:32
Speaker 3: And a quick backstory there, I was at that time
1:38
Speaker 3: an engineer at uber and it was really fun. It
1:43
Speaker 3: was a really fun couple of years between twenty nineteen
1:46
Speaker 3: to twenty two where the company went public. You know,
1:49
Speaker 3: shortly after COVID happened, the world shutdown. The entire focus
1:55
Speaker 3: shifted from rights to eats, where engineers were sitting down
1:59
Speaker 3: to trans spread menus for restaurants, and we just couldn't
2:04
Speaker 3: keep up with the demand. It was so intense, and
2:08
Speaker 3: of course restaurants were completely dependent on revenue that was
2:12
Speaker 3: coming from delivery marketplaces. And interestingly enough, I actually am
2:19
Speaker 3: a restaurant olt myself. So I started a restaurant back
2:24
Speaker 3: in twenty seventeen with a couple of friends as a
2:28
Speaker 3: side project.
2:29
Speaker 2: It was a hobby, and.
2:32
Speaker 3: You know, when I started it, everybody told me the
2:37
Speaker 3: same thing, why didn't you just set your cash on
2:39
Speaker 3: fire instead of doing this.
2:41
Speaker 2: Really bad idea?
2:43
Speaker 3: And shortly enough, three months later we were actually making money.
2:47
Speaker 3: And it was not because we had magicians or have
2:51
Speaker 3: any experience with restaurants, but simply because the restaurant was
2:57
Speaker 3: fully dependent on Telubrii and we were engineers and analysts,
3:01
Speaker 3: so it was very easy for us to sort of
3:04
Speaker 3: do everything from procuredment, prising to understanding our customers fully
3:08
Speaker 3: digitally on an Excel sheet and you know, and and
3:14
Speaker 3: and make it work. So and over the period of
3:20
Speaker 3: three years we kind of went through ups and downs,
3:23
Speaker 3: but at this point of time our business was booming right.
3:26
Speaker 3: We ended up just being at the right place at
3:28
Speaker 3: the right time. It continues to operate today. I don't have,
3:32
Speaker 3: you know, big ambitions for it, but it was a
3:35
Speaker 3: sleek peak for me into how this revenue channel isn't
3:42
Speaker 3: a burden, it's not something that's supposed to kill a restaurant.
3:45
Speaker 3: It's actually an opportunity where for the first time you're
3:49
Speaker 3: able to actually close the loop in connecting your orders, customers,
3:55
Speaker 3: your profitability, you your feed back, everything together and you
4:02
Speaker 3: can actually look at it and and and eventually it
4:06
Speaker 3: became the perfect you know, startup recipe for agents to
4:09
Speaker 3: be built on top two.
4:10
Speaker 2: But at this.
4:11
Speaker 3: You know, at this point of time for me, a
4:13
Speaker 3: bunch of these things slicked where I was looking at
4:18
Speaker 3: these restaurants struggling and I was like, hey, this is
4:20
Speaker 3: a massive opportunity.
4:21
Speaker 2: Maybe we can actually help them out.
4:22
Speaker 3: And sure enough we were able to have an outsized
4:26
Speaker 3: impact for you know, independent operators, and then you know,
4:29
Speaker 3: we were, uh, we were in business.
4:31
Speaker 1: Yeah, that's very cool. I mean, well, first of all,
4:34
Speaker 1: I know now how the name loop came to be
4:38
Speaker 1: makes perfect sense, and that's really unique background having the
4:42
Speaker 1: restaurant experience as well as on the other side being
4:46
Speaker 1: an engineer, and so it's interesting. You know, there's quite
4:49
Speaker 1: a few restaurant tech entrepreneurs that you know, spawned off
4:55
Speaker 1: from the restaurant industry, and it makes so much sense
4:58
Speaker 1: because you know firsthand where the pain point are.
5:01
Speaker 3: Yeah, and I think the one experience that I feel
5:05
Speaker 3: as was very foundational for me was back when I
5:08
Speaker 3: actually graduated from college. I worked as an engineer building
5:14
Speaker 3: ERP systems for flip Card, and this was back in
5:18
Speaker 3: twenty twelve, and I built out account payables and transport
5:23
Speaker 3: management systems and other parts of start of the supply chain.
5:26
Speaker 3: And it was I guess the first of many where
5:31
Speaker 3: an e commerce business was booming and very quickly the
5:35
Speaker 3: business realized that they had to build their own supperation
5:37
Speaker 3: system and it was it was one of those experiences
5:40
Speaker 3: where I could sort of see how important it is
5:43
Speaker 3: for as a fundamental differentiator. So it's basically connecting all
5:48
Speaker 3: of these dodts backwards for me, and it also gave
5:50
Speaker 3: me the conviction that there's a very large opportunity in
5:53
Speaker 3: effectively building a great back office for this industry.
5:57
Speaker 1: Very cool and obviously spending time met Uber during the
6:01
Speaker 1: delivery boom, you got to see it from a whole
6:05
Speaker 1: nother angle as well. So what did you see from
6:07
Speaker 1: the platform side that convinced you that restaurants are being underserved?
6:11
Speaker 3: So, Mike, I think this might be a good opportunity
6:13
Speaker 3: to sort of present that central question that restaurants and
6:17
Speaker 3: marketplaces and investors are Like everybody asked the central question.
6:21
Speaker 2: Is delivery a passing cloud? Right? Is it a necessary evil?
6:25
Speaker 3: Is it just an acquisition channel that you know, you
6:28
Speaker 3: kind of acquire customers from one and then sort of
6:31
Speaker 3: send them to first party. There's all kinds of questions
6:33
Speaker 3: that brands and investors everybody was struggling to sort of
6:37
Speaker 3: look at in the context of delivery. And by the way,
6:39
Speaker 3: the marketplaces themselves have very different approaches, right. Grubhubo's menu transcription.
6:47
Speaker 3: Uber was fundamentally coming off of a logistics sort of
6:50
Speaker 3: motivation where they were like, hey, we just.
6:52
Speaker 2: Have a bunch of supply.
6:53
Speaker 3: DoorDash was coming from a completely different place where it's like, hey,
6:57
Speaker 3: you know Tony's sort of like origin story was helped, uh,
7:01
Speaker 3: you know, a palol to restaurant out. So it's all
7:05
Speaker 3: of them sort of conversion to the same spot. And
7:08
Speaker 3: and now we're seeing more innovations around powering delivery. But
7:14
Speaker 3: the reason I think I got the conviction to actually
7:18
Speaker 3: go and jump the thing that actually saw from inside
7:20
Speaker 3: of the marketplace was that fundamentally there was a cultural
7:24
Speaker 3: shift with respect to how consumers looked at delivery. Right,
7:30
Speaker 3: So at one point, at some point, whenever delivery started, uh,
7:35
Speaker 3: it was this couch potato glattonous thing that a lazy
7:41
Speaker 3: person would do that you don't talk about, You don't
7:43
Speaker 3: tell anybody that you did it. You just added delivery
7:46
Speaker 3: on the you know, uh, without without other people knowing
7:50
Speaker 3: about it, and and you got away with it, and
7:54
Speaker 3: then I think culturally, I think it just became something
7:58
Speaker 3: that a sensible working couple. It just became a sensible,
8:02
Speaker 3: rational decision for a working couple, right where people started
8:06
Speaker 3: to just say, hey, I don't think you know, initially
8:09
Speaker 3: it was for health reasons, but eventually it sort of
8:12
Speaker 3: became it didn't go away. It just became, hey, why
8:14
Speaker 3: am I making food at home when I should be
8:17
Speaker 3: spending my time going and perfecting my craft, going and
8:20
Speaker 3: doing things that I actually like. And honestly, I don't
8:24
Speaker 3: think I will actually be able to make food that
8:27
Speaker 3: well be that twenty twenty five dollars. So I think
8:31
Speaker 3: that cultural shift was what was really interesting and motivating
8:35
Speaker 3: for me, and there was something there that was appealing
8:38
Speaker 3: to me on the same lines of what happened with
8:42
Speaker 3: drive through right effectively, people in eating in cars. It's
8:46
Speaker 3: bizarre for people to eat in cars. That's not culturally
8:49
Speaker 3: an accepted thing anywhere else in the world. Maybe you're
8:53
Speaker 3: you know, actually I'm from India, where you know a
8:55
Speaker 3: lot of people like my parents would say, hey, don't
8:58
Speaker 3: eat in the car, like what are you doing? Right,
9:00
Speaker 3: And it's and it just became a culturally accepted thing
9:03
Speaker 3: here at some point.
9:04
Speaker 2: And the reason for that.
9:07
Speaker 3: Was, you know, the Eisenhower's State Highway system, and there
9:12
Speaker 3: was suburb BA and you know, we started to see
9:14
Speaker 3: an explosion in franchising. There are all of these rails
9:17
Speaker 3: that exploded at the right time at the perfect spot.
9:19
Speaker 2: And then we had McDonald's and Burger wars on and
9:21
Speaker 2: so forth.
9:22
Speaker 3: So there is this like technology shift that combines sort
9:26
Speaker 3: of at the right place at the right time with
9:27
Speaker 3: all of the infrastructure that's there. That just felt like
9:30
Speaker 3: what was happening with delivery too, where we had the
9:33
Speaker 3: cloud migration, we had like the great work that our
9:36
Speaker 3: digital point points of sale were doing and ud aggregators
9:39
Speaker 3: were doing, and the marketplace has just came in at
9:42
Speaker 3: the right time with tablets and mobile phones and they
9:44
Speaker 3: could plug in with drivers and and you know delivery executive.
9:49
Speaker 2: So it was it was.
9:49
Speaker 3: Sort of the perfect storm where culturally it was okay
9:54
Speaker 3: for consumers and restaurants were infrastructurally ready, uh you know
10:00
Speaker 3: for that, and it just became an obvious opportunity.
10:03
Speaker 2: Yeah.
10:04
Speaker 1: For me, it's the dishes, man. I you know, when
10:06
Speaker 1: I get home late from work, I can I can
10:08
Speaker 1: whip some of them up pretty quickly, but it's having
10:10
Speaker 1: to do the dishes afterwards. Man, that kills me.
10:14
Speaker 3: I'm the dishes guy at home, So it's it's meditative
10:19
Speaker 3: for me, and I I'm like, you know, spending a
10:22
Speaker 3: lot of time doing it. But I you know, for me,
10:25
Speaker 3: the biggest thing is I live in the Mission District right,
10:29
Speaker 3: you know, very close to Valencia here in San Francisco,
10:32
Speaker 3: and there's just so many amazing restaurants around, so I'm
10:38
Speaker 3: I'm spoiled for an amazing selection of food. So I'm
10:41
Speaker 3: I'm I'm sort of like climbed to our rasthmuch as
10:44
Speaker 3: passib outside as well.
10:45
Speaker 2: So we're in the same boat there.
10:46
Speaker 1: Cool. You know. Cord to your story is how Loop
10:49
Speaker 1: is helping customers make delivery more profitable. Can you tell
10:53
Speaker 1: me how you're doing that?
10:54
Speaker 2: Yeah? Absolutely. So.
10:57
Speaker 3: The water we swommen here, Mike is is that delivery
11:02
Speaker 3: was a sub billion dollar business in twenty fifteen. It
11:07
Speaker 3: went from being like a thirty to a fifty billion
11:09
Speaker 3: dollar business right around like twenty twenty, twenty nineteen and twenty,
11:12
Speaker 3: and today it's something between one hundred and fifty two
11:15
Speaker 3: d to two hundred billion dollars big just in the US, right,
11:18
Speaker 3: And that's just adding up and having some assumptions around
11:21
Speaker 3: like Dodash, you breeds, grub Hub, Easy Gators revenue right
11:24
Speaker 3: and what olose sort of reportings on and so forth,
11:28
Speaker 3: and it could be, you know, it could be a
11:31
Speaker 3: trillion dollars by twenty thirty, could be a trillion and
11:33
Speaker 3: a half by twenty thirty five.
11:34
Speaker 2: It's a growing vector now.
11:37
Speaker 3: The way that you can actually see this playout is
11:40
Speaker 3: a lot of loops customers actually have twenty to thirty
11:44
Speaker 3: percent of their entire revenue coming from deluverty, right, And
11:48
Speaker 3: it was a sub one percent number, sub five percent number,
11:51
Speaker 3: and now it's growing and debates about incrementality aside. We
11:58
Speaker 3: are certainly seeing a significant part of that being incremental,
12:02
Speaker 3: meaning you know, at two million dollar restaurant is definitely
12:05
Speaker 3: two point three maybe two point five even because of delivery,
12:09
Speaker 3: and we're sort of seeing that aue bumps for sure,
12:12
Speaker 3: and we're also seeing the impact when you know, restaurants
12:15
Speaker 3: sort of initially when they launch, they don't go on deluvery,
12:20
Speaker 3: and then when they do, they kind of see that
12:22
Speaker 3: pump and they love it. So they love that revenue,
12:26
Speaker 3: but when they basically go and start to look at margins,
12:31
Speaker 3: look at growth, look at aspects of operational excellence and
12:37
Speaker 3: customer feedback. At some point every brand grows through Every
12:41
Speaker 3: brand goes through this where they're like, hey, we're just
12:44
Speaker 3: going to get this as a test and they're going
12:46
Speaker 3: to be like, Okay, it's actually working, and now, well,
12:49
Speaker 3: there are all of these problems with it. How do
12:51
Speaker 3: we deal with it? So that's basically where loop comes in,
12:55
Speaker 3: where we help a brand effectively get their financial, operations
12:59
Speaker 3: and marketing back ends right in the context of delivery
13:04
Speaker 3: and more broadly that digital business. But the way that
13:08
Speaker 3: we do it is we take a measure, protect and
13:10
Speaker 3: grow approach, so that basically corresponds to having a strong
13:13
Speaker 3: financial park office where you're able to reconcile everything and
13:17
Speaker 3: attribute and close the loop on every aspect of that business,
13:21
Speaker 3: which is very unique to delivery. By the way, you're
13:23
Speaker 3: rarely able to do that for the rest of your business.
13:26
Speaker 3: And then you focus on operational excellence, looking at reviews,
13:29
Speaker 3: looking at customer feedback, ensuring that the general managers are
13:32
Speaker 3: getting the right feedback at the right time, and then
13:35
Speaker 3: invest in actually powering your delivery business with the right
13:41
Speaker 3: amount of marketing spand so that you can get that
13:44
Speaker 3: deterministic growth.
13:45
Speaker 2: And you know, one.
13:47
Speaker 3: Of the one of the things that we came out
13:49
Speaker 3: of this year was looking at how deterministic the marketing
13:55
Speaker 3: investments have been for brands like it or hated. It's
13:58
Speaker 3: just been like very responsive and and that's just becoming
14:02
Speaker 3: a growing part of focus for brands as well, taking
14:06
Speaker 3: on more and more of their spend. And it's very
14:09
Speaker 3: important to connect all the dots, right. So let's say
14:12
Speaker 3: you actually have an lt O. Are are you our
14:14
Speaker 3: stores able to actually execute? And then are you able
14:18
Speaker 3: to actually see the flow through by connecting with your cards,
14:22
Speaker 3: with your with the rest of the art system. What's
14:24
Speaker 3: the impact on labored and being able to reconcile and
14:26
Speaker 3: look at this all altogether, which is what loop effectively
14:30
Speaker 3: helps brand brands do.
14:32
Speaker 1: Okay, great. You know, last year we saw some of
14:35
Speaker 1: the companies we cover, you know, they felt a consumer
14:38
Speaker 1: push back on the cost of delivery. What's the current
14:41
Speaker 1: state of the delivery market?
14:42
Speaker 3: Absolutely, so, the way that we actually keep a pulse
14:47
Speaker 3: on the delivery ecosystem is through two or three uh
14:51
Speaker 3: important KPIs that we track on a on a on
14:55
Speaker 3: a customer by customer basis. So the first one is
14:58
Speaker 3: same store sales growth respect to delivery revenue. Right, So
15:03
Speaker 3: last year we basically saw ten to twenty percent in
15:08
Speaker 3: terms of same store sales growth coming from delivery revenue
15:11
Speaker 3: for brands, and this year that growth has been five
15:16
Speaker 3: to ten percent, right. So that's the first important sort
15:22
Speaker 3: of metric to keep in mind, which is that marketplaces
15:25
Speaker 3: are growing and that growth is being taken by the restaurants.
15:30
Speaker 3: All these marketplaces, they're growing slower than before, but they're growing, right,
15:34
Speaker 3: So that's that's where we solid.
15:37
Speaker 2: The second part of it is how.
15:41
Speaker 3: How much of the same store sales growth and sort
15:44
Speaker 3: of the distribution across across these brands. Who's taking it,
15:48
Speaker 3: who's losing it, How are people responding to the different
15:52
Speaker 3: changes with respect to the marketplace. So it's possible for
15:57
Speaker 3: a brand to basically take the perspective that I will
16:02
Speaker 3: go meet my customers wherever they are, regardless of whether
16:05
Speaker 3: they come from my marketplace, my first party app for
16:09
Speaker 3: you know, my in store drive through, so on and
16:12
Speaker 3: so forth.
16:13
Speaker 2: My goal is to serve them equally well across the board.
16:16
Speaker 3: So when they basically take a stance like that, the
16:19
Speaker 3: natural question that comes is the CFO is going to
16:22
Speaker 3: show up and basically say, hey, great, but the flow
16:28
Speaker 3: through is different, and naturally the way that brands respond
16:31
Speaker 3: to it, and we see this across the boards they
16:33
Speaker 3: set up a markup right now. The thing that actually
16:37
Speaker 3: offsets that right off the bat is they also spend
16:39
Speaker 3: a ton on marketing. So it becomes this interesting formula
16:43
Speaker 3: where you know, they have a certain commission rates to pay,
16:46
Speaker 3: they have a certain market that they set and they're
16:49
Speaker 3: investing a ton in marketing, and in addition to that,
16:52
Speaker 3: they have packaging, food costs on and so forth. So
16:55
Speaker 3: one of the settle questions that brands deal with there
16:57
Speaker 3: is how do we actually calibrate the delivery business in
17:00
Speaker 3: a way where we are actually getting the perfect flow through.
17:03
Speaker 3: We shouldn't get addicted to the drug and give the
17:05
Speaker 3: store away, but at the same time, we shouldn't let
17:07
Speaker 3: a competitor go take that market market share.
17:10
Speaker 2: So the thing that I will.
17:12
Speaker 3: Comment on that, Mike is there are brands on loop
17:17
Speaker 3: where they actually make more money from deliaway than their
17:20
Speaker 3: instore business. And of course it's a in terms of
17:25
Speaker 3: margin in terms of EBIT time in terms of free
17:27
Speaker 3: cash flow, and that's obviously a function of their brand
17:30
Speaker 3: strength on the deliver marketplaces. You cannot really really do
17:33
Speaker 3: it across the board, but it's possible to kind of
17:36
Speaker 3: calibrate it well enough for you to have a flow
17:38
Speaker 3: through that's comparable as long as you're taking the stance
17:41
Speaker 3: that I will go meet my customers wherever they are.
17:44
Speaker 3: So net net, I think there is enough growth and
17:48
Speaker 3: the brands that are leaning in are seeing EBIT time
17:51
Speaker 3: margin profiles that are comparable or in a lot of
17:54
Speaker 3: cases actually even more than in store, as long as
17:56
Speaker 3: they're looking at that equation of marketing markups and commission
17:59
Speaker 3: rates in a measured and calibrated way.
18:02
Speaker 1: Yeah, that's interesting, and I want to expand on that.
18:04
Speaker 1: You know. So, from what I'm hearing, the widening sales
18:09
Speaker 1: gap between the market share winners and losers in the
18:12
Speaker 1: restaurant business is also applying to off premise and that's
18:15
Speaker 1: kind of what I heard in your answer, right who,
18:17
Speaker 1: so who is winning and why what are they doing differently?
18:22
Speaker 2: Yeah? So, though.
18:25
Speaker 3: Again I think I think that there is a there
18:28
Speaker 3: is a zoom out picture here, Mike, which.
18:30
Speaker 2: Is Listen, consumers are going into.
18:33
Speaker 3: Delivery as their default option to actually eat food, right,
18:38
Speaker 3: and that business is growing a lot. There's more and
18:42
Speaker 3: more consumer sohpting for that and adding that to the rotation.
18:45
Speaker 3: There are lots of them that basically ordered eight to
18:48
Speaker 3: ten times a month all these marketplaces. They have a
18:51
Speaker 3: subscription that they buy with them and they stay on there.
18:54
Speaker 3: Now that pie isn't magically showing up. We didn't have
18:59
Speaker 3: like a population out, you know, like explosion or anything
19:02
Speaker 3: like that. It's sort of coming off of that three
19:05
Speaker 3: trillion dollar three three and a half trillion dollars food
19:07
Speaker 3: spend that's happening in the country where people are shifting
19:10
Speaker 3: away from eating in the kitchen and choosing convenience and
19:13
Speaker 3: going outside and outside and eating the way that So
19:19
Speaker 3: when you kind of walk backwards from there and when
19:21
Speaker 3: you wonder where this one hundred and fifty to two
19:23
Speaker 3: hundred billion dollars so spend is coming from the way
19:26
Speaker 3: that you equate that does not by saying oh, maybe
19:29
Speaker 3: that was growth, or the way that you actually look
19:33
Speaker 3: at it is you look at how less people are
19:36
Speaker 3: actually cooking at home, right, and that makes sense the
19:39
Speaker 3: food away from home is actually growing.
19:41
Speaker 2: Now.
19:41
Speaker 3: The second part of that is what are the large
19:44
Speaker 3: sort of themes with respect to this growth, right, especially
19:47
Speaker 3: between twenty four and twenty five.
19:49
Speaker 2: Who's winning and who's losing.
19:51
Speaker 3: So the interesting thing that we've noticed is the general
19:56
Speaker 3: trend in metro areas and Todash actually spoke about this
20:00
Speaker 3: and that results too is and certainly we're seeing this
20:03
Speaker 3: new breach as well, but across catering so on and
20:05
Speaker 3: so forth, is there is a little bit of saturation
20:08
Speaker 3: with metros, especially in the later part of the year, right,
20:11
Speaker 3: so those markets have lapped very strongly. There is still
20:17
Speaker 3: ear on ear growth, but the total revenue sort of
20:23
Speaker 3: lesser than the earlier parts of the year with non metros.
20:27
Speaker 3: So we're seeing very very strong growth, right. That continues
20:32
Speaker 3: to be expansion there. Consumers are discovering this channel and
20:35
Speaker 3: starting to get used to it a lot more. And
20:37
Speaker 3: then when you look at cuisines, the pattern that we're
20:42
Speaker 3: actually seeing is generally speaking, more specialized ethnic global cuisines
20:47
Speaker 3: are actually taking off, right, And some of that actually
20:51
Speaker 3: correlates with independence being so much more stronger than the
20:57
Speaker 3: large chains, and I don't think it's a chain thing.
20:59
Speaker 3: Versus an end and anything. I think it's actually a
21:01
Speaker 3: cuisine thing. So when you're basically a consumer that's ordering online,
21:06
Speaker 3: naturally you're skewing towards eating that food regularly. You're not
21:10
Speaker 3: doing it as an indulgence, You're not doing it as
21:12
Speaker 3: a one off thing. You want that cuisine to sort
21:15
Speaker 3: of be in that rotation. You kind of have a
21:17
Speaker 3: broader palette and acceptance for those cuisines. You're looking for
21:22
Speaker 3: selection effectively, and we're seeing a lot more shift and
21:26
Speaker 3: skew towards that, right. So there are actually a couple
21:29
Speaker 3: of metros s F and LA. We actually saw the
21:31
Speaker 3: total number of stores come down. We actually saw a
21:34
Speaker 3: shrinkage in you know, the total number of chicken restaurants,
21:37
Speaker 3: have sandwich restaurants and marketplaces. But remember that they have
21:41
Speaker 3: been lapping very very strongly over the past few years,
21:44
Speaker 3: and in fact, they continue to be the pop cuisines
21:46
Speaker 3: a marketplaces. But there was definitely shrinkage right in favor
21:51
Speaker 3: of sort of these more specialized subcuisines. And which is
21:54
Speaker 3: great for all of us because we are just going
21:56
Speaker 3: to have so many more restaurants, so much more selection
21:59
Speaker 3: to actively choose from and and that's probably a broad
22:03
Speaker 3: based sort of trend, but that's where we are today.
22:08
Speaker 1: Yeah, that fits, you know well, with the gen Y
22:11
Speaker 1: and gen Z being more experimental in they're eating, right,
22:16
Speaker 1: much more interested in trying different types of cuisines.
22:20
Speaker 2: Right, Yeah, absolutely, so, I think I think.
22:23
Speaker 3: The the generational gap is another really good way to
22:27
Speaker 3: look at things and taking a step back here, Mike,
22:31
Speaker 3: you know, zukerput was right. Social networks are the default
22:35
Speaker 3: reality of the world, not in the meta WhatsApp way,
22:38
Speaker 3: but could be like snapchat, text WhatsApp, you know kind
22:43
Speaker 3: of way. Where TikTok of course, right, the second largest
22:47
Speaker 3: category of content on TikTok is food and that has
22:51
Speaker 3: always been the case, by the way, you know, one
22:53
Speaker 3: of my one of the fun facts here is back
22:58
Speaker 3: when Heinz was sort of building hind Sketcher. This is
23:02
Speaker 3: in late eighteen hundreds up until the point that they
23:05
Speaker 3: came and started advertising food, and we had ketchup wars
23:09
Speaker 3: basically and serial wars and all of that fun stuff.
23:14
Speaker 3: Cars were actually you know, the more advertised sort of thing.
23:19
Speaker 3: And and and there's there's a shift in how much
23:23
Speaker 3: hat spend and content was created towards these things. But regardless,
23:26
Speaker 3: I think we're sort of seeing that brand that's power
23:29
Speaker 3: with powerful course today. And I think some of a
23:33
Speaker 3: lot of companies actually declared in their earnings that they're
23:36
Speaker 3: sort of losing younger customers, right, And guess where they're going.
23:41
Speaker 3: They're not going back into the kitchen, right, They're going
23:44
Speaker 3: in favor of selection. They're going in in favor of
23:47
Speaker 3: like apps that are easy to use that stay on
23:50
Speaker 3: their home screen, and they're actually paying for those services.
23:54
Speaker 3: They're buying it for the subscription, and they're basically ordering
23:58
Speaker 3: with a roaster of like place is that they can
24:00
Speaker 3: pick from and and that behavior is extremely extremely strong, uh,
24:06
Speaker 3: you know with gen zs and I think gen x,
24:08
Speaker 3: g n Y, gen z and I think that's the
24:11
Speaker 3: that's the whole sort of pattern, pattern of sort of migration,
24:17
Speaker 3: right of the younger customers and brands that appeal to
24:20
Speaker 3: them are definitely been. You know, one of my favorite
24:23
Speaker 3: ones here is Dave's Hard Chicken, who absolutely crush it
24:26
Speaker 3: on TikTok and through organic content, they just have such
24:30
Speaker 3: an amazing product. You know, that's that's so that that
24:34
Speaker 3: younger folks love to talk about. And you see that,
24:39
Speaker 3: you know, in terms of their performance with respect to
24:40
Speaker 3: marketplaces too, where they're able to continuously attract, retain, and
24:44
Speaker 3: and grow there so sales across all the channels. And
24:47
Speaker 3: the best part about them is they traveled so well
24:50
Speaker 3: that they could go to sort of like a completely
24:52
Speaker 3: different state and day one they would have lines out
24:55
Speaker 3: of the block, right, so extremely long lines. How is
24:58
Speaker 3: all of that coming? That's coming from social network? And
25:01
Speaker 3: I think that's that's sort of the underlying thing. The
25:03
Speaker 3: way that people are discovering food has shifted away from
25:07
Speaker 3: yelp and revues and all of this stuff. They're just socip, right,
25:11
Speaker 3: Somebody has to talk about it. Somebody in that friends
25:13
Speaker 3: group has to talk about it. And the CAC has
25:15
Speaker 3: gone down and it has created this world of haves
25:18
Speaker 3: and have nots where if you're not speaking to that generation,
25:20
Speaker 3: your CAC is like unimaginably big. Otherwise it's like straight
25:24
Speaker 3: up free and and and lots of new brands are
25:27
Speaker 3: getting created because of that.
25:29
Speaker 1: Yeah, for sure. And it's really interesting because you know,
25:33
Speaker 1: some of the companies I cover Chapol cop but talking
25:36
Speaker 1: about you know, struggling with gen Z and they're blaming
25:40
Speaker 1: you know, unemployment rates for that generation or whatever it
25:43
Speaker 1: might be. But you know, I see survey data that
25:46
Speaker 1: keeps telling me that Gen Z wants to spend more
25:49
Speaker 1: at restaurants, want to visit more restaurants, want to spend
25:52
Speaker 1: more at restaurants, And so yeah, that's been an interesting conflict.
25:57
Speaker 1: I think that also points back to kind of we
26:00
Speaker 1: should look at these two by demographics and not just age.
26:05
Speaker 2: Cohort right, one hundred percent.
26:09
Speaker 3: What are these What are the younger audiences, like younger
26:11
Speaker 3: generations doing, going back into the kitchen, making their own food.
26:15
Speaker 2: Going into farming. Not really, you know, that's not how
26:17
Speaker 2: it works.
26:18
Speaker 3: They are they got to eat, and and the marketplaces
26:22
Speaker 3: are throwing the growth aloys talking about that growth every
26:26
Speaker 3: single audio aggregation platform, first party, third party globally, Mike,
26:31
Speaker 3: this is not just you know, relevant to the US,
26:34
Speaker 3: from China to uh sort of apac everywhere You're you're
26:38
Speaker 3: seeing this phenomena where younger audiences are voting with their
26:42
Speaker 3: sort of apps and and and definitely moving moving towards
26:47
Speaker 3: that world. And and I think that's that's basically the
26:49
Speaker 3: reality we live in. And you're absolutely right, like the
26:51
Speaker 3: demographics slicing here in terms of like what what are
26:54
Speaker 3: they looking for? Where are they going to sort of
26:57
Speaker 3: look and going to find their food? Is sort of
27:01
Speaker 3: like a is a really good slice off looking at
27:05
Speaker 3: the market?
27:05
Speaker 1: Yeah, you know. And and to continue on that, Chipotle
27:09
Speaker 1: and Sweet Green or or two chains that had well
27:12
Speaker 1: publicized troubles last year. You know, in your opinion, has
27:15
Speaker 1: delivery had anything to do with that, either in a
27:18
Speaker 1: self inflicted manner or just from competition they're saying, I.
27:23
Speaker 3: Mean, listen, both brands Cow and Chipotle leaning on delivery
27:26
Speaker 3: very strongly. They they have you know, shown in the
27:32
Speaker 3: results that that part of the revenue has been growing
27:36
Speaker 3: right where that leaning into that often misaspect you know,
27:41
Speaker 3: first party, our third party. Uh, you know that that
27:44
Speaker 3: that business is growing very strongly. The place where the
27:47
Speaker 3: younger audiences are choosing those apps have nothing to do
27:51
Speaker 3: with the brand appeal. Both of them are you know,
27:54
Speaker 3: great products. Both of them are great brands. It's just
27:57
Speaker 3: that the demographic has shifted. Regardless of whether you're you know,
28:02
Speaker 3: you're a great brand or not, the default behavior has
28:05
Speaker 3: shifted into sort of like ordering from uh, these marketplaces
28:08
Speaker 3: when they're when their experience, you know, through investment in
28:12
Speaker 3: terms of billions of dollars and hundreds of engineers has
28:15
Speaker 3: been optimized to sort of attract, retain, and get those
28:20
Speaker 3: younger audiences to sort of spend most of their time,
28:23
Speaker 3: you know, and and and these folks have hundreds of apps,
28:27
Speaker 3: you know, and if you don't, if you're not in
28:30
Speaker 3: that top ten, top twenty, you know, you're out of sight,
28:32
Speaker 3: you're out of mind. So it's at the end of
28:34
Speaker 3: the day, like I think, the my read here is,
28:39
Speaker 3: I don't think they're losing younger generations as much as
28:43
Speaker 3: the younger generations have shifted into a different sort of mode.
28:47
Speaker 3: And those brands actually gained a lot from the same
28:50
Speaker 3: younger generation actually going in installing their apps, but before
28:54
Speaker 3: marketplaces took over, and you're just sort of sheep seeing
28:56
Speaker 3: that sort of shift over. But at the same time,
29:00
Speaker 3: I think for both the brands, that could be you know,
29:03
Speaker 3: hundreds of other factors where the brand could be going
29:08
Speaker 3: up or down, but it's amplified right in the Contex stuff,
29:12
Speaker 3: start of delivery or digital lodding, just because the feedback
29:15
Speaker 3: loops are so much more quicker, right, So whatever trend
29:18
Speaker 3: upward or downward, you see it's just going to be amplified.
29:21
Speaker 3: And that's that segment because you know, users switch between
29:26
Speaker 3: apps are brands so quickly, and it's instant versus like
29:29
Speaker 3: food traffic and other behavior patterns that have longer sort
29:33
Speaker 3: of change cycles.
29:34
Speaker 1: Yeah, the dichotomy is so interesting. You know, where you
29:37
Speaker 1: have like lower and middle income consumers that you know
29:40
Speaker 1: are spending only where they know where they're going to
29:44
Speaker 1: get a great experience. They're going to get a lot
29:46
Speaker 1: of food for their money, they're going to have a
29:48
Speaker 1: good experience. And then you have you know, younger, wealthier
29:52
Speaker 1: customers that are you know, contributing to this online growth.
29:57
Speaker 1: And I guess it all points back to the K
30:01
Speaker 1: shape recovery that we're seeing right in inflation, that's that
30:04
Speaker 1: impacts the low and the middle income a lot more
30:07
Speaker 1: than everybody else.
30:09
Speaker 3: Yeah, I think I think the K shaped recovery. I
30:12
Speaker 3: think that's that's definitely there. And there is like tons
30:15
Speaker 3: of tons of brands that are actually growing at double
30:19
Speaker 3: digit rates. Might not be public maybe except Chile's, I guess,
30:25
Speaker 3: but that there's there's tons of brands we see that
30:27
Speaker 3: are absolutely crushing it, that're growing really strong. Uh, you know,
30:31
Speaker 3: working off of this specific demographic versus the larger brands.
30:35
Speaker 3: And we've seen so many deep reds and Q three
30:38
Speaker 3: results where brands are just losing large shares of market
30:43
Speaker 3: like you know, negative fives, negative tans and negative fifteens.
30:46
Speaker 3: And and I think, and and then you look at
30:49
Speaker 3: sort of how the marketplaces and dish larding platforms are doing,
30:52
Speaker 3: and those guys are talking about twenty twenty five percent results.
30:55
Speaker 2: The math has to add up, you know, And and.
30:58
Speaker 3: I think I think there's something that you can sort
31:00
Speaker 3: of info just based on those three numbers as to
31:04
Speaker 3: what the newer, younger demographic is sort of going towards
31:07
Speaker 3: and even the older ones, like how you know urban
31:11
Speaker 3: and suburban are actually changing their behavior patterns.
31:15
Speaker 1: Yeah, I mean, it's keeping me on my toes. Man.
31:17
Speaker 1: We've never seen shifts in market share, you know, this extreme.
31:20
Speaker 1: This happened this fast. So what's your prediction for marketplace
31:24
Speaker 1: ad spending in twenty six Listen.
31:26
Speaker 3: I think there's been a lot of doom and gloom
31:28
Speaker 3: around marketplace saturation and marketing dollars not going away, market
31:33
Speaker 3: dollars sort of like not being allocated to marketplaces. So
31:37
Speaker 3: far as we can see across you know, ten thousand
31:41
Speaker 3: restaurants that we power. Marketplace marketing spend has gone up
31:46
Speaker 3: from four percent at the beginning of twenty twenty four
31:49
Speaker 3: to eight percent. Now it literally doubled, and especially in
31:56
Speaker 3: the last part of the year, it didn't go down,
31:58
Speaker 3: it went up. So then you ask, hey, is this
32:02
Speaker 3: pattern to across there are other marketing channels, and that's
32:06
Speaker 3: absolutely not the case.
32:07
Speaker 2: In fact, and a lot of cases that has actually shrunk.
32:09
Speaker 3: The marketing expenses, the loyalty sort of spend in other
32:12
Speaker 3: parts of the business have actually gone down. The reason
32:18
Speaker 3: brands are doing that, I think is they're actually seeing
32:21
Speaker 3: the return on investment right when they actually spend on
32:25
Speaker 3: these marketplaces, and they're looking at it as an acquisition strategy.
32:29
Speaker 3: They're also looking at it as a retention lever for
32:33
Speaker 3: existing customers.
32:35
Speaker 2: They're doing a lot more experiments.
32:36
Speaker 3: So my prediction is even if it doesn't go up,
32:40
Speaker 3: I think there's a lot of brands that have a
32:44
Speaker 3: different approach to marketplace spending where they're like, hey, this
32:47
Speaker 3: is not my channel, these are not my customers. I'm
32:50
Speaker 3: not going to spend dollars. And I think it's likely
32:52
Speaker 3: that everybody's sort of going to increase those spends reluctantly
32:56
Speaker 3: so and cautiously deservedly so where they should look at
33:01
Speaker 3: that flow through, they should look at that margins. But
33:03
Speaker 3: it's just been the channel where the retinal investment has
33:07
Speaker 3: been the most deterministic, most probailistic, and it's most certain
33:12
Speaker 3: least probablistic. And that's that's sort of where I think
33:15
Speaker 3: brands will go. I don't see anything that's changing dramatically
33:19
Speaker 3: that will reverse it. In fact, there's like big events
33:22
Speaker 3: like FIFA and you know all of these things are
33:24
Speaker 3: going to happen next year. Where I think all of
33:26
Speaker 3: these are acquisition channels and these brands are just going
33:29
Speaker 3: to double down on it. Marketplace are going to double
33:31
Speaker 3: down on it. So my prediction is constant or up.
33:34
Speaker 3: I don't think it's going down. Okay, good stuff.
33:38
Speaker 1: And if a restaurant operator is only going to look
33:41
Speaker 1: at one day at a point tomorrow morning to improve
33:43
Speaker 1: their delivery profitability, which should it be.
33:46
Speaker 2: It should be it should be the actual flow through.
33:49
Speaker 2: I think.
33:51
Speaker 3: You should expect more from digital and delibrity revenue.
33:55
Speaker 2: It's fully measured.
33:57
Speaker 3: You can actually look at every single order in terms
34:01
Speaker 3: of profitability. Try to get through and do the analysis
34:05
Speaker 3: on the flow through number, pick a few orders and
34:08
Speaker 3: try to see how much LLS is actually getting you.
34:11
Speaker 3: And I think, I think that would that would actually
34:14
Speaker 3: be a super fun exercise.
34:16
Speaker 2: And educate and inform them about the rest of the
34:18
Speaker 2: strategy too.
34:19
Speaker 1: All right, good stuff, Thanks for doing this, and thanks Mike,
34:23
Speaker 1: and I want to thank the audience for tuning in.
34:25
Speaker 1: If you'd like to learn more about loop, go to
34:27
Speaker 1: loopai dot com. If you liked our discussion, please share
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Speaker 1: interview on chopping it Up.