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Episode 4 of the Food on Demand Podcast: The Fast Growth of Food Delivery + Noah Glass of Olo

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Episode 4 of the Food on Demand Podcast: The Fast Growth of Food Delivery + Noah Glass of Olo
By Dot It November 18, 2019 No comments

In the fourth episode of the Food On Demand Podcast, hosts Tom and Nick discuss Deliveroo's European ghost kitchen and virtual restaurant operations, Google's latest moves in delivery, the opening of the first DoorDash Kitchens in California and Grubhub's difficult third quarter that's led many to question the delivery space's long-term prospects. The featured guest is Noah Glass, CEO and founder of Olo, which is the largest restaurant delivery software player in the industry.


[00:00:00.060] - Announcer

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[00:00:08.400] - Announcer

Request a free sample at dotit.com/fod. That's D-O-T-I-T dot com forward slash f o d. Welcome to Episode 4 of the Food On Demand, a podcast show about the future of meal delivery and restaurants, and what this fast growing industry means for restaurant operators, delivery providers, foodies and city geeks like Nick and I. My name is Tom Kaiser. I'm your host and the editor of Food On Demand.

[00:00:42.740] - Nick Upton

And I'm Nick Upton. I'm restaurants editor for Food On Demand and Franchise Times.

[00:00:47.120] - Tom Kaiser

And as we always say Food On Demand is a media brand covering everything at the intersection of food, technology and mobility. Check us out at foodondemand.NEWS.COM where you can sign-up for our newsletter, listen to past episodes of the pod, and learn more about our upcoming Food On Demand conference that's happening next March 30th through April 1st (2020) in Las Vegas. We're broadcasting today from our home city of Minneapolis, and Nick and I are excited to share what we're covering this week at Food On Demand.

[00:01:15.080] - Nick Upton

Today we've got a lot of good news, obviously we're talking about the GrubHub news. That was some interesting earnings report they had just recently. And we're also talking with Noah Glass. He's the CEO of OLO the largest of those order aggregators, and a great cheerleader for the industry overall. He's been on our shortlist for the podcast since day one, so it's nice to have him on.

[00:01:35.540] - Tom Kaiser

And before we get to that, it's time for "What's on Our Plate." This is a quick look at the top stories we're currently following in the FOD newsroom, and what we think matters most amid a very consistently, busy news cycle in the delivery world.

[00:01:49.280] - Nick Upton

Yeah, we just can't slow down, can we guys? Just take a week off, right? But this week I'm thankfully not talking about regulations. I've been boring myself lately. So this is less of a news item and more some learnings from across the pond from Deliveroo. Tom, as you know, I'm fascinated by this opportunity for ghost kitchens, virtual restaurants, and all these new non-traditional, low overhead spaces. I wanted to see how our European peers are doing this stuff. They're a little further along with both third party delivery and these non-traditional kitchen facilities, even though they've started basically at the same time. Deliveroo has 31 of these ghost kitchen facilities, 200 kitchens they're in, as well as a huge network of these virtual restaurants working out of their partner kitchens as well.

[00:02:37.460] - Nick Upton

One thing that jumped out to me as I was learning about this a little more, is that Deliveroo doesn't actually charge a flat fee for rent; it's all commission based. I think that's really incredible and it means that the if the operator isn't getting orders, Deliveroo isn't getting paid. So there's this incentive to help drive traffic to these locations, and ensure that not only at trial, but repeat orders. I love, love, love this model. Of course, there's still some risk. If nobody wants said food, the operators are still paying their chefs, but with no overhead they can really lean into it and look for growth in this avenue.

[00:03:13.490] - Nick Upton

I know GrubHub is already doing this, but Deliveroo is pretty intentional about reaching out to partners when they see a gap in the market offerings, and asking if they'd like to do a virtual restaurant or something like that. For example, if a restaurant is doing really well with a delivery, but the area needs some Indian food, maybe they do something and work together and rely on that Chinese kitchen's rice cooker and facilities and put out some some great Indian food as well. So why does this matter.

[00:03:43.770] - Nick Upton

I think it's the future of how the delivery world is going to work. Big delivery networks and operators will be working closely together, sharing the risk and the upside. That's starting to happen here in the U.S., but you still have a lot of sometimes valid antagonism on either side. But as the industry figures out some of the big questions like, cost and margin, data ownership and what kind of services makes sense, you could see some incredible co-operative movement where operators benefit from the scale of these big guys. The expertise of their culinary is benefiting these third party networks too.

[00:04:22.100] - Tom Kaiser

Well Nick, you know I'm always interested in the real estate side of the business and this seems like a pretty wise strategy to boost order volume for the provider who's providing this facility, and actually work in partnership with the restaurants. Of course that's always been the mantra from our own delivery providers here in the U.S., but you talk to enough restaurant operators and you know that they definitely, at least as a whole, don't feel that it's a partnership. In some cases they feel taken advantage of.

[00:04:51.840] - Tom Kaiser

And of course that is not universal, and some providers have a better reputation than others, but I also I have to say that I think that this could be worrisome, in some way, to restaurant operators who view this sort of arrangement as competition coming from inside the house. It's almost Halloween time as we're recording and I think of the movie Scream, as you do.

[00:05:16.830] - Nick Upton

Obviously, it's a very spooky time, and I think you could look at it as something spooky, or a as threat, but it's going to happen. I prefer to look at it as an opportunity. Those people who are thinking this might be added competition can do that too. If they're not doing well with delivery they can partner up with one of these guys and expand. If they're looking to grow, and maybe they want to do it with low overhead and a ghost facility. I think it's going to be a great thing.

[00:05:45.270] - Nick Upton

It could be a great thing if you're thoughtful about it and, honestly, if competition is not your bag, the restaurant industry might not be the best place for you.

[00:05:55.350] - Tom Kaiser

I see what you're saying but I'm going to continue wearing my skeptical, old man fatso [hat?].

[00:06:01.260] - Tom Kaiser

My top story this week is GrubHub and theie rather brutal third quarter earnings report that led to an immediate 40 percent drop, at the least, in their stock price.

[00:06:13.590] - Tom Kaiser

Some really epic analyst downgrades and cheers from investors who were short selling GrubHub, and some of these other providers, or things that are roped into the"millennial ecosystem," have led to a ton of comparisons in the press about whether restaurant delivery is the next [we] work or something that's destined to collapse in on itself. I wouldn't go that far, but it is a notable black eye for the old guard delivery brand that was long the leader, by a mile, in the [delivery arena].

[00:06:47.040] - Tom Kaiser

What actually happened was that GrubHub reported its third quarter revenue of 322 million dollars, missing estimates of 335.5 million dollars. Obviously that isn't the "sky is falling" but orders also decreased 15% over the same period last year.

[00:07:05.130] - Tom Kaiser

This follows less than ideal results the previous quarter. They made some fairly rosy projections back then, that their their numbers were going to improve throughout 2019, and these numbers refute that. The company's revised fourth quarter guidance, looking ahead now, received a ton of mentions in the press this week. The company is now expecting revenue to come in somewhere between 315 - 335 million dollars during the fourth quarter. That's quite a way below the forecast, the previous forecast of 388 million. There's no positive spin here

[00:07:41.370] - Tom Kaiser

in my eyes. CEO Matt Maloney and President Adam DeWitt said growth has slowed across the industry. Customers seem to now be behaving in a less loyal way in regard to the delivery apps and order frequency is softening overall. Before these results, CEO Maloney put out a 10 page letter on October 28th, the night before, in an effort to "allow for a better dialogue on the call itself" "Oof" is what I say to that, or what we say up here in Minnesota. Poring through all of it, the brightest news to me is a slight increase in active diners; it is still growing. We are talking about a slower growth rate, not the desired, best ever (Nick Upton) growth rate. Thank you. Thank you. That's why there's two of us in here. There are 15,000 additional partnered restaurants on the platform.

[00:08:39.420] - Tom Kaiser

I think it's pretty obvious why this matters; I don't think it's ridiculous to say that this marks a new phase for the industry, particularly the way mass market publications are covering this - folks that aren't just exclusively in the restaurant space like we are. It's possible this results in some sort of increased consolidation or some kind of an unexpected move in the future. I think that there are possible implications for Doordash and Postmates, both of which are rumored to be going public at some point in the future.

[00:09:11.330] - Tom Kaiser

And also just the general narrative that this hot new growth industry, as it's been for the last few years, whether that's still the case. Unfortunately the delivery industry remains tethered to a restaurant industry that is fighting tooth and nail for every little bit of volume. So that's my take. Hopefully a little more nuanced, but it's been fun to read the [ ] Nick, what do you make of all this?

[00:09:38.750] - Nick Upton

I guess "Ai yai yai" is my biggest take, or sticking to the Minnesota theme, "Oh geez". I think these guys need some more practice being a public company. Losses and unexpected issues? It's part of running a business, especially a fast growth business in a very volatile industry like this one. But this makes them look like they don't really have a clear vision, especially to get to that making "lots of money" next year. I think that's distressing. And that's why there's been such a drop and not much of a rebound on their stock price. They're also explicitly expanding the practice of putting non-partner restaurants on the platform.

[00:10:21.350] - Nick Upton

Wow. I think that is an incredibly dangerous idea. They have gotten so much flak for this in the past, and I've spoken to a handful of operators who said flat out that they won't work with GrubHub because of this kind of tactic. I hope they do make lots of money. Competition makes this industry better, but they're using the same tactics and promising a different outcome. Isn't that the definition of insanity?

[00:10:41.760] - Tom Kaiser

Yes it sure is. I've heard the same thing from restaurant operators. You put a restaurant on one of these delivery platforms, against their wishes, and we would need a whole other episode to go into why that's distressing. If I was a restaurant operator, and that was happening with my food, I would be livid. It doesn't take into account branding, or how well the food travels, or what kind of packaging it's going out in, and that's really troubling.

[00:11:10.040] - Tom Kaiser

The fact that we're about to roll over into 2020 here and that's still happening? I can't believe it. We really should have livestreamed our "as it happened reaction," especially to reading that shareholder letter that went out before the results. It goes back to what you just said that these guys need more practice being a public company. There were some things in there that were rather breathtaking to read. Nick do you think that this is going to lead to increased spend by the delivery brands on customer attraction, retention, discount promotions? At one point Postmates sent me an e-mail, just to my personal account, offering one hundred dollar delivery credit. That's a milestone.

[00:11:54.350] - Tom Kaiser

I think of the whole Amazon growth model that's been talked about to death; how you can still grow and attract additional financing when you're not turning a profit, even for years. Do you think that extends to this industry?. Or do you think the investor cash is going to going to keep flowing?

[00:12:13.820] - Nick Upton

Well, I think it extends to two of these companies, who are actually getting hammered on the market right now, but if Softbank at all continues writing checks for Jordache they can continue burning cash forever. But to the point on customer acquisition, GrubHub is going to have to change some tactics to get customers ordering more, and ordering more frequently. But discounts are tricky. If they're not smart about it they'll just train consumers to wait for a promo, wait for that 100 dollars, or whatever it might be, thus making unprofitable orders less profitable.

[00:12:46.640] - Nick Upton

That's the opposite of what they need right now. Oh geez, like I said before, adding non-partner restaurants is a bad idea. That's not going to help get order frequency back. That can only erode customer experience, as they themselves said in their earnings call. I don't what else to say about that; it's very surprising all across the board.

[00:13:12.020] - Tom Kaiser

Nick, let's turn the page. What else you got?

[00:13:14.140] - Nick Upton

Turning the page. OK. This is something we'll touch on a little later with Noah, but one big news item from the past few weeks was OLO and Google's partnership around Google's big "order now" button. Basically OLO is gonna be doing the tech work on behalf of the restaurants to connect the brands to these big red "order now," "order delivery," or whatever it's going to say on Google. So Google unveiled this button earlier this year and it seems like a really smart way to get at the very top of that funnel and I'm sure Noel will have some interesting stuff to say about that.

[00:13:50.990] - Nick Upton

Why I think this is a big deal is that it's not just for OLO customers but for the whole aggregator industry out there. It's a hint at how these companies are going to continue evolving and roll out more and more services for their restaurant clients. Basically, when Google rolled this out, it was like saying, "hey here's this API, go nuts". But even the 100 plus enterprise brands that OLO works with, mostly don't have the desire or capacity to do that, especially with Google. These guys, they roll out some big ideas only to kill them in a few months or roll them back.

[00:14:25.820] - Nick Upton

The perpetual data mindset that is really exciting for tech nerds like me, is really aggravating, I think, for some businesses out there. To have OLO doing the work is a slick little benefit for those clients, and helps them compete with the sort of chain that in major companies all the way down to an individual location.

[00:14:48.050] - Tom Kaiser

It's pretty obvious at this point that Google has major interest in the restaurant and restaurant delivery space. Just wait till we come out with our own button now. It's going to be big. I don't know what it's going to do, but it's going to be huge. It's going to be very big. I certainly understand why this is such a big topic in the industry. Nick, do you think that this new deal would muscle out any specific delivery providers? Or is it going to muscle out some of the other soft delivery software providers out there - there's a lot of them now? From my perspective it's hard to keep track of the subset of the delivery world as there are so many brands like OLO but smaller. Yeah. But I think you have a firm grasp on what's going on here.

[00:15:27.860] - Nick Upton

Well, I don't think it's going to muscle anybody out; it'll just prompt them to do their own work on the Google button because right now it's Google and OLO as a partnership, but I think Google really wants to get into this space, and they're going to make efforts to get down as close as they can to all the restaurant brands out there. This could take a while, but I think it's an interesting thing to see these massive, massive entities come into this space.

[00:15:56.420] - Tom Kaiser

From one massive entity to another, my next story for this week is DoorDash is now officially in the ghost kitchen business. For those of us who pay attention to this at all, perhaps to an obsessive degree, this is some delayed news, as Doordash first announced plans to open its own self-branded, delivery only ghost kitchens, two years ago back in 2017. A couple of years later the first example is finally opened in Redwood City, California. That's adjacent to Palo Alto and in the Bay Area. The facility's first restaurants include the Halal Guys, Rooster & Rice, Nation's Giant Hamburgers, Humphrey Slocombe

[00:16:36.320] - Tom Kaiser

, and some brands that are only based out there as well as some nationals. Compared to a traditional restaurant DoorDash covers the infrastructure buildout, permitting, tailoring each space to the individual merchants, and on the business front DoorDash helps its kitchen merchants refine their menus to match local takeout preferences, which is a really important part of this. That might sound like a detail, but that's what's pretty key. They co-developed marketing materials to get the word out there, to area restaurants, basically saying, "Hey, here are these brands, that based on your own data, we know you want and now it's available in your town or in your neighborhood. I think that's a pretty big deal.

[00:17:13.310] - Tom Kaiser

The why it matters, again, is pretty obvious. These big delivery providers are partnering with restaurant groups to open more virtual restaurants and firmly get into the ghost kitchen game. I think it's a wise move. Many are going through these partnerships with existing restaurants, and I think this underscores the importance of that company data. Earlier in food on demand's life, we were spending a lot more time talking about the fees, but a lot of savvy folks were saying the customer data is as important, or even more important, compared to what we're paying as a fee per order.

[00:17:54.200] - Tom Kaiser

So this is fueling a huge new category for these delivery brands, where they can use their order history or see what people who are searching for things that they do not ultimately find, to say this is exactly what type of food would just kill it in certain neighborhoods. This is something that I think restaurants can't ignore, especially multi-concept local or regional operators who would have the infrastructure to try something new like this. For a single mom and pop style restaurant, this is probably a little too much unless they're really feeling sassy, but the delivery providers are marching closer and closer to competing directly with the restaurants.

[00:18:30.260] - Tom Kaiser

The mantra always is "delivery providers, we are partners with the restaurants." If I were a restaurant operator I'd be a little concerned. Nick, am I exaggerating the risk here?

[00:18:41.430] - Nick Upton

Possibly. As is probably apparent with my love of the delivery model, I love this idea. It puts DoorDash and the operators in the same boat rowing in the same direction. That's hugely valuable. I think it can extend down to the mom and pops out there. If you have low delivery volume either because you've got a very complicated dish or you don't want to do delivery you can find growth with doing something like this in your market. If you're a very fine dining steakhouse maybe you sell burgers at the back.

[00:19:14.970] - Nick Upton

I think it's a potential for huge growth. As for that competition, let's say I have Nick's Chicken Shack, and it's doing really well with delivery. They're not going to open a ghost chicken shack right down the street because there's no business case. This area is already fulfilled by my cuisine and they can see that in the data. If nobody wants to come into my restaurant and I don't do the delivery well and maybe Nick's Chicken Shack kind of sucks, if we're in some competition, the consumer would demand some better options.

[00:19:48.070] - Tom Kaiser

I am a complicated dish. I'm not sure that's true referring to earlier, but I know Nick's Chicken Shack would not suck. That's all the time we have for for this installment.

[00:20:03.090] - Nick Upton

That's what's on our plate. Thanks for tuning in. Please stay tuned for our chat with Noah Glass after this word from our sponsor.

[00:20:12.990] - Announcer

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[00:21:00.920] - Tom Kaiser

Now let's welcome our guests this week. One of the biggest names in the U.S. restaurant delivery scene, a man with his own Wikipedia page, an early supporter of food on demand and the CEO and founder of OLO, the biggest delivery software integrator in the country with more than 250 restaurant brands on the platform. Noah, welcome to the pod. It's truly an honor to have you here.

[00:21:22.610] - Noah Glass

Tom and Nick, thank you so much for having me.

[00:21:24.860] - Noah Glass

I need to say it is important that I have my own Wikipedia page because I need to make clear that I am not but Noah Glass who is the co-founder of Twitter. That is a common mistake that even Google makes when you search my name. It says that I am a co-founder of Twitter. So we've had to work very hard to make sure that people know that's not the case. He's Noah E. Glass and I'm Noah H. Glass.

[00:21:45.890] - Nick Upton

That's good to know because I recall being confused by that early on, as well, when I was first doing some research on the company. So, definitely need that wikipedia page.

[00:21:54.830] - Tom Kaiser

Well Noah, as I mention at the beginning of every episode, we're a little bit of city geeks, maybe myself more than Nick. So I've got to ask how's the view from the 82nd floor of One World Trade Center. And also can I come and visit?

[00:22:08.750] - Noah Glass

It's been pretty cool, we moved in here about three months ago. Yesterday the view was actually pretty bad because I think we might have been in a cloud.

[00:22:17.420]

It was just white all around us and we're at an elevation where we really might have been in the cloud. But normally it is a beautiful view of Manhattan from the north side, and outside is New York Harbor and the Statue of Liberty. Tom, you are welcome to come and visit. We have plenty of space and you're welcome to hot desk here whenever you'd like.

[00:22:38.240] - Tom Kaiser

You just opened Pandora's box, my good man.

[00:22:40.920] - Nick Upton

Yeah, careful there, be there in a couple days.

[00:22:44.660] - Tom Kaiser

That's an awfully nice milestone for you guys. When I first heard that news I thought that was a pretty cool milestone for the industry as well.

[00:22:55.010] - Noah Glass

Yes certainly, it's a really iconic building and it's a building that I think represents resilience and strength and independence; it's all of these things that we aspire to be at OLO. It's befitting that we're now occupying a full floor in One World Trade Center, here with this bunch of great companies and we're proud to be a part of the New York City tech scene.

[00:23:17.930] - Nick Upton

It's a burgeoning scene and it's really cool to know someone who's a part of it, at literally a high level. You've spoken a lot about the delivery industry at large, how it's grown like crazy since you came in the industry and since all these delivery networks came in. I know the big stat is 200 billion by 2025. How do you think we're doing on that trajectory from your perspective?

[00:23:40.710] - Noah Glass

I just look at the growth that I can see within our business, and I can see that last year in 2018 we did a 100 million transactions. The year before that 50 million, the year before that 25 million, and in the first six months of this year, 2019, we did another 100 million transactions. So we see this exponential growth curve happening inside of our business, which is pretty fun if you look back. I've been doing this - this is the 15th year that we've been in business, and I look back over that entire history and it basically followed that trajectory. What this means is that at any given time you can look forward, at the year ahead, and know that everything that you've done in the past, you're going to do again and double the number of transactions cumulatively over the next year. It's been fun to see that that growth is really driven, in part, by more restaurants coming onto the platform, more brands signing up with OLO and therefore more restaurants deploying with OLO, but the bigger driver of it is what we call digital same store sales.

[00:24:44.960] - Noah Glass

That's looking at restaurant brands from year to year who have been on the platform and are now still on the platform a year later. We're seeing that digital same store sales are increasing 50 percent year over year. To us that's really a good representation of this shift that is led by consumers saying, "I'm now choosing to engage with restaurants through this on demand channel, through the digital channel, whether it's for pickup or for delivery." Delivery has been a really exciting rocket boost to the growth over the last couple of years. But we still see the vast majority of our transactions are transactions for pickup, where the customer is ordering ahead, paying ahead, and then going to the restaurant whether it's counter pick up or curbside pickup to get it themselves. Delivery has been growing very quickly.

[00:25:35.630] - Noah Glass

But if you look industry wide, I think the last stats that I saw in this, it was at 63% of all restaurant industry transactions are consumed off premise, and the makeup of that 63% is 39% happening through take out, 21% happening through drive through, and just 3% happening through delivery. If you think about that ratio of 39% to 3% of take out delivery, take out is still 13 times the size of delivery. We don't see that extreme a breakdown of 13 to 1, but we definitely still see a majority of transactions in pickup. Even there, when you just imagine how consumers are using restaurants these days, where it's sort of the surrogate home kitchen, it's an alternative to having to cook at home and go and buy groceries to cook at home, it makes sense that the ability to order ahead, pay ahead, and have it ready when you get there, or even more convenient to get it delivered to you, is just a more convenient way of eating food from a restaurant - at home, at work, in the car, wherever it is, if that's the way that you're using the restaurant.

[00:26:47.480] - Tom Kaiser

I think that makes a lot of sense, especially with how much the big delivery brands themselves are throwing at promotional dollars and also doing that in partnership with restaurants that are on their platforms. I think we're bringing in a lot of those later adopters, so when I hear some of those big numbers thrown out for future projections, I think they all sound pretty reasonable, for the most part. But turning on to the other side of the coin, we're recording the day after the big GrubHub news, and it's not like the hen house or something truly apocalyptic - they miss projections and it was a pretty notable day in the delivery news ecosystem. I can think of nobody better to ask about all of this than you. Do you have any concerns that delivery could be a bubble that's about to pop? Will the major players survive growth in this category, or maybe it morphs into single digits rather than the double digit growth that we've been seeing year over year for for quite a while now? What's your take on that. You don't want to be hysterical when you're covering something like this, but I also think that perception matters and it's really interesting to see how our industry is being covered, this week in particular.

[00:28:08.320] - Noah Glass

Sure. It was definitely a big day yesterday. What I took from the GrubHub letter, which came out two days ago in the evening preceding the call yesterday, was really the recognition, maybe for the first time from the management of GrubHub, that it is a very competitive environment and that it's competitive, as I see it, sort of in a three front battle. You have the clear competition for consumers and that's really what they spoke about.

[00:28:40.240] - Noah Glass

We also have, of course, seen a big competition amongst the marketplaces for the restaurant inventory, the restaurant brands they're partnered with, and it's also very competitive on the drivers side. The actual drivers who are independent contractors, by and large, and represent the ability to supply delivery, that's the competitive battle that all of these marketplaces and delivery service providers are fighting. And yet, it's covered a lot less than the consumer and restaurant battles. I do think, and I've seen this from our data, when we have a look at our model of dispatch, which is the network that we created and announced in 2016, to make it possible for restaurant brands to offer delivery through their own apps, and websites using third party delivery service providers, some marketplaces, some restaurant delivery services in that overall network, it is a model where the consumer is paying the true cost of delivery. We've seen that there are a significant number of consumers who are putting a premium on the convenience that delivery affords them, and willing to tolerate higher prices in the form of having to pay more of a service fee for that convenience of delivery. We're in an environment that is, to your point, supercharged by venture capital dollars, private companies who are able to spend to grow their market share and putting a lot of promotional dollars toward delivery and customer acquisition and fueling a lot of that supercharged growth. There is a larger shift, which is not a fad, but it's here to stay, in an industry that was really built on convenience - where it is the convenience of not having to cook for yourself, the convenience of having somebody else cook for you, and to also include the even more convenient mode of food consumption which is food on demand, the very name of the podcast. The ability for you to order and have somebody else cook for you, and then have somebody else go and pick it up for you and bring it to you where you are - our data is very clear that consumers are willing to pay for it.

[00:30:57.940] - Nick Upton

Yes, I tend to agree. There's plenty of people that are proving that this is something people are willing to pay for. Whether there is a shakeout among the brands, or some issues there that may change things, but that convenient model isn't going to change. We touched on the Google partnership a little earlier in the show, and how it might change the industry here, but from your perspective, how are these big partnerships changing how the delivery industry works and how your company works? What kind of gaps still remain along this chain of the customer funnel?

[00:31:34.940] - Noah Glass

Yeah. So, to take a minute on the Google announcement, I think this was a really special announcement and it was different from some of the other announcements that we've had around adding DoorDash or adding PostMates or adding Uber EATs or adding Caviar to the older rails platform.

[00:31:54.550] - Noah Glass

All of those names I just mentioned are great companies as marketplaces that are alternative channels through which customers might order for delivery.

[00:32:05.740] - Noah Glass

Google, in my view, is something altogether different. What Google represents is really where customers start their search for restaurants when they know where they want to order from. When you look at what's happening today, pre Google food ordering which is part of the announcement, what you'd find we did a survey of the top 300 brands. When you typed in the restaurant brand's name and the word "delivery" as a search, you would find the restaurant's search results fifth in the search results. The four results above them where all the different marketplaces that were either out ranking them in search engine optimization, or more often, buying the keyword for the brand's name through search engine marketing.

[00:32:52.450] - Noah Glass

The net result of that is when a consumer is looking for a brand specifically, and instead they're doing what's natural, which is to click on one of the first results in order instead through a marketplace, is the restaurant brand is paying 20 to 30% in a sales commission for a customer that really was already looking for them.

[00:33:12.080]

So there's a lot of debate and it's raged for years and years. Every food on demand conference that I've been to, or listened to, every single panelist or speaker has talked about the great incrementality question, and I'd like to think that it is an easy debate to have. People can dispute is it 80% incremental, is it 40 percent incremental. Given people's different opinions, what is clearly not incremental is a customer seeking out a brand and getting diverted off to a marketplace because the brand happens to be bad at Google and is getting ranked fifth and not first.

[00:33:49.090] - Noah Glass

Why I think Google food ordering is so compelling is that it kind of flips that on its head. It gives the customer the ability to place an order right from that search, so that when a customer is searching on Google they're finding a button that says "order online" or "order pick up" or "order delivery" and they're able to click through directly into that ordering experience within Google; not off to a marketplace, not even off to a restaurant brand site, build their order, place their order, pay with their card on file using Google pay, use their address if they have a delivery address connected to their Google account, and complete that transaction in a way where the restaurant brand is getting that order directly into their point of sale system, the restaurant brand is getting all the customer data, the restaurant brand is getting that credit card transaction processed on the restaurant's own merchant account all of those things are very different than the typical order that comes through a marketplace and the restaurant brand is not paying a 20 to 30% commission. In my view, that is a great advantage to restaurants, and it really shifts the power balance back from the marketplaces to the restaurants, on these orders that are from customers searching for the restaurant using their browser bar or Google; it really is best for Google to find the best available link.

[00:35:14.950] - Noah Glass

I'm really excited about that. We've seen some great results from early partners like Checkers and Rally's and Portillo. Those who were the first to jump on and say, "hey, we want to do this and be sort of the space monkey for Google food ordering. The response that we've had from this announcement over the past month has really blown us away. It speaks to the level of excitement, and also frustration and fear that brands have about all of these digital channels, and making sure that they're channeling their customers into the direct digital channels and away from the high commission, low profit, indirect digital channels.

[00:35:55.420] - Noah Glass

If there is an opportunity to steer the customer in that direction, that's what a brand is always preferring.

[00:36:01.700] - Tom Kaiser

That's interesting. Noah, I want to shift gears just a little bit and reconnect with some of the news that's been written about our industry in the last week or so. But moving specifically to your company, to OLO, what happens when all of the big enterprise or franchise restaurants are already signed up with an integrator, whether that's solo or one of your competitors? I'm wondering about this for the delivery brands themselves, as well. Is there a next phase in mind where a company like you or yours wouldn't need to sign up so many new restaurants every month? I'm wondering is OLO a growth eating machine like some of the delivery brands that are especially fueled by investment dollars? Can the industry survive single digit growth - the industry as a whole and your company in specific?

[00:36:55.630] - Noah Glass

I would just make the point that we're very different from the restaurant delivery marketplaces and that's important to understand. I don't think of us as an integrator or as an aggregator. I think about us as the software platform that restaurant brands are using to engage all of their on demand channels. And I think that's an important distinction because we are B2B in nature. Our business model is a mix of subscription fee, monthly fee per restaurant, and a transaction fee for transactions that come across the platform.

[00:37:33.110]

It's not a commission based sales model in the way that BDC marketplaces are. Similarly, we're not spending on consumer acquisition; consumers are not our customer, they're our customer's customer. We define ourselves as B2B to C.

[00:37:49.370] - Noah Glass

So we're serving the business, the restaurants, and the restaurant is then using our platform to serve their end consumers. Also, we're not spending to acquire drivers. When we offer the delivery platform dispatch, that is made up of a network of third party delivery service providers, that through a single API we've turned into a nationwide network for same hour delivery through these third party delivery service providers. We have radically different costs in our business than the B2C marketplaces. We also are, I think, enjoying a radically different growth trajectory because we are signing on more restaurant brands and that's continuing at a healthy clip.

[00:38:37.400] - Noah Glass

I would say we saw this first wave of fast casual brands, and then casual dining, and then QSR as deliveries come into the mix, has been a new big wave of growth. At the same time, we've also been going from working with restaurant brands that were 50 locations or more, down to 20, down to 10, and we continue to have lowered the bar for the minimum number of restaurants that we'll work with on the platform. I think that is a big engine of growth. But another big engine of growth, because there's this transaction fee revenue element, is the growth of transactions.

[00:39:15.410] - Noah Glass

So when we look at that digital same store sales metric that I mentioned, of the same restaurants increasing their digital sales volume by 50% year over year, that is all accruing to our benefit in the form of additional revenue and additional average revenue per unit coming to our business. I think if we take the extreme view here and imagine every restaurant group out there, not just the 50%-plus of the public brands who are today using OLO, but let's say all of those brands, and all the enterprise brands are using OLO, I don't see that as something that inhibits our continued growth because so much of the growth is that consumers choosing to order through digital channels, whether that's directly to the brand, or through marketplaces that are also sending orders through our rails platform and into the restaurants that we work with, that's another big leg of growth which is growing far faster than single digits.

[00:40:13.970] - Nick Upton

Fascinating. There's a lot there to unpack and I'm sure we'll have more time to talk about all this at the conference. But the big part there, that you touched on is that agnosticism of your company to work with the restaurant brand regardless of what's happening over on the delivery marketplace side. I think that's a good place to be. We've taken up a lot of your time already, Noah, and we really appreciate it. So I think we can call it there, but thank you so much for being a part of the podcast and we will be talking to you soon.

[00:40:44.010] - Noah Glass

Well thank you so much for having me, Nick and Tom. I'm looking forward to the conference. And thanks for having me on the podcast.

[00:40:49.280] - Tom Kaiser

Thank you so much. Noah, again, I really appreciate all of you joining us. Please check back with us next time around and stay tuned to FOD news for ongoing coverage of this very interesting industry that never disappoints.

[00:41:02.590] - Nick Upton

Yes, it certainly doesn't. Thanks everyone.

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