The restaurant industry was one of the most affected by the COVID-19 pandemic worldwide. In the Fast Company Innovation Festival held online last Oct 2020, participants learned that four out of ten restaurants have remained shut eight months into the pandemic. Many mom and pop independent restaurants are struggling, with Quick Service Restaurants (QSR) appearing to take more shares, with more people choosing to eat inside their cars. But there are bright spots as well, with many new food businesses becoming registered. During the festival, three prominent restaurant entrepreneurs in the U.S. shared their insights on how dining’s business model has evolved.
Sweetgreen, founded by three fresh graduates in 2007 and valued at US$1 billion by 2018, is a fast-casual restaurant in the US serving simple, seasonal salads. Jonathan Neman, its CEO and Co-founder, admitted to being blessed with an existing omnichannel that gave them online ordering providing 50% of revenue even before COVID-19. They have thought of themselves beyond a salad company, instead seeing themselves as a company with nutritious sourcing that makes food from scratch. Here are some business model lessons to be learned from him:
- Target market: They experienced challenges in the office segment, hence, they refocused more attention to home dinner orders.
- Value proposition: They launched newer, dinner-friendly offerings with a wider range of menu choices. They also launched “Collections” or food themes, like branded chef collections (what popular chefs eat in Sweetgreen) and protein inspired collections.
- Channel: Aside from online, another thing to learn is that one must be present where it matters. They launched “Impact Outpost” food donations in 400 hospital outposts and gained a tremendous amount of donated orders because of their goodwill. They also accelerated expansion from urban to suburban faster than originally planned as city market volume became harder to attain.
- Communicate: Initially, some people thought COVID-19 can come from salad, so they had to quickly correct misinformation.
- Value chain: it is best to have a direct access to key resources instead of making marketing companies and logistics businesses take a part of your profit.
- Resources: They were about to launch returnable bowls, but had to postpone and plan to do it after COVID-19 to help decrease carbon footprints and lessen the impact of climate change.
- Pipeline: In mid 2021, they plan to launch party food.
Nick Kokonas, Co-owner of three-star Michelin restaurant Alinea in Chicago, and CEO of its spin off reservation software company, TOCK (voted one of the most innovative companies by Fast Company), was able to prepare ahead and pivoted from being an online reservation platform to an online restaurant ordering platform. It helps being a former derivatives trader following markets and events worldwide. In a short time, he was able to double the number of restaurants in his platform to 4000 with over a million new diners monthly. Here are lessons learned from him:
- Target market: Anticipating potential threats after noticing fast declining dine-in customers in their Hong Kong operations, he quickly had to change his offers in some 30 countries from targeting dine-in reservation customers to include targeting customers looking for pick-up and delivery orders, where he continued to gain a 3% fee, benefiting from his unbundling of services.
- Value proposition: Know consumer behavior can change fast. In his Alinea restaurant in Chicago, their much cheaper takeout menu offers (US$40) were not the same as what they served in the restaurant (US$200-375). Initially, from comfort food, he saw consumer orders shifting to more and more expensive items, so he decided to launch a 10-course anniversary set, which sold out. They have ordered 2,000 turkeys for thanksgiving orders with 90 restaurants on his platform also offering thanksgiving meals.
- Revenue model: Instead of charging restaurants in Chicago for use of his platform, they made a deal with the Chicago government to allow the use of his platform for six months to help stabilize local businesses during COVID-19. Even his Alinea restaurant dine-in prices before were innovatively dependent on the day and time of reservation to minimize unoccupied seats and maximize revenue.
- Value chain: Be realistic. Many restaurants just want to get back to do what they are good at, but know you cannot do what you used to be doing.
- Process: Be intuitive with your new product development. Trust your judgment but keep iterating on what feels right from the customer perspective.
- Cost: He initiated and negotiated with delivery providers to reduce their “ridiculous” 20-30% commission to a flat US$5 to US$8 fee depending on delivery distance, for orders that usually averages a bill of US$50 or over.
- Brand purpose: Know the bigger picture benefit. His platform not only helped earn him revenues, but helped save restaurants, maintain employment, and save communities as well.
Multi-awarded chef Christina Tosi is the CEO and Co-founder of Milk Bar, an 18-store desert and bakery restaurant, co-owned by the Momofuku restaurant group. Here are lessons learned from her:
- Brand purpose: Never take customers’ orders for granted. Orders are an invitation to show up in people’s lives, and are a privilege to share with people. Show your best in class hospitality.
- Value proposition: Know what you sell versus what people buy. Understand that what you sell may be care packages, but the true benefit of what people buy and get can be supplements, strengths or emotions.
- Customer bonding strategy: Be committed to show up in ways customers expect. She posted daily on Instagram showcasing actual store baking during the first four months of COVID-19 as it was meant to help people when they needed it most. The frequency was reduced to once weekly after. Their Bake Club is not just for people who want to learn how to bake, but for people in search of community and connection using food ingredients.
- Channel: Know the spirit of both the communication and distribution channel. Milk Bar also launched a consumer-packaged goods line in selected Whole Foods stores.
- Value chain: Think operational efficiency. Review for menu optimization, economics of a business, and the triangular of occupancy, labor and customer relationship.
Josiah Go has recently launched a new 55-video “Business Model Course: Selection, Risk Mitigation, Reconfiguration and Innovation,” available on the Continuum Academy website (www.continuum-edu.com).