Five Moments - The 1% of Podcasts, Killing Credit Cards, Food Delivery Apps and Ghost Kitchens Threaten Restaurants, & Lots of New Music
Restaurants are being killed by delivery apps and ghost kitchens.
Happy Sunday everyone! This week we focus primarily on trends in consumer businesses (point-of-sale financing, food delivery, ghost kitchens, & podcasts) and, as always, close with some new and interesting music.
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Thanks for tuning in for another week, enjoy!
Killing the Credit Card Moment
As you went to check out in your most recent online shopping binge you may have noticed a banner next to the “add to cart” button that stated something to the effect of “buy now, pay later with Affirm (or Sezzle, Klarna, or Afterpay).
These companies have quickly been popping up all over your favorite shopping websites as a financing alternative to credit cards. Forbes did a quick interview with Max Levchin, founder and CEO of Affirm, about why this business exists and their goal to put credit card companies out of business.
The basic business model: You purchase a dishwasher or t-shirt and instead of using a credit card you pay with Affirm. Affirm pays the merchant the total, and keeps 3 - 6% of the purchase price. The thought being that you may not have purchased the item if you had to pay all at once, so by financing the merchant is selling an item they may not have otherwise.
Affirm’s interest rates aren’t low, necessarily—they run from 0% to 30% a year, depending on the borrower’s creditworthiness and whether a merchant is subsidizing interest-free payments. But Affirm never charges late fees and shows buyers upfront the total interest they’ll pay for a specific purchase, with fixed payments typically lasting from three to 12 months—or, for large purchases, up to four years.
Why you should care: Companies like Affirm are bringing transparency and more consumer friendly practices to the consumer / merchant financing experience. Previously, if you financed a big purchase you may be able to get a 0% interest teaser rate from a new credit card, but then you got hammered with late fees or interest the moment you missed a payment.
Why don’t people just use credit cards instead?
Levchin concluded that the then-conventional wisdom—namely, that Great Recession–scarred, student loan–burdened Millennials were allergic to credit cards and consumer debt—missed the point. It wasn’t debt or even, remarkably, high interest rates that turned them off. Instead, they hated certain aspects of credit cards: late fees, big banks (remember Occupy Wall Street?) and the fact that it was deceptively easy to rack up too much debt—particularly for those who didn’t understand the way interest charges on revolving credit cards compound
Restaurants vs. Technology Moment (Part 1)
Dan Teran had a great write up on Not Boring about the impact of Covid and delivery apps (Grubhub, Uber Eats, Doordash, etc.) on restaurants. He goes deep on the economics, history, and current state of delivery apps.
While third party delivery has always been a bad deal for restaurants, delivery did not represent a significant share of most restaurants business prior to 2020, and so the damage to a restaurant’s bottom line was obscured. The pandemic has brought an inconvenient truth into focus: third party delivery will kill your business if you let it, and third party delivery operators do not care
To set the base - delivery / ordering apps generally take anywhere from 15 - 30% of the total bill from a restaurant when you order. Dan deftly points out - restaurants are willing to part with this revenue to acquire a new customer, but it is an unsustainable business model if most of your customers shift to only ordering through these apps. Which is exactly what happened in 2020.
While these new companies are serving as a “lifeline” at the moment, it cannot be overstated how much restaurants hate these apps, but see them as a necessary evil to meet customers at the moment.
Dan lands on an optimistic note about the resiliency and entrepreneurial spirit of restaurants, but this is going to be a dog fight for restaurants against companies with billions in reserve capital. To have any effect on this trend, restaurants will need consumers to order via less convenient platforms like the telephone and walking into restaurants with their own two feet.
Extra Credit: How Venture Capitalists Are Deforming Capitalism
Restaurants vs. Technology Moment (Part 2)
Adam Chandler has a great piece on the rise of ghost kitchens and the danger they pose for “real restaurants”.
Ghost kitchens are restaurants that only exist in an online ordering platforms (Uber eats, Doordash, Grubhub, etc.). You cannot walk into them and sit down to eat, but you can fire up an app and have them deliver your burger, pizza, or whatever else you might be craving.
How A Shadow Army of Ghost Kitchens Took Over America’s Restaurants:
The rise of ghost kitchens and digital restaurants — also known as digital kitchens, cloud kitchens, and virtual restaurants, depending on how deep inside restaurant industry parlance you venture — is perhaps the defining dining trend of the past few years. By one industry estimate, there are now about 100,000 virtual restaurants in the United States alone.
Chandler points out some interesting example of “real restaurants” like Chuck E. Cheese and Applebee’s operating as ghost kitchens. Wherein, they market themselves as a new name on these platforms and create the food in their pre-existing kitchens, while simultaneously acting as a “real restaurant”.
Inherently, I think these are all rather savvy reactions and repositioning due to the increasing importance of delivery / ordering platforms. However, because these applications know exactly what you like to eat and when you like to order, it only make sense that these delivery companies will open their own ghost kitchens and further cut into “real restaurant” opportunity.
A new digital kitchen can be opened in an urban center for $50,000, roughly 5% of the average cost of a regular restaurant.
It continues to get harder for unique and local restaurants to compete in the world of algorithms and shifting consumer tastes.
Extra Credit: Former CEO of Uber raised $400M to start his Cloud Kitchen Empire
The State of Podcasting Moment
If someone releases a podcast and no one listens to it, did you really create a podcast?
Axios put together a great piece explaining the current state of the podcast industry, the projected growth, and why it is so hard to create a successful podcast.
While many big companies and independent creators are trying to get in on the podcast action, most aren't seeing much traction. The top 1% of podcasts receive 99% of downloads.
By default, it is more difficult for podcasters to break out and go viral because the podcast ecosystem doesn’t have a platform with characteristics of a community like YouTube, Instagram or TikTok
As the author, Sara Fischer, points out - several companies are trying to build the podcasting platform and advertising network(s) of the future and it will be very interesting to see how this all shakes out. As we have talked about previously, Amazon and Spotify are pouring billions of dollars to try and corner the podcast market.
I am confident that 2021 will be another big year for audio as a platform, especially with the new entrants of Clubhouse and Fireside.
Music Moment
Greta Van Fleet, a rock band of three brothers (+ a friend), released three new singles this week. If you have never heard them before - many have compared their sound to Led Zeppelin.
A great deal of ink has been spilled about this band and everyone has an opinion, including Robert Plant.
There’s a band in Detroit called Greta Van Fleet, they are Led Zeppelin I. Beautiful little singer, I hate him!
After their first EP, From The Fires, many critics accused them of just being a new-age version of Zeppelin and some people really do not like them. I am of the opinion that they are incredibly talented and entertaining - If someone gifted you the ability to sing like that whether it was 1972 or 2020, you should sing.
Some other good music came out this week:
Lake Street Dive - Hypotheticals
Kendall Street Company - i rly luv u
Pete Yorn - Pete Yorn Sings the Classics
Briston Maroney - It’s Still Cool If You Don’t
Lumineers - Pretty Pictures in My Mind
Cutting Room Floor
The links that did not make the cut
The Weirdest and Best Wikipedia Wormholes | The Ringer
SoulCycle & Mistaking Exclusivity for Community | Cafe Society
Workplace Harassment Goes Virtual | The Walrus
What was your favorite Moment this week?
Click the link to let me know which story was your favorite!
💰Buy Now, Pay Later
👨🍳 Food Delivery
👻 Ghost Kitchens
🎙Podcasting
🎵 New Music
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Next Distribution 2/21/2021