At the new zero-waste restaurant La Papille Gustative, customers don't even have to see a server to order $18 avocado toast or $15 buckwheat quinoa waffles.
They can order straight from their mobile phone while dining outside.
"We are not a full service restaurant; we don't have a server coming to you taking your orders, but this is your server. This is your waiter," said owner, Marina Aljanedi.
Aljanedi, like tens of thousands of restaurateurs, has had to adjust to the new pandemic normal. The California Restaurant Association estimates two-thirds of workers in the industry have been either laid off or furloughed since March as some of the biggest names in the Los Angeles-scene, such as Bazaar and Bäco Mercat, permanently closed.
Those that have survived have adopted new contactless menus, delivery services and other tech-powered solutions to keep their employees safe and diners fed.
Aljanedi, who had to scramble to provide outdoor dining, added Santa Monica-based Order For Me's service to let customers order ahead or at their table.
The service relies on QR codes — once said to be a thing of the past. But these codes help power services by companies including Paytronix, Presto and Zuppler that restaurants are increasingly relying on to keep their profits up and customers at a distance. The ordering system lets in-house diners buy food on their phone, a function that companies like Grubhub, Chownow and Postmates haven't focused on.
Order For Me's platform lets customers order, pay and tip from their phones. Its most distinguishing feature is that it allows diners at the same table to split bills and keep a running tab.
Although the company only operates in 35 restaurants in Los Angeles, it's working with several hotels to expand their services. And it has seen a spike in demand as California restaurants prepare to reopen in the coming weeks under Gov. Gavin Newsom's new order that allows for a 25% capacity at qualified dine-in restaurants.
But competition is stiff as the restaurant business is increasingly turning to tech.
Founded two years ago by Michael Jordan and chef Greg Daniels, Order For Me sought to develop a contactless ordering service.
At the time, Jordan thought the platform would benefit from California's minimum wage increase as restaurants sought to offset the cost of labor, but he never expected a pandemic to increase the need for the product.
Order for Me co-founders Greg Daniels (L) and Michael Jordan (R).
"I started in 2018. I knew this was going to be a very steep climb; we were thinking like 10 years to do this and disrupt the industry," said Jordan. "But we committed to it because we knew that it was going to happen, and it was going to be us. We were in a few restaurants before COVID and then COVID hit and we changed up our product a little bit."
He added an order-ahead feature to the service.
To draw in new customers, Order For Me is offered free for life to restaurants that sign on until the end of 2020 and to keep a 5% service fee that guests pay when using the platform. The company makes money by charging users a small service fee for the transaction.
Jordan said the pandemic likely changed restaurateurs attitudes about the need for technology as part of their business.
"The attitude was (once), 'Well, I can't wait to get this over with, and for it to get back to normal'," he said. But after restaurants had to shut down for a second time, there was a gradual acceptance. "Normal is going to be different," said Jordan. "Definitely the customer's mindset is changed, probably permanently."
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The so-called “dark store” model – which forgoes the traditional corner store for a sprawling warehouse that delivers through mobile apps – exploded during the pandemic. But many of those companies are now struggling to become profitable, largely because of rising overhead costs.
The Industry and the Challenges
At stake is a multi-billion industry aiming to deliver everything from groceries to convenience items and hot food, through bikes, cars, drones and even robots. Operating from a number of competing platforms, those companies saw sales more than double during the pandemic. Few experts see the industry disappearing entirely, but the sector is widely expected to shrink. The coming months and years will determine which model wins out.
Celia Van Wickel, senior director of digital commerce for analytics and brand consulting firm Kantar Group, told dot.LA she expects the bubble to burst—and soon, as venture firms become more discerning about their investments.
“Valuations are declining [and] money is not being forthcoming to rapid delivery companies,” Van Wickel said. Even as the economic climate becomes more challenging, some companies do have the chance to rise above the fray and gain market share – and satisfy investors – while others could be destined to go bust.
“[Investors] really want to see a profitable model, kind of akin to what we've seen in the dot-com era, where the bubble burst on ecommerce,” Van Wickel said. A lot of money was thrown into these new companies, they weren’t really profitable and then all of a sudden a lot of them collapsed.”
Some venture capital firms were “just investing to invest,” Van Wickel added, to see how the delivery market fared. She predicts they’ll soon become more judicious about who they fund. Burning cash without turning a profit isn’t going to be acceptable in the long term, she added.
Along with slackening consumer demand and less VC investment in the space, nearly every fast delivery company that relies on fulfillment centers, even Amazon, is going to face steep real estate, upkeep and staffing costs. Rapid delivery firms will need to spend big on real estate to operate fulfillment centers across cities that enable them to get to consumers fast.
Local startups Serve Robotics, URB-E, Kwibot and Duffl are trying to rise above the fray by delivering fast, to specific areas, with scooters or drones, but there’s no guarantee of success.
Image courtesy of Duffl.
Philadelphia-based GoPuff, one of the largest new rapid delivery services to enter in Los Angeles alongside DoorDash, Instacart and Uber (which also offer convenience delivery in addition to food) depends on having quick access to warehouses throughout the region. It bought liquor store chain BevMo in a bid to gain access to lucrative (and hard- to- get) liquor licenses and warehouses. It aims to save money by installing micro-fulfillment centers “within almost every” BevMo store that can service deliveries, its CEO told the L.A.Times. Still, it laid off 10% of its workforce in July after cutting about 3% in March, and shut 76 warehouses. GoPuff originally had plans to go public in mid-2022 at a $15 million valuation, but shelved them.
But GoPuff is not alone. Instacart cut its valuation forecast by 38% in March citing “poor market conditions,” and international rapid delivery startups like Gorillas, Getir and Zapp have also cut staff recently.
The layoffs suggest that rapid growth may no longer be enough.
“The GoPuff CEO basically said, ‘hey, we were getting a lot of investments by just showing top line incremental growth,’ they were growing customers and growing markets and that was okay enough for investors in 2021,” Van Wickel told dot.LA. “But now they're being pressured to really look at how their company is profitable [and] they're being asked to do this very quickly, or their investment will not be forthcoming.”
GoPuff pointed dot.LA to a recent shareholder letter that said it is “already driving 76% [year-over-year] sales growth for the core business.”
“GoPuff is the only company in this space that has proven it can be profitable at a city and regional level,” co-founders Yakir Gola and Rafael Ilishayev wrote. “We are now targeting full company profitability in 2024 while maintaining a strong cash balance throughout.”
An URB-E rider hauls deliveries in Santa Monica.
Image courtesy of URB-E
The Opportunity
Despite the headwinds, the rapid delivery industry “feels like it's here to stay,” said Alex Vasilkin, co-founder and CEO of Cartwheel, a Hollywood-based startup that makes delivery management software and recently raised a $3 million seed round in April.
“There’s all these dark kitchens opening, there are all these different startups popping up with drone delivery, and scooters delivery and hyperlocal, 15-minute delivery so I feel like there’s more options for customers and so far, we've seen it getting bigger and bigger,” Vasilkin said. Cartwheel works mainly with restaurants, but is looking to find “very big partners in mostly the alcohol space,” its co-founder Magdim Metshin told dot.LA.
The need for rapid delivery isn’t likely to disappear so long as people decide they need items fast and can’t make the trip themselves. The question is now “which companies can iron out their paths to profitability before they’re forced to go bankrupt?,” Van Wickel said.
“I think there's a balance between what the consumer wants and what behavior’s going to change,” she added. “To me, it's all about on-demand. So we're changing the model to an on-demand model… it’s changing the trip occasions out there from stocking up to more grab-and-go convenience models.”
Startups that seem poised to weather the storm are the ones that can control every aspect of the business – including supply, warehousing, distribution and, crucially, their apps. Usually, they’re seeking buyouts from larger companies that have existing infrastructure in place for this exact reason.
“I don’t think we have quite a winner yet; I think there’s [companies] that are more set up to win,” Van Wickel said, adding that it’s mostly “the companies that do have some cash on hand today to continue to iterate their business models.”