What can we learn from Gary Vee and his discussion on delivery? I know, this one is a bit different but I think it’s worth thinking about.
One of my favorite podcasts to listen to when driving around is Gary Vee’s (or Gary Veynerchuk). He talks a lot about entrepreneurship, especially in the context of using social media. You may have seen me reference him a few times because I think that for a lot of us, this independent contractor gig can be a sort of gateway drug into full blown entrepreneurship and Gary is a good source.
On his September 19 episode Gary Vee interviewed Tilman Fertitta and got into a discussion about delivery. Tilman owns the Houston Rockets and is also the owner of Landry’s restaurants, a restaurant empire that has about 50 brands and 600 restaurants. It was his discussion towards the end of the episode that I thought was interesting.
I think what made Tilman’s discussion with Gary Vee about delivery and virtual kitchens interesting is that Tilman also owns delivery app Waitr, which shortly thereafter bought out Bite Squad. So he’s got some skin in the delivery game. As someone who is deeply in the industry, listening to what he had to say, the home delivery game doesn’t necessarily have the brightest future.
Gary does bring up another trend that could take over – the growth of virtual kitchens that don’t have a physical dining location but that rely strictly on delivery.
This discussion came pretty late in the episode, starting right around the 31 minute mark.
Here’s a loosely done transcript of the discussion between Tilman Fertitta and Gary Vee on delivery and virtual kitchens:
Gary: Are you paying attention to the potential disruption, this is something that is probably on your radar… but are you paying attention to these virtual kitchens? Because I’m very fascinated. This is early for me, you have much deeper expertise, but I think fast casual and QSR (quick service restaurant) have a looming potential concern very similar to the way I felt about retail ten years ago, around these virtual kitchens and people building brands on top of that infrastructure and actually being just marketing companies and doing last mile delivery at scale in a decade. Is this on your mind?
Tilman: I see all of it and I think about all of it, but food to me is still a personal thing, and I just don’t think…
Gary: Personal as you’ll go somewhere?
Tilman: Yes, and how you’ll eat it and who prepared it and whatever, so I don’t know that the virtual kitchen… is it ever going to work?
Gary: So you’re saying maybe from a fastfood drive in infrastructure, that will disrupt it because it’s a mobile play, but things that are going higher up because people are actually going to…
Tilman: People are always going to like it if it helps you quicker, you know technology
Gary: Speed wins
Tilman: Speed wins. Okay, but I still think that you still want to touch and feel at the same time. It’s interesting
Gary: Hold on. Let’s keep playing because I’m fascinated by your take. Touch and feel as in I have to go to your place?
Tilman: Go to the place, talk about it
Gary: That I believe, and I think on the delivery front, it’s going to be a fascinating debate.
Tilman: There is a delivery issue though, and this is the problem. You’ve got all the home delivery companies
Gary: They’re all under water
Tilman: They’re all under water. I invested in one and I’m underwater. Okay? Matter of fact I’m drowning.
Gary: You f-ing drowned.
Tilman: I wasn’t drowning, I drowned
Gary: You’re actually dead. We went to the funeral, it was amazing.
Tilman: Cuz the problem is is that it’s expensive because of labor costs today and fuel costs and everything else, and then the delivery companies want a 20% discount at least, or a little more, a little less. The restaurants don’t make any money then, because that’s our margin. Okay, so they’re not happy, we’re not happy, so I don’t know where it’s going to tell the truth.
Gary: That I agree with, because that infrastructure, the drivers aren’t winning, the restaurants aren’t winning, the platforms aren’t winning. That’s dead. I think that the next step that’s being built quietly now which is the infrastructure to make the food at scale within a one mile radius of an enormous percentage of our society is going to be a totally different game.
Tilman: (sigh) I will totally, once again, we all come up with great ideas, and if this is going to work, Blue Apron people are going to never go out to dinner again
Gary: Let me ask this. Do you believe, because this is just a fun thing, in ten years we’ll watch this video and we’ll get a kick because, by the way, what I know about you because I’m listening, for sure, 99% of people don’t play the way we play because they’re scared to lose.
Tilman: No fear
Gary: I love losing. I mean it, because that means I f’d up. I deserve it. I never blame anything else. I did something wrong. Full accountability. Nonetheless, do you agree with this statement, because you may not, which is amazing. I believe that in a decade, there will be a restaurant that looks like Shake Shack, that looks like, you know, Chik Fil A, that looks like fast fast fast or QSR that actually has no locations but is a billion dollar enterprise in sales of their product in the framework of these kitchens at scale around the world. True or false?
Tilman: Possibly could happen
Gary: That’s not an answer. True or false?
Gary: Now we have an answer. Now we have a fun dinner in ten years.
Tilman: Because I have so many brands in Houston, I’ve thought about building just one kitchen and let everything go out of there.
Gary: I get it
Tilman: But then your delivery pie is only going to be so big.
Gary: Yeah, unless you hit infrastructure at scale
Home Delivery – Is it Under Water?
When I was first listening to this, I was unaware of Tilman’s ownership of Waitr. They mentioned that all of these companies are under water. Tilman mentioned investing in a company and being underwater to the point of drowning.
Of course, one has to Google that, right? The sale finalized late last year and the stock value peaked shortly after at $12.29. Today it’s sitting at $1.54.
I would call that drowning.
I would say that in general, they are probably right. Delivery is not a profitable thing right now. Grubhub has shown profit at times but is struggling recently, however Grubhub does not rely solely on delivery. Companies like Doordash and Postmates are having to rely on new waves of investor dollars to stay afloat.
Is the Delivery Model as we Know it Sustainable?
Honestly, I don’t know.
It’s a model that attracts interest. The entire sector is growing unbelievably as far as the number of people utilizing delivery. There’s a pretty huge pie out there, and I think that’s enough to invite investors to take a chance.
The problem has to do with the cost of delivery. It costs a lot to pay drivers enough to make it worth going out on their own dime. This is especially true if people don’t tip.
The trend that I’m seeing as a courier is not a positive one for long term sustainability. Companies appear to be racing to zero on delivery fees in order to gain market share. The other major trend I am noticing is that delivery distances are far longer today than they were a year ago. Companies are broadening their range but not paying drivers adequately for the extra time and distance. Continuing this trend is going to make driver retention difficult.
Could AB5 Topple the Entire Industry?
California passed AB5 into law recently which tightens the definition of what an independent contractor will be. This is not a guarantee that anything will change for driver status. Companies can find loopholes, and then there’s the question of enforcement. However, if companies are required to utilize employees instead of contractors in a state contains a significant portion of the customers of these platforms, is that increased cost enough to topple any if not all of these companies?
Personally, I think it’s possible you could see just the opposite. There are gains and efficiencies that can come with an employee model that I’m not sure these companies quite realize. That’s probably better for another article altogether.
Gary Vee had Ideas on Delivery and Virtual Kitchens: What of them?
Gary had an interesting theory that he discussed, that he could see a major brand growing up around a virtual kitchen model, where there is no physical location but that food is delivered to the customer. He seemed to feel that if it could be done at scale it could maybe overcome the inefficiencies of the home delivery model that is out there right now.
I think the problem with someone doing well at a large scale right now hinges on how well the food could be delivered to the end user. A model that relies on a third party providers and independent contractors won’t work. You need efficiency and to have that you have to be able to control the workforce better than either option allows. The other problem is a quality issue. Food just loses quality over time, it gets cold, it gets mushy. Insulated bags or even heat lamps can help with that to a limited extent, but to make things work well, you have to figure out how to keep the food fresh until right before delivery.
Would the Answer be to Make the Virtual Kitchens Mobile?
In my mind the only way to really make food delivery thrive, and keep it economical, is to get away from the mindset of picking up at a fixed location and dropping off at a customer. Somehow you have to find a way to have some of the food prep happen while the delivery is in place. Perhaps have a fixed site for all the initial prep but at some point transfer it to a mobile kitchen that has a set route through a sector of the city. The final cooking and packaging happens enroute. You then have a team of couriers who then perform the last mile to the customer. There would have to be a schedule element involved so that you can route your deliveries efficiently.
I’m not sure there’s any takeaway for us with those thoughts. That’s just my mind going off on a tangent of what I think it would have to look like.
Okay, but what takeaways ARE there from this discussion?
Here’s the main thing that comes to my mind. You have an outsider who has a record of being pretty aware of what is working and what isn’t for business (Gary Vee) and an insider who OWNS a delivery company (Tilman Fertitta) who both look at the current delivery infrastructure as “dead” or “under water.” While that doesn’t mean that is necessarily how it is, nor does it mean that it always HAS to be that way, I do think it means that there need to be significant changes for this industry to be sustainable.
Does that mean that the industry is going away? Or will it adapt? I don’t know. I do think there will have to be some pretty major changes in how things are done to turn this into a sustainable business model. There has to be some out of the box thinking in how to ramp up the efficiencies so that the costs don’t over-run the potential revenue. If that doesn’t happen, I do think you’ll see companies starting to drop by the wayside.
If you were to ask me, I think the independent contractor model will go away. They are just going to need to have more control over the workforce to turn it around. But I don’t think that’s happening right away. It’s probably not happening in the next year. In the next two or three? Maybe. And folks….. understand that this is just my speculation. I’m no more an expert than anyone who’s high on the potential for this industry.
The biggest takeaway is, keep your eyes open. Keep them open to the changes that may happen. Keep them open to shifts and trends. And keep them open to other opportunities. I don’t think this is a long term play, doing this delivery work. I jsut don’t. I could be wrong. Be ready for other options so that if and when changes do happen, you’re not left out in the cold.
And maybe listen to some Gary Vee, who knows about a lot more than Delivery. He might give you some good ideas for where you can go next.