
The New Fast Food - _pius
http://techcrunch.com/2014/07/05/the-new-fast-food/
======
jhonovich
Google's 2013 revenue is 20x greater than Chipotle (~$60 vs ~$3.2 billion).

To insinuate that Chipotle's higher P/E ratio says something about fast food
vs tech is silly. It's because Chipotle is so much smaller than Google that
it's easier for Chipotle to increase revenue than Google.

In 2004, Google had about the same revenue as Chipotle did in 2013 but a P/E
ratio of ~100, far higher than Chipotle does today.

~~~
adventured
It's like their mind being blown that Rackspace has a 60 pe ratio, or that
Amazon and Twitter and LinkedIn have roughly infinite (or negative) pe ratios
- and then concluding that must mean investors love the 7th place (?) cloud
provider more than Google, and a profitless social network business model more
than Google's ad + search monopoly. It's an intentionally bogus conclusion
meant to do nothing but set up an article.

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MediaSquirrel
Article author here...

The critique about comparing P/E's is fair, but my point was really that Sprig
& friends are restaurant chains vs traditional tech co's--and restaurant
chains actually have decent P/E ratios, which totally shocked me. I was
expecting restaurant chains to have P/E's in the 1-10x range, not 30-70x!

From a VC perspective, investing in a restaurant chain looks like a good idea
if you can actually make the E in the P/E (ie turn a profit). I don't know
about you all, but this was surprising to me.

Also, to address another point that some people made: Sprig & SpoonRocket use
the delivery drivers as mobile storage units carrying pre-prepped & heated
meals in the trunk. They don't do point-to-point pickup & delivery, which is
how they can deliver so fast, cover so much geography and leverage their
smaller real estate footprint.

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nawitus
It's hard to see how these new startups can compete with existing restaurants.
There already are restaurants in cheap-to-rent locations, and it doesn't seem
like Sprig et. al. can compete with the prices. I guess my point is that I
don't see Sprig doing anything that new, so I don't see what new value they'll
bring. But good luck of course, the restaurant business seems to be one of the
harder markets out there.

~~~
artag
I haven't tried Sprig yet, but Munchery's business model is awesome. They are
not trying to be a fast / cheap food service. They hire top notch chefs who
prepare high end food. The cost of meal is b/w $10-$15. The quality of the
food is what you will expect in a high end restaurant. They are basically
getting rid of all the real-estate of a high end restaurant and delivering
awesome food directly to you (lots of economies of scale). I am spending
roughly about $500 per month ordering food from them. Highest quality food,
delivered to you at very reasonable prices (I'm pretty sure I'll pay at least
50+% more for the same food if I went to a high end restaurant).

~~~
altcognito
This makes a lot more sense if you're right about the numbers. It's not the
single meal they are targeting but 2-4 meals. That will drive down the number
of meals they have to deliver to make a profit. If the meals are of superb
quality this idea works. But it might be tough if they are delivering: food
doesn't travel well -- your food is guaranteed to be sitting for 5-15 minutes.

~~~
artag
I think they are targeting dinner for families. I always order 2 meals since
they don't deliver lunch. You have to order food before 10am and they deliver
b/w 3-6. My food is definitely sitting at least 1-2 hours because it is being
delivered from SF to Mt view. I believe they have proper storage in the
delivery vans - I don't know the details though.

~~~
chockablock
In SF proper you can order Munchery as late as 4pm.

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randallsquared
I think one thing that's missed, here, is that (e.g.) the company that owns
"MacDonald's" doesn't actually operate fast food locations: they're
franchises. Instead, the company (which has the high P/E spoken of) operates
gigantic commercial kitchens-slash-factories and ships patties and other
materials to the franchisees. Operating MacDonald's restaurants isn't a cost
they bear. In this sense, these large franchises are already even more
streamlined than Sprig, et al.

~~~
seanmcdirmid
This is not true. McDonalds has plenty of corporate stores in the US (I worked
for one as a teenager); not all stores are franchises. In countries like China
they do not franchise at all; instead every store is owned by a joint venture.

And of course Starbucks will never franchise (well, Marriott, but look at how
that turned out)...they aren't even very happy about joint ventures.

~~~
randallsquared
Hm. I had thought that all the large chain fast food stores were essentially
franchised. Interesting; thanks.

~~~
e1g
Your assumption is in line with the underlying principle - money made from
collecting licensing and franchisee fees actually _is_ more profitable than
money made from selling burgers. This implies that over time large fast food
operators should tend to become more and more franchised, and we see this
playing out in the market place right now [1].

The reason why fast food brands aren't 100% franchised already is because they
need to constantly learn about their customers/products/operating
environments/fast moving trends etc. The best way to do this is to actually
operate your own stores where you can experiment and learn very quickly. The
younger the brand, the few outlets it has, the more it still needs to learn,
so corporate ownership will be higher. As the brand matures over time that
number is expected to come down to e.g. 15-20%.

[1]
[http://online.wsj.com/news/articles/SB1000142405270230458770...](http://online.wsj.com/news/articles/SB10001424052702304587704577333443052487330)

~~~
seanmcdirmid
Its not really just that. McDonalds is pretty international, and some
countries are franchise unfriendly, hostile even. So they do a joint venture
in China as well many other countries. McDonalds is at 15% today, but much of
the 85% is organized under JVs outside of the US.

Also, while the costs and risks are higher to do a corporate store, they also
make more money on it, and since they have capital, why not invest in the
business they know rather than outsource in an otherwise finite-growth market?
I would expect the opposite to happen: over time, the company collects capital
and moves to own its brand rather than lend it out. In contrast, a young
company that lacks capital will see franchising as much more appealing as it
allows them to extend their brand and reach while sharing risk and investment.

Starbucks was, is, and always be corporate. That they are forced into JVs and
partnerships sometimes is completely political (China; Marriott won't let them
run stores in some airports where they have exclusive contracts; etc...).

~~~
e1g
You are right that some environments have draconian franchising rules, and
force fast-food operators into alternative operating models (i.e. corporate/JV
owned outlets). An important distinction for me is that those alternatives are
_forced_ onto brands, and if they had a choice they would swap to the
franchise model. We see this playing out with McDonalds in China - as soon as
franchising rules have been relaxed slightly, McDonalds went into high gear
recruiting traditional franchisees to fuel growth in China [1]. Of course
there are other places where operating directly makes a lot more money, but
those are very very rare (e.g. Russia).

In regards to McDonalds investing back into the business they know, you are
right again. However, what they know best is not running restaurants but
investing into property. The self-proclaimed description of McDonalds'
business model is that they are in real estate, not hamburgers [2]. The latest
available annual report shows that the 7,000 company stores generated ~$3B
profits, but McDs made as much on royalties and _twice_ as much on renting out
properties to their franchisees [3]. Further, store margins are going down
fast while royalty/property margins are going up. This year more than half of
McDonald profits will be from collecting rent - flipping burgers and selling
royalties is a nice side hobby. So to maximise their core business, they have
to maximise how many renters they have, i.e. increase the number of
franchisees.

[1] [http://www.worldcrunch.com/business-finance/supersize-the-
fr...](http://www.worldcrunch.com/business-finance/supersize-the-franchise-
mcdonald-039-s-new-china-strategy/kfc-fast-food-rivalry-catering-restaurant-
franchisee/c2s15258/#.U7lYi2SJ-wE)

[2]
[http://money.howstuffworks.com/mcdonalds2.htm](http://money.howstuffworks.com/mcdonalds2.htm)

[3]
[http://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/Inv...](http://www.aboutmcdonalds.com/content/dam/AboutMcDonalds/Investors/McDs2013AnnualReport.pdf)

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hayksaakian
For an article focused on "new" there was little regarding the difference over
the "old".

They made comparisons to traditional food businesses, but not to more similar,
delivery-only businesses of the past.

 _That 's_ what I'd like to see.

\-----

for reference, here's a 2006 era opinion on the business model.

[http://franchisepundit.com/i-wouldnt-buy-it/delivery-only-
re...](http://franchisepundit.com/i-wouldnt-buy-it/delivery-only-restaurants/)

clearly, the difference in 2014 is Mobile devices.

\-----

Upon further though, these new fast-food companies are more like on-demand
catering companies.

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hackerews
The P/E comparison at the beginning sucks but it's an eye-catcher for the
average reader.

I guess the real question is whether you believe, at the same value point,
delivery costs will be less than prime real estate + customer service costs.
At the moment the answer is no. Delivery is expensive at the scale and speed
necessary to compete with going out to grab a meal. But if you believe in a
future where autonomous cars are delivering people and shipments in a highly
efficient way, mixed with a future of resource abundance (ie robots taking all
the boring jobs) where human time becomes incredibly valuable... then it's not
unlikely that a service like Sprig would beat out the traditional fast food
model.

In fact, it's not unlikely that restaurants and most other brick and mortar
business would just become API's on top of the delivery model.

However, I personally think Sprig is way too early to the game. Given an
autonomous, speedy delivery system is (more than) a few years out, they must
be handing out their investors' money trying to compete in the food business
in today's market while waiting for the distant future. I bet order-taking
companies like GrubHub end up partnering with Uber to fill this gap in the
market early on, rather than a startup trying to do food + delivery at once
today. But that's just my 2 cents.

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mark_l_watson
Interesting article. I usually view fast food consumers as people who are
poor, working multiple jobs, and don't have time for preparing healthier and
much less expensive meals themselves. (The excellent documentary "Fed Up"
makes this point.)

That is, for my wife and I part of being affluent is having time to enjoy
preparing fine meals ourselves. This article made me realize that a lot of
people who are well off financially are not well off as far as having lots of
free time - thus the market for companies like Sprig, etc.

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kevinmchugh
> delivery ain’t cheap — Sprig pays their SF delivery workers $16 an hour.

It's odd that they have their own drivers. Why hasn't someone (uber)
commoditized moving things via car within a city on no notice? I'm surprised
at least that there's no app integrating various services that require
drivers. If you can drive people, can't you drive a pizza?

~~~
chockablock
Sprig drivers carry a supply of the evenings 3 hot meal options (in a heater?)
and then are dynamically routed based on incoming orders (or at least this is
what I assume is happening based on the regular sub-10 min delivery times to
my neighborhood far from downtown.) This seems harder to Uber-ize than point-
to-point trips: your drivers would need special equipment to keep the food
hot, and would need to be available for an extended period of deliveries.

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chrisgd
Would love to see a business model like this that accepts EBT. Everyone should
have access to these kinds of meals. Plus it would give Sean hannity something
to get upset about. "How poor could they really be if they have refrigerators
and good food?!?!"

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Grue3
How is this a new thing? There are dozens of companies like this... in Russia
of all places.

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hyp0
long-term strategy: get established now, ready for when legal drones/self-
driving cars shrink delvery costs.

but also kinda reminds me of webvan...

