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Prior to the pandemic, there were rumblings about flaws in e-commerce systems, but beyond the occasional negative story and some relatively minor complaints, it was not really a big deal as 2019 US e-commerce sales steadily grew to 11% of total retail sales.
Ready-to-eat food delivery also ‘arrived’ and was growing well. Then life as we knew it stopped. We hit lockdown mode.
Food delivery services continued to flourish, even with high fees, cold food, and driver sampling of your meals. But the inherent flaws in the food delivery supply chain became glaringly obvious.
I Have a Theory
Today there’s a war over convenience going on in the restaurant delivery business with the battlefield being our taste buds, our patience, and our wallets.
The battlefields can be found at my house and very likely at yours. For example, I have one teen and one college-age daughter. We argue constantly over ordering food. Like when one daughter’s order for $8 Miso Soup comes with an $8 delivery fee plus tip. It rankles me to no end.
Over the past several months, my family has fought over trying to order different dinners from separate restaurants and having to use two different apps, two different delivery people, and with overcharges piled upon overcharges. It’s been a science experiment that always seems to go awry.
It doesn’t have to be this way though. I should know.
Twenty years ago, I created Webvan, Yes, that Webvan, the company that revolutionized – began, really – grocery home delivery. It was green and innovative, but could not survive the dot com bust of 2000. The market was ready even then and there were things I would do differently with the benefit of hindsight.
Covid did not impede the growth of online grocery, but in fact the pandemic accelerated trends that were already at work.
Back then, the CEO of a $50 billion grocery company told me, “E-commerce will never win out over grocery store shopping.” Yet according to market research firm MarketWatch, in 2020 online grocery sales surged 54% to $96 billion in the US, and eMarketer expects this to double by 2024.
Clearly, Covid did not impede the growth of online grocery, but in fact the pandemic accelerated trends that were already at work. It is crystal clear that market demand for online commerce will continue to grow, with the online grocery increasing to 30% of retail sales, while electronics (and books) will reach 50% of retail sales.
Yet as review the restaurant business, it is clear that the food delivery sector faces serious supply chain challenges that could reduce consumer adoption and limit growth. All my experience tells me that the segment is ripe for a radical upgrade – namely, a centralized, robotics-based, purpose-built supply chain. In short, a cloud kitchen.
The Cloud Kitchen
Instead of feuding over a Miso Soup delivery, imagine a delicious, fulfilling evening like this…
You’re having a feast (still not easily available today), that includes your choices from the full offerings of the 20 leading restaurants in your town.
You’ve also reserved a recurring delivery time and date. Drinks are included. Your family members select their wildly different dishes from a consolidated, house-of-brands menu. Orders can be adjusted up to an hour before delivery. Billing is simpler and the cloud kitchen prepares food to make it travel better. Which means it also tastes better.
With a commitment to green, the cloud kitchen delivers food in insulated, reusable glass and ceramic containers which you return when you get your next order. Sanitary standards are breathtakingly strict.
Food prices are lower than the originating restaurants’ prices; the cloud kitchen service offers a 10 to 20% discount off the menu prices depending on the time you order. In addition, there are no added charges at all – no delivery fees, no subscription fees, and no tips. I don’t know about you, but I have subscription fee fatigue.
The cloud kitchen business model is not encumbered by the two-thirds of restaurant operating expenses consumed by the front-of-the-house dining rooms.
How It Works
Here’s how it works. Each of the 20 restaurants has a kitchen in a centralized cloud kitchen facility. I’m a huge fan of restaurant kitchens. They’re extremely sophisticated and highly specialized. There is a continuous investment by the top brands to make more delicious and fresher food. There is great skill in their operation. The variety and quality that consumers enjoy today is amazingly broad and deep.
The restaurants benefit through their piece of this action and have a far lower cost of operation. The cloud kitchen business model is not encumbered by the two-thirds of restaurant operating expenses consumed by the front-of-the-house dining rooms. In addition, since ordering from one of the 20 menus will be frictionless, each restaurant will reach many new customers. The cloud kitchen runs the critical distribution backbone and partners with the best restaurants in town. There is very little not to like about this new dining experience.
Twofold Robotics Opportunity
Robotics and automation are central to the cloud kitchen model, and as such, the approach presents robotics opportunities. First, the kitchen must include a wide range of robotics to reduce labor and improve quality and consistency. Top restaurant brands are spending billions here and the robotics are very specialized down to the menu item much like any manufacturing robotic system.
Second, and the focus of this article, the cloud kitchen service requires a fulfillment backbone. Operating the backbone manually is out of the question – too costly, high error rates and, most importantly today, the inability to hire for this kind of work. The backbone must be highly automated, including using robotics technologies.
There are three primary services this automation backbone must provide which are challenging but open the door to the major global opportunity of creating an all-new retail category. They include:
- Order Collection – The backbone will collect finished orders from the 20 kitchens and, within a few minutes, assemble and package them into orders for each customer.
- Non-Restaurants Items – The backbone will fill the non-restaurant items of an order, such as drinks, napkins, utensils, and condiments. This removes an expensive burden from the restaurants, is a more convenient specify-one experience for the customer and eliminates the wasteful and costly inclusion of unwanted items.
- Storage – Finally, the backbone storage area can serve as a commissary to the kitchens, supplying staples on an hourly basis which brings two significant savings – the elimination of walk-in coolers and freezers in each kitchen and the economies of scale of purchasing staples for all 20 kitchens at once.
Robotics systems and their enabling technologies are becoming increasingly powerful, especially with developments in the last few years in the critical areas of machine vision, grasping and manipulation, advanced materials, machine learning, and more. The robotics technology available today is quite capable of making the cloud kitchen fulfillment system a reality.
Vision to Table
For me, there’s no question that the robotics-enabled cloud kitchen will be a winning formula for the restaurant business and for consumers, particularly as restaurants struggle with hiring enough staff to make eateries run in the traditional sense. It could become the dominant model for food delivery services.
Billions of dollars are at stake, and once again, I find myself hopeful about the future of food delivery. But who will take the next step to make them a reality?
I believe it will happen sooner than most people think. I look forward to the day when our family can enjoy great food, each to their own, in the comfort of our home, and more peace in my household.
About the Author
Louis Borders is the founder and CEO of HDS and was a founder of Borders Books & Music, Synergy Software, and Webvan. Louis revolutionized the retail book industry with the founding of Borders, the first book and music superstore chain. Borders successfully leveraged technology to improve the delivery of physical media to consumers. Louis sold his interest in Borders in 1993; at its peak, the company had annual revenues of $3.5 billion. In 1998, he founded Webvan, an online home delivery retailer, and served as its CEO until its successful IPO; the company achieved a peak market value of $7 billion. Louis holds a B.A. in Mathematics from the University of Michigan and completed graduate coursework in mathematics at MIT.
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