The trouble with existential threats is they very rarely show up and announce themselves. When Amazon launched in 1995, it looked to most as a one-trick eTailer that sold books online. A quarter-century later, that online bookstore has profoundly changed the retail landscape and every player operating within it. It would take the better part of two decades for most retailers to see Amazon as much more than a niche business responsible for a tiny fraction of all retail sales on a channel they never thought would be that important.
Restaurants, Olo CEO Noah Glass told Karen Webster in a recent conversation, find themselves standing on a similar precipice today, similarly unaware in many cases. For years, they were comforted by the idea that food was such a totally physical experience that they were immune to an Amazon-type threat. And, he noted, in a way they right. Narrowly speaking, Amazon’s mastery of hub-and-spoke logistics model has, at least so far, turned out to be ill-suited to food delivery which is all about pick-ups and drop-offs from multiple locations in close proximity.
What they have been slower to see is the threat of the aggregators — the Uber Eats, DoorDash and Grubhub’s of the world — that have quietly kicked off a radical shift in how consumers eat. It’s an existential threat pointed right at their most critical asset: the relationship that they have with their customers. A relationship that aggregators are out to disintermediate.
“We find we have to work hard to educate restaurants without terrifying them,” Glass told Webster. “[The restaurants] are going up against the back belt ninjas of digital customer acquisition and management, the absolute best of the best. [Restaurants] today run a real risk of bringing knives to a gunfight.”
Giving Customers What They Really Want
A customer using an aggregator to place a food order, Glass noted, is there for one of two reasons. The first is that they are hungry and know what category of food that they want but not what restaurant to order from. In that case, the aggregator serves as a useful discovery platform for that restaurant and can, in Glass’ opinion, correctly claim that these customers are incremental since without their platform the customer would have never found their restaurant.
The problem is the second case - Glass explained - they one marketplaces don’t want to talk about. Many consumers are, in fact going to search not for something general, but something specific. Most consumers — 51 percent of consumers, he noted, know exactly what meal they want to get and from what restaurant they’d like to get it from. But the first few listings they see when the search results come back are the aggregators listing for those specific brands. That’s because the digitally native platform businesses are quite a bit more skilled at bidding on AdWords and SEO optimizing their pages than a restaurant is. And when a customer is in a hurry and looking for the shortest path to getting a cheeseburger to their door, they click on the first or second search return they see. That scenario, Glass explained, means that increasingly the price restaurants are paying for incremental spend on to end up with intercepted spend as an unintended consequence.
“Logically speaking it's just not true that in these cases, marketplaces are a great discovery tool. The customer is actually looking something up by name on Google and getting diverted to a marketplace,” Glass noted.
Solving for that — and putting control of the customer relationship and aggregator commission back in the pockets of the restaurant is the essence of Olo’s new integration with Google. Consumers can order directly from Olo-partnered restaurant brands across Google Search, Maps and Google Assistant with a couple of quick taps. Glass emphasized that this new capability gives restaurants a direct transaction opportunity from a consumer searching for their restaurant along with an easy way for the consumer to import their payment details and delivery information. Olo’s digital ordering platform also connects restaurants to its dispatch network — that entire experience also means they can offer delivery via application programming interface (API) connection to a third party operator instead of having to either build in-house function, or rely on the marketplaces. More streamlined and less friction, he said, means bigger and more frequent basket sizes — as well as more profitable ones since restaurants don’t pay 30 percent of that sale to an aggregator.
More importantly, Glass noted, the integration with Google is helping to keep the customer connected to the restaurant brand itself, and away from the next round of challenges that these delivery marketplaces are beginning to mount against them.
Avoiding The Apocalyptic Scenario
Ghost kitchens are starting to pop up in the U.S. — usually run by third party operators — that allow restaurants or even chain brands to lease space in an offsite facility that specializes in preparing food and handing it off to delivery drivers. Those third party-operators, he noted, might be a competitor to restaurants and even a powerful one, but they are not on their own a doomsday scenario.
That, he said, is what is happening all over the U.K. and is starting to happen in the U.S. care of Uber Eats — and that is that these aggregators are opening their own ghost kitchens and competing directly with the restaurants.
“That is the direct-to-consumer experience that can truly be the restaurant killer — it is the restaurant equivalent of the Amazon Basic brand that gets top billing on the platform, can be priced more competitively and can be targeted to what they know consumers are already buying the most of,” Glass said.
It would be nice to think that customer loyalty will carry the day here. That customer who loves their local coffee shop or tapas bar will be committed enough to seek out the brand, instead of defaulting to the path of least resistance on a marketplace. But the reality, Glass said, is that customers may have great intentions, and even make an effort to avoid the marketplace, but that an empty stomach engenders and a desire for a simple and immediate path to assuaging those hunger pangs means that even those with the best of intentions won’t fight back.
“I think if you want to have a real impact on the area and capitalize on consumer loyalty, it won’t be about appealing to their sense of fairness,” Glass said. “It will be about giving the consumer a good reason to order directly from the brand — because the experience is actually just easier and even more friction-free than a marketplace order.”