Invest Like the Best with Patrick O'Shaughnessy
· Nick Kokonas
And we went from furloughing our employees to hiring everybody back in four and a half, five weeks. Everyone who wanted to come back. And on the Tock side we were able to massively undercut the third-party delivery applications. DoorDash, UberEats of the world. Until then they were supplemental income to restaurants. So they could say, "Well, I'm charging 20% to 30% because you have no service COGS. You have no extra labor. We're doing the labor by delivering it the last mile." And restaurants signed up for that. But when it became their only source of revenue, that 30% suddenly looked egregious and painful. We charged a flat 3% because we built the whole thing on the back of our events platform that charged 3%. It wasn't like some miraculous thing. Frankly, I wish I'd charged 6% or 7% or 10%. But we charged three. In the intervening since March, we've signed up over 3,000 restaurants. Our business will be at a billion-dollar GMV run rate by the end of the year. An amazing mix of revenue between elevated carryout and to go reservations as places reopen. 70% of everything on Tock is a totally free reservation. It's not a ticket. It's not a deposit. It's that bar seat at Gramercy Tavern that's totally free. But the ability to sell that tasting menu and your carryout and all these things together make for a more resilient business model. Even as we reopened in the summer our patios and Alinea did a popup on the rooftop and all that. Even though we had replaced a lot of our revenue with the patios and whatnot, I insisted that we keep the carryout going because at some point I was like, "Hey, it's going to be winter in Chicago. There's no yurt warm enough, plastic yurt, to have two sides open when 20 below tundra in January in Chicago and it's snowmaggeddon again. And then I got to carry food out to that? That's not going to work. It's obviously not going to work." I'm amazed that all these restaurants are putting those up because that is a six-week solution to a six-month problem. They just closed down dining again in Chicago and we were able to instantaneously wrap up our carryout again. And that's the goal is to have that sort of resiliency even after COVID.
· Patrick O'Shaughnessy
[00:00:00] S0: Do you think that based on that observation that there's a big risk factor for those DoorDash, Uber Eats kind of delivery, last mile services because of how restaurants will inevitably have to change and it impacts their economics so much?
· Nick Kokonas
[00:00:00] S1: Yeah. I mean, if you look, every single one of the US based delivery applications actually lost more money during COVID even though their revenue tripled. As much as they are charging the last mile delivery to a single location is a model that doesn't make money, which is why there's a lot of consolidation there. I think there are ways to have it make money. And part of the way to do that is what we've done which is give the consumer a choice between picking it up themselves at the restaurant or paying for the convenience of having it delivered and then splitting that cost with the diner. So if someone picks it up, we charge the restaurant 3% for the order and we charge the consumer the $1 for the order. That's it. If someone's delivering it, we utilize these third-party delivery, last-mile applications and we integrate with them seamlessly, but we've essentially convinced them that we're going to charge the consumer a flat $5 to $7. And if someone's selling a $50 menu and four people order it so it's a $200 carryout order, which isn't the case with casual places, why should the delivery app get $50 to take it a mile? Doesn't make any sense. I think that there are ways of changing their pricing model that doesn't impact the restaurant as much, still good for consumers and gives consumers a choice, but kind of spreads out the true cost of doing that delivery. Which is also equitable to the drivers.
· Patrick O'Shaughnessy
[00:00:00] S0: I'd love to close our conversation with one of the places that we started. I'll call the idea sort of process as art. Your Picasso example of going to the trouble to expose the process as part of making people aware of it. The whole conversation maybe I would sum up as know your customer, know what you're selling, and sell it to them. It sounds so simple but so many implications. What do you think about just businesses in general and how they communicate with their end customers and whether or not things like ... We mentioned Michelin stars a few times and I think of that as this amazing thing that changes the trajectory of a restaurant. But that ultimately the best thing would be to create that impression directly to the consumer, not through Michelin. Close with any thoughts on this idea of process as art, direct to consumer, and just the future of business.
· Nick Kokonas
[00:00:00] S1: Yeah. I mean, you have all the tools to know your consumer and interact directly with them. For the first 10 years of Alinea, every single day when I woke up I emailed two people that were either diners or posted on their blog about their dinner. Or on Yelp or wherever it may be. Because I figured over the course of a year I would email 700 customers and they would be like, holy cow. That's a very simple thing. It took me about five minutes a day to do. And as social media grew up around it, I just went, "Oh, that's even more effective way of doing it." I think that knowing your customer literally, who is it, and then having the ability to interact with them in an authentic way is the key to all business. At the end of the day you buy the person as much as the product. And that's why in America so many executives, both for good and bad, come to be known ... If you say Apple you think of Steve Jobs still. When you think of Tesla you think of Musk. That's because they're out there actually selling their product and their ideas. But of course they're the cumulative ideas of thousands of people. But they're the good communicators. And at the end of the day ... You're a philosophy major, I was a philosophy major. One of the things I learned in studying philosophy is how to think critically of something that I've learned or read, and then how to write about that in a concise and efficient way. So when I write a business plan, I don't understand the business until I can write about it on a single page. I have chefs all the time email me with business plans. And I say, "Do me a favor. Write up one page of what it's like as a diner to eat at your restaurant." And then I don't hear from them for two months, if ever. Because they don't have a clear vision. They have a clear vision of what food they want to give to someone. They don't have a clear vision of who that person is and what sort of emotionally resonant experience that you're creating with them. All the time we try to communicate directly with our guests, both on the Tock side and the Alinea Group side. And I've consulted for other businesses as well in the past couple of years. These are the kinds of really stupid questions I get paid money to ask. I'm always amazed when I go in there and I was like, "Okay. Show me your customer list for the last six weeks." And they can't.
· Nick Kokonas
That just seems insane to me. And let me tell you, almost no restaurant can do that. There's also a lot of other businesses that can't do that. So that's incredibly simple to do, but it's really hard to execute. And none of this has been fun. Let me also reiterate, COVID has been terrible. It's been emotionally draining. It's been incredibly difficult on our staff. We've had to hire people back. We've had to re-furlough people. We've constantly had to change. We were about to do a popup at a hotel which gave us extra square footage so we can run at 50% capacity. We were about to spend $30,000, $40,000 creating this really cool multimedia experience for diners in there. We were working with sound and lighting companies and all that. And then they shut indoor dining again. The next day, as soon as it was shut I was like, "Okay. All that's done. We're not going to do that this year." And then people were like, "Why not this year? It might only last two weeks." I said, "Well, we can't outlay all that money and then open for a week and then close for Thanksgiving and then open for two weeks and close for Christmas break." So it's become easier to make those quick decisions, but I want to reiterate none of it’s fun. It's all been a struggle. It's not like I have the answers. We're willing to try things. And it's been very, very difficult and sad frankly. It's never fun to sustain a business and your employees and not have a goal of thriving. We do keep that as the goal, but it's been challenging.