February 24, 2021
Like the clinks and clamor of a crowded dining room, the chatter around the trajectory of the hospitality industry has crescendoed over the last few weeks.
It’s no secret that restaurants are hurting. Lockdown restrictions have decimated entire markets, like my hometown of New York City, and the increased reliance on third party delivery apps, like DoorDash, poses an existential threat to the industry. But amidst the devastation, we see signs of hope for a culinary renaissance in our beloved city and beyond.
In this essay, we’ll leverage the Back of the Napkin VC framework to:
Much has been written of late on the predatory influence of third party delivery apps, and for good reason. Their increased influence has demonstrated the unsustainability of their model in the dining ecosystem. But, restaurateurs faced an abundance of challenges long before the pandemic and the rise of DoorDash.
A closer look at the business equation and unit economics of a traditional restaurant reveal many of these issues. Restaurants sell perishable inventory for thin margins. Their capacity is constrained by both space (seats, kitchen, etc.) and time (freshness), and cannot scale without the high variable costs of food and labor. The business is exposed to the risks of a single income stream, which has proved fragile to say the least.
However, despite these challenges, some chefs have escaped the pitfalls of the traditional restaurant business by establishing a new model. We call them the “empire chefs”.
When Anthony Bourdain was offered a $50,000 book deal after the success of his 1999 New Yorker essay, titled “Don’t Eat Before Reading This,” he quipped, “I’m no dummy, I’m dunking french fries at age 44, I’ll write the damn book.” That book would become Kitchen Confidential and propel Bourdain into a lineage of chefs who evolved their restaurant careers into media and commerce empires.
The trailblazers of this model leveraged their unique brands and celebrity to win partnerships with traditional media and merchandise companies and build robust businesses. Wolfgang Puck grew his “pizzeria to the Stars” in Hollywood’s Spago into a multi-million dollar frozen pizza business with a Gelson’s grocery chain partnership. Bobby Flay grew his New York City star power at Mesa Grill into original television programming on the Food Network. By selling physical and digital products, these chefs expanded their empires beyond the constraints of the physical restaurant.
Best yet, this model established flywheels of accumulating advantages. A successful restaurant generated demand for productized extensions of the brand, which could be satisfied with authentic, scalable media and merchandise. These products established a wider audience for the core restaurant business and strengthened its financial health enough to reinvest in new concepts, thereby resetting this positive loop. Flay recognized this early on, saying: “Every time I'm on TV, I'm gonna get people to understand that I own a restaurant, and I'm gonna put more asses in the seats.”
Today’s champion of this model is David Chang. He runs a constellation of successful restaurant concepts, called Momofuku Group. In 2018, he leveraged his success in the kitchen to launch Majordomo Media, which produces content, including a Netflix show and podcast on Spotify’s The Ringer. He also runs an e-commerce business, called Peachy Keen, which sells products that feel like a natural extension of his entire brand, like soy sauce and seasoned salts. Even more, he leverages the digital delivery platform, Goldbelly, to ship frozen prepared meals nationwide.
He, too, recognizes the significance of the flywheels here. “If the media takes off, that’s more stuff that we can bring back to the restaurants. Maybe people will never want to pay that much money for food. Maybe we can subsidize some of the costs with other stuff that’s elevating our business,” he told ReCode.
These shows and products engage a much wider and diverse audience in a distinctive and more engaging format than he can deliver in his restaurants, alone. He’s generating a wider customer base for his traditional restaurants, while diversifying his income stream with scalable, higher margin sources like production contracts, advertising revenue, and merchandise sales. By carefully staying true to his message, his brand becomes more intimate as it gets bigger because he’s able to introduce new ways to engage his audience authentically.
Surely, we can’t all be David Chang. But new digital platforms are empowering a new generation of culinary entrepreneurs to pursue a similar model without the previously required scale or starpower.
Whereas the “empire chefs” of yesterday required partnerships with traditional gatekeepers in media and commerce, the independent restaurant entrepreneurs of tomorrow will leverage technology to build scalable, resilient, robust businesses on their own.
Entrepreneurs have access to digital business-building tools that simply never existed before, democratizing access to a new kind of internet-fueled “empire” building (a concept popularized by the “passion economy”). Independent businesses can leverage digital platforms to grow and engage their audience, spin up digital and physical products, monetize these efforts, and manage multi-faceted businesses without the technical expertise or financial investment that was previously required.
In the old model, celebrity chefs looking to expand their empire needed partners for everything from production to distribution to capital to infrastructure. Puck needed the grocery stores. Bourdain needed the publishers. Flay needed the networks. Today’s restaurateurs only need an internet connection to build a business that can both scale larger and penetrate deeper.
By leveraging digital platforms to build and sell products and services, culinary creators transcend the constraints of the physical space and variable costs of the restaurant. The tactile aspects of their business -- the food, the people, even the real estate -- can be productized into authentic, scalable extensions of that brand through things like courses, communities, and content. This model generates the positive flywheel effects of an internet business, like network effects and economies of scale.
Perhaps most excitingly, this model increases the viability of the local, independent restaurant by maximizing the value extracted from its niche. Whereas before the only real option for a restaurateur looking to grow sales was to expand to new geographic markets, now they can generate more income by penetrating deeper into their audience. They can segment their customers from casuals to superfans and use these platforms to offer tailored products and services at varying price points. These offerings are more scalable, higher margin, and diversify local businesses away from a single income stream, strengthening its overall health.
This transformation is already underway, and it’s being led by individuals.
Molly Baz left her position as an editor at Bon Appetit (and earlier as a cook in NYC) to run her own business. She cultivates a broad audience on Instagram of more than 600,000 followers with photos, recipes, and collaborative Instagram Lives, called You Got Snack’d. Further down the funnel, she markets her forthcoming cookbook, Cook This Book, and “Molly Merch”, as well as her subscription Recipe Club on Patreon and membership community on Discord. She is able to build a wide-reaching brand, while also more intimately stimulating (and selling to) a segment of passionate fans, who become her advocates and sales force in ways that generate positive flywheels.
My friend, Brandon, left his role as Wine Director at NYC hot spot Charlie Bird to build his own business, vin-decision. He has a small, but fiercely engaged community of wine enthusiasts for whom he builds digital and physical products. He manages his email list with Mailchimp at the top of the funnel, uses Paypal and Zoom to orchestrate weekly virtual wine tastings, and at the bottom is building an e-commerce and consulting business around wine purchasing, called vin-picks. By penetrating deeper into his niche using digital platforms, Brandon maximizes the value he extracts from his customers way more than he could as a traditional sommelier. In addition, he benefits from a virality that couldn’t be realized at Charlie Bird, as his perpetually-engaged superfans spread his digitally-attainable products.
Independent restaurants are catching up, but there is still room for growth.
To use a tangible example, the delicious and always-buzzing pasta restaurant on our block, Misi, successfully pivoted to grocery and kits and eventually spun out its own pasta brand, amidst the pandemic. They could further embrace the “culinary creator” model by building a subscription-based community on Patreon where members get access to special content or early access to reservations and merchandise. They could leverage white-label merchandising suppliers like Faire or Fanjoy to build out their e-commerce offering. Chef Missy or her sous chefs could sell a pasta-making course on Teachable or charge for live streams of kitchen prep on Twitch. Owner Sean could lead a paid community on Circle with fans interested in the ins and outs of the business’s operations. All of these efforts would be relatively easy ways to strengthen an already-successful business, increase the breadth of their audience, and deepen the relationships with their most loyal customers in ways that generate accumulating advantages.
At Back of the Napkin VC, we’d like to empower the entrepreneurs that are fueling this renaissance of restaurants and entrepreneurship.
We built The Hospitality Stack, a free resource for aspiring culinary creators to build scalable, sustainable businesses.
If you’re working at all in the space, we’d love to hear from you. Whether you’re a culinary entrepreneur or operator, content creator, or digital platforms, we’re excited to learn from you and help you achieve your mission.
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