Winning The Last Frontier for Consumer Internet
I strongly believe “food”- specifically the business of running restaurants — is the last frontier for consumer internet. If you look at most valuable consumer-facing businesses — travel, hospitality, retail, home entertainment, taxi/commute, they are all internet companies. In the last two decades, Amazon, Uber, AirBnB, Priceline and Netflix have overturned old behemoths such as Walmart, Hertz, Hilton, Amex, Blockbuster and the likes to become world’s most valuable companies. In spite of all the puritans, who would never buy a tuxedo on the internet, things have irreversibly changed.
However, there is one consumer-facing industry where the internet has made minimal inroads — the business of building restaurant brands. McDonald’s is still world’s most valuable restaurant brand, followed by Dominos and Yum Brands. As you can see from the charts below, the value of these brands has grown substantially over the past few years. In fact, the Dominos journey in the last few years dwarfs the tech biggies’ performance with respect to value creation.
Surprisingly, no ‘real’ food company has leveraged the internet to build and create great food brands. I am not talking about food delivery companies such as Delivery Hero, Swiggy, Zomato, Deliveroo and ele.me. They are doing a grand job of building the market out. Instead, I am talking about actually creating and building delivery-only food brands and cuisines on the internet.
Our team firmly believes that “food” is the last frontier for consumer internet and this presents a massive opportunity. Over the next 10 years, the ‘Kitchen’ as we know it will come under significant threat. Already, young independent people under 30 are ordering multiple meals during a week from one of several of their favorite restaurant brands. So far, no delivery-only company has scaled to a meaningful level, until we started realizing the power of the internet when applied to building and creating great cuisine brands is a complete game changer.
So far no other company has harnessed the power of the internet and applied it to build great cuisine brands. I am the most excited that I have ever been in my life these days, as we at Rebel Foods, are spearheading the development on this — worldwide. I consider it a great privilege to play a part in changing a 500 year old business model.
Rebel Foods, our seven year old startup, commonly known for one of it’s larger brands, Faasos, is at the cusp of revolutionizing the business of building and running virtual restaurant brands, globally. We are the largest internet restaurant company in the world, by a wide margin. Some people tell us that this has not happened in the US, Europe or China, so it’s hard to believe that it could happen in India. After all, most of our tech stories are influenced / inspired by global companies. But then, data does not lie and I have strong reasons to believe that, like mobile leapfrogging landline telephony in India, internet food brands are poised to disrupt the most valuable restaurant brands domestically and eventually globally. Ground level infrastructure being the bottle neck is the driving force for innovation in both cases.
Before I delve into how we are bringing forth this revolution, here is a snapshot of our growth — built on a network of cloud kitchens in 15 cities, a pan India supply chain, an integrated technology backbone and a passion for all things food.
Our revenues and # of restaurants both grew by 4X over the past 24 months, while our kitchen footprint only grew by 20% over the same period. Our kitchens are becoming profitable within three months and our investment (capex) in them is paid back in less then 12 months. We are able to launch new cuisine brands with Zero additional capex and very minimal marketing across the top 12 cities in India within 3 months of creating a new product. We have Zero location risk as each kitchen serves multiple brands (think a fully equipped, state of the art, 5-star hotel kitchen). This is fundamentally the power of building delivery-only food brands on the internet.
Fundamentally, there are three disruptions that we are bringing to the table:
- Taking real-estate demand out of the equation:
This has always been a thorn in the side of all restaurant businesses. Everyone who wants to open a restaurant is eyeing the same location, believing that a restaurant’s success is predicated on location, location and location. This supposition has two flaws.
First, demand far outstrips supply, especially in India, where a shortage of quality real estate forces rents to be amongst the highest in the world.
Second, locations can lose their appeal over time as traffic patterns change, new buildings are constructed, malls spring up and as flyovers are built in front of choice spots.
At Rebel Foods, we have fundamentally reduced location and real estate risk to zero. Our industrial kitchens are strategically placed in locations that landlords struggle to rent. We get a great deal on rental rates and the landlord avoids pitfalls associated with vacancy. In fact, relative to the restaurant industry norms, our rent expense is the lowest by 3–5x the market.
2. Making store stagnation a non-issue:
No other industry has seen the tyranny of S curves more than restaurants. Typically, this is how a restaurant revenue and costs move:
Same Store Sales growth over the long run typically hovers between 2–5% while costs increase at inflation, making a once profitable restaurant loss making after only a few years. And because of high fixed costs associated with branding and establishment, it is nearly impossible for restaurants to surmount this stagnation.
For Rebel, this is a non-issue, because once a kitchen is built, we can continuously build multiple restaurant brands from that location. And, because there is no association between the brands and the location, we can keep creating the best possible cuisine brands without ever having to change anything, including the signage. In the last 24 months, we have incubated and scaled seven restaurant brands to more than 100 locations, without incurring any additional expense — thus putting up 1000+ restaurants across India. Our revenue versus cost curves are depicted below:
3. Tech product like iterations to find product-market fit:
When you start a restaurant, you basically take the gamble of your life. Even before knowing if your product will sell or loved by many, you punt and put all your savings into building the restaurant of your dreams. And this paradigm not only applies to individuals, it also applies to multinationals opening hundreds of stores before ascertaining whether a particular market is viable. For example, the Dominos franchisee in India recently launched 100+ Dunkin Donuts locations across the country, only to close 50% of those within 24 months, because “it did not work out.”
Our strategy is quite different. We launch a restaurant brand or product in only handful of kitchens, then include them on distribution channels, solicit feedback, iterate and iterate and iterate until we get both the product recipe and economics right. But once we sense customers are loving it, we go crazy scaling it. Below is the result of our approach. Our biryani brand, Behrouz Biryani, was built nationally in 18 months, riding on our network of existing cloud kitchens — today it’s the second largest biryani brand in India.
Based on our experiences of the last eight quarters, I know we are onto something incredibly ground breaking. Today, hundreds of thousands of customers depend on our food brands to help satisfy everything from a quick lunchtime rice-meal to an exquisite biryani dinner with friends and family. Our core mission continues to help us focus on improving the overall food experience by making great meals with the best possible ingredients and delivering the food in the shortest time possible, consistently.
We are now gearing up for installing our next 1000 kitchens across India and then spreading our wings globally. And through all that, pave the way for winning the last frontier for consumer internet. Admittedly, we are still scratching the surface — still day one as JB* would say, but the future looks full of promise.
As a parting note, I thought it would be appropriate to compare some of our economics with those of traditional restaurants, just to drive home the point that this is reality and no longer just a pipe-dream.
Thank you for taking time out of eating and reading this.
*Jeff Bezos in case you are wondering.