September 25, 2019

It’s Sweet to be Sweetgreen

From time to time, investors get really excited about a food or restaurant brand that’s purportedly disrupting the industry. This has happened to coffee, and fake meat, and salads, netting food brands coverage in the tech press and tech-fueled excitement in the food press.

According to recent Wall Street Journal coverage, salad giant Sweetgreen just raised another $150 million (that’s a series I, as in ice cream), and once again the headlines tout the company’s tech savvy as its avenue to growth and a potential IPO. The company, now worth $1.6 billion, has earmarked the cash infusion to continue building its tech stack, more-than-hinting at an in-app delivery option in 2020. Most of the chain’s in-store orders are placed via mobile app, a big win for the company.

Sweetgreen raised $200 million in November led by Fidelity Investments, making it the country’s first salad unicorn. (Unicorn salad?) At the time of the investment, the company said it intended to use the money to advance its tech and grow its footprint. Sweetgreen has done the latter, in part, via new “Outposts,” or, central pickup locations usually located in large office buildings. This gives people a place to pick up a preordered lunch with no delivery fee, giving Sweetgreen a hearty slice of the lunchtime pie in competitive markets.

On the delivery front: maintaining one’s own channel for digital orders for both pickup and delivery is a complicated. There are only a handful of large companies that go it alone in the delivery space, Jimmy John’s and Domino’s among the most notable.

In fact, “go it alone” is almost a misnomer here, because when it comes to ordering and delivery tech, the options aren’t all-or-nothing. A restaurant, large or small, can use a third party vendor to accept orders, but hire its own fleet of drivers. A company could build its own order-taking software to deploy on the web or mobile apps but use a third-party delivery service to handle the logistics. And just because a business accepts orders via its app — like Chipotle, for example — doesn’t mean they’re flying solo. (DoorDash powers Chipotle delivery in the majority of its locations.)

Back to the VC money. Is Sweetgreen a tech company or a restaurant brand? Well, is WeWork a tech company? Is Uber? On the surface, what’s making Sweetgreen attractive to investors — to the tune of hundreds of millions — is that it’s a beloved brand using technology to fuel its expansion in tech-savvy (read: affluent) circles. There’s nothing wrong with a viable business strategy, and for its part, Sweetgreen has also publicly committed to a number of for-the-greater-good initiatives, like remaking school lunch.

The challenge that remains is maintaining an attractive hospitality business in spite of heavy tech influence. For example: the company instituted a no-cash policy in late 2016, though later reversed course last April. The increasing momentum of local legislation mandating businesses accept cash in a few markets likely influenced this decision, as did growing concern that cashless policies are discriminatory.

Bon Appetit Delivers… in Chicago

Not content with its own (contentious) list of restaurant recommendations, Bon Appetit, the editorial brand, will also cook food for you. The announcement comes in partnership with Grubhub in the tech company’s hometown of Chicago.

The venture is the latest virtual concept from Chicago-based Lettuce Entertain You, a restaurant group with over 130 brick and mortar restaurants in its portfolio, spanning nine states. So that’s working — why not add a little brand-based diversification?

According to a Grubhub representative, the concept is meant as a kind of high-profile test case. Grubhub is using the Bon Appetit concept (and a similar Whole30 concept, announced in August) to test and refine all aspects of a virtual restaurant, including refining delivery logistics, capitalizing on diner trends, and optimizing the menu.

Financial details about the partnership are unclear, but give a quick thought to who has the most to gain here: A restaurant company with great reach — or — a media brand that’s a part of an industry facing rapid change and declining ad revenue able to align itself with an of-the-moment opportunity.

To be fair, I’m personally a big fan of Bon Appetit’s editorial products and recipes. But would I order them for delivery? Probably not.

What else is happening?

Square changed its transaction fee structure…
…and it makes small purchases more costly for vendors. The company will now take 2.6 percent + 10 cents on each purchase instead of 2.75 percent. As Bloomberg notes, this means that businesses will pay Square more for transactions up to $67, which is the equivalent of like 12 lattes at my local coffee shop.

Postmates secured another $250 million in VC funding.
As Business Insider notes, this is an unusual move ahead of a planned 2019 IPO. The company filed confidentially at the beginning of the year but has yet to set a date.