Maybe We Should All be Chain Restaurants
The case for restaurants to take blockchain technologies really seriously
This is a long one- I’d probably listen to it if I was in your shoes.
(Audio by Eleven Labs- can be a little wonky)
TL;DR
You don’t need to understand anything about blockchains, cryptocurrency, or Web3 to read and understand this piece or work with the companies referenced in it
The internet has been great for restaurants in many ways but generally bad for restaurant profitability
A major reason for this is the ‘attract then extract’ model of centralized networks and companies like Doordash, Opentable, Ubereats, and EZ Cater
Blockchain and Web3 technologies could change that by cutting out middlemen (disintermediation) and facilitating direct cooperation between restaurants and guests
Disintermediation would remove costly tolls mining restaurant profits
Cooperation could help unlock high margin revenue that is not directly tied to labor and cost of goods
3 companies that are in their early stages offer a glimmer of what could be- Nosh, Roux, and Blackbird
All restaurants, especially small independents should keep an eye on these companies and others like them that will emerge
Regardless of your interest or access to these products, all restaurants should think about disintermediation and cooperation to preserve profitability
If you want to watch this space, I’ve found a16z crypto and Variant Fund to be good resources
The internet has been great for learning about new restaurants. It’s been great for spreading diverse food culture. It’s been great for creativity and innovation in restaurant food and beverage. In aggregate though, I’d argue it’s been bad for the economics of restaurants. My rationale for this is simple- profitability in restaurants has been consistently down in the age of the internet; it’s currently around 4% nationwide. Accurate historical information on restaurant profitability is hard to come by but my own experience says this is down from 8 to 12% over the last 10 to 15 years. Some of the downward trajectory over the period is correlated to the rise of the internet, like the fact that wages have rightly increased by nearly 50% since 2017. But some is also caused by the internet, its means of commerce centered around ads and attention, and its tendency toward power law distributions where value accrues to a centralized entity.
I read Chris Dixon’s book Read, Write, Own a few months ago and have been thinking a lot about how blockchain technologies and Web3 might help change this trajectory. The point is not the technologies themselves but what they could facilitate, specifically around disintermediation and cooperation. Disintermediation is the fancy way of saying cut out some middlemen. We all know what cooperation is. After months of thinking on this, I still don’t really understand how blockchains work so I am not going to try and explain it and it’s actually not important. What I do think I understand is that these technologies can (that ‘can’ is admittedly doing serious work) facilitate a shift wherein the financial benefits of being a restaurant on the internet might accrue more to the restaurant than the giant corporations currently mining restaurant profitability down to near zero. My goal here is to demonstrate how this shift might occur by walking through the potential for disintermediation and cooperation.
To keep this practical, we’ll use 3 real companies that have built blockchain technologies for restaurants or very adjacent to them. Nosh is a delivery network that is owned by the restaurants and drivers themselves. Roux is a food culture network creating the digitally-native ownership layer of recipes. Blackbird is a payment platform and loyalty app from the founder of Eater and Resy. I spoke to people from each company, read many articles, dense technical white papers, and listened to a lot of podcasts along the way. It honestly became a lot to get my head around so I put all the content I consumed into a custom GPT to help me synthesize it. I thought I’d share that here as well so that you can, if you’re so inclined, do a little exploration yourself. This is the folder of all the materials used to train the GPT. I can’t embed the GPT it here but you can click out to it here or in the caption under the video.
Ok- let’s get into it.
Disintermediation
The fastest growing line item on our restaurant P&L is marketing. We are a rotisserie, bar, and cafe that is open from 8AM to 11PM. We offer reservations through Opentable, delivery through Doordash and Ubereats, and catering through EZ Cater. Each of these companies, to varying degrees, employs the ‘attract and extract’ cycle that Dixon talks a lot about in Read, Write, Own. It’s exactly what it sounds like- attract an indispensable audience of restaurants and guests to then extract money, mostly from the restaurant, for access to the guests, over and over. Extraction most often comes from revenue shares or pay-to-play advertising for visibility. Our restaurants do about 25% of our business off premise, with over half of that coming through these 3rd party services. This has led to a tripling of marketing costs in the last 3 years. I’ve written previously that these services are rewarded for maximizing average revenue per user (ARPU) and lifetime value (LTV). Attract and extract means mining restaurant profits to nearly zero in pursuit of ARPU and LTV.
Disintermediation means connecting directly with your guests without having to "rent" them back from OpenTable or DoorDash each time they want to dine or order with you. Today, a restaurant has to repurchase the same guest over and over through various platforms, paying a toll each time that guest wants to make a reservation or order delivery, even if they've been dining with you for years.
Cooperation
Our industry, while competitive, has always found informal ways to help and support one another. Cooperation at scale is the ultimate human super power- see the collected works of Yuval Noah Harari. But in an industry as fragmented, labor intensive, and slim-margined as restaurants, cooperation has been hard bordering on impossible. Blockchain technologies could enable new forms of structured cooperation that grow profits for all participants. Imagine a neighborhood of restaurants pooling their purchasing power without a group purchasing organization taking a cut, owning and monetizing recipes that generate incremental passive income, or creating joint loyalty programs where fine dining restaurants and casual spots could bundle together in ways that make sense across their guest bases. These aren't just handshake agreements - blockchain technology can "hardwire" the rules of cooperation (like revenue sharing, loyalty point values, or purchasing terms) so that everyone knows exactly what they're getting into and no one can change the terms once they're set. In this way, restaurants could finally achieve the benefits of scale while maintaining the independence and uniqueness that makes the industry amazing.
The Companies
Enough theoretical, let’s talk about the companies actually doing this. I am sure there are more but I’m focusing on Nosh, Roux, and Blackbird. In talking to these companies it’s clear they all want to build something big and impactful but are also motivated by something beyond financial returns. They’re all pretty narrowly focused right now, as they should be, but the underlying ideas and overall visions are groundbreaking.
Mike Perhats is the founder of Nosh, a cooperatively owned delivery network in Colorado. The restaurants and drivers own the network, not a centralized corporation. Perhats clearly articulated Nosh's four goals in a recent episode of the Fuzzy Logic podcast.
Economic Sustainability: Nosh seeks to create a delivery model that is financially viable for smaller, independent restaurants, which often struggle with the high fees imposed by larger delivery platforms
Balancing Convenience and Cost: While delivery apps offer convenience to consumers, they often impose significant costs on restaurants. Nosh aims to balance this by providing a service that is both convenient for customers and cost-effective for restaurants
Addressing Power Dynamics: The rise of app delivery has shifted the power dynamics in the restaurant industry, often to the detriment of smaller establishments. Nosh aims to level the playing field by offering a more equitable solution
Avoiding the "Bait and Switch" Tactics: Many large delivery platforms initially offer low fees to attract restaurants, only to increase them significantly once they reach scale. Nosh aims to avoid these tactics and provide a more stable and predictable cost structure for restaurants
In our call Mike reminded me that food delivery used to be a very localized thing. Even third party services fulfilling deliveries were small local businesses until the mid 2010s when Doordash, Uber, and Grubhub began acquiring and consolidating the entire market- attract and extract. While Nosh is laser-focused on restaurant delivery today, Perhats has big, inspiring ideas about how the model of decentralization through blockchains could apply to many of the massively consolidated corporate networks that extract so much value today.
Lisa Grimm is the founder and CEO of Roux. She describes Roux as a "food culture network" that transforms recipes from monologues into dialogues, bringing creativity and collaboration back to the kitchen. I spoke at length with Lisa and her co-Founder Maks Pazuniak. Both are longtime industry veterans who transitioned into technology. Lisa started in restaurants at Blue Hill at Stone Barns and The Dutch before joining Resy early on. She did a stint at WeWork and then Bentobox, which focuses on restaurant website design. Maks is a former bar owner of Jupiter Disco, a cocktail bar and dance space in Bushwick, Brooklyn and engineer- it’s truly amazing the pathways that industry people take over time!
Roux will launch soon, starting with a screened group of professional recipe creators across food and beverage. Eventually the plan is to open the platform to a wider audience of creators including restaurants. She highlighted much of her vision for Roux on the insightful and hilarious Glitter Ledger podcas and then elaborated further in our conversations:
Roux is the ownership layer of food culture. Roux enables culinary creators to genuinely own their work so they can be fairly compensated when others use their recipes, just like how musicians earn royalties for use of their music.
This unlocks the experience every consumer wants; no more ads, life stories, or fragmentation, and the creation of digitally-native kitchen primitives – Roux calls these forks (recipe edits) and stacks (recipe playlists).
This new infrastructure disrupts the traditional power dynamics of food culture. Where value once flowed through gatekeepers like platforms, publishers, and brands, now creators and consumers all contribute their collective culinary knowledge to a genuine network, putting control back in the hands of those creating value.
The result is a living anthology of flavors, ingredients and techniques that finally captures the true richness of food culture past, present, and future.
To dig into the product a bit more, Roux has created what it calls forks and stacks. Forks are when a user takes an existing recipe and adjusts or riffs on it to their preference. Stacks are basically collections of recipes. Recipes are free to view on Roux but when you want to fork or stack a recipe, you collect it for a price set by the creator. A crucial distinction here is the recipe creator retains full ownership over the original and shares in the value created, through blockchain smart contracts, over any forks off of it. In this way, recipe creators, be they chefs or bartenders or recipe developers, can earn passive income from others engaging with their creations. This may not seem revolutionary but the idea of monetizing intellectual property in a way that generates passive income is a game-changer for a low-margin industry like restaurants. It also fundamentally changes the relationship between the creator and their creation. Typically, recipes are shared into the world via intermediaries like publishers. In this way, Roux is aiming to disintermediate so that more value accrues to the creator.
The last company I talked with was Blackbird, a payment and loyalty platform that is live in New York, Charleston, and San Francisco with many more cities to come. Blackbird was founded by Ben Leventhal who also founded Eater and Resy. There’s an argument to be made that Ben has been one of the most influential people on the restaurant industry of the last 10-15 years. Here’s how I’ve come to understand Blackbird:
A loyalty platform that is purpose built for hospitality and recognition (for those who want it). The language of Be a Regular features prominently on a lot of Blackbird content
Blackbird uses their own currency called $FLY to reward diners, restaurants and restaurant employees much in the way that airline miles or points work
$FLY is a currency that can be used at any Blackbird restaurant anywhere in the world
A payment app that offers the elusive, frictionless Uber-like payment where you just leave when you’re done with your meal
The guest fully owns their data and choose to share it directly with the restaurant-
When I first heard about it I thought- another loyalty app messing up the end of a meal in pursuit of frictionlessness, and if we’re being honest, a little status boost. But it’s not- there are no middlemen, no toll booth, no attract and extract. It’s not free, this stuff is expensive to build but it’s also not predatory and parasitic. I think we, or at least I, have become so numb to the idea of giant corporate networks accruing all the value creation that it’s harder to see when there isn’t one.
Leventhal says that $FLY is the center of gravity for Blackbird. As a payment method it somehow allows Blackbird to charge restaurants significantly less processing fees than traditional credit cards. What he doesn’t say directly but what might be the biggest idea of all is the idea of an entirely new type of currency that is exclusive to restaurants. A currency that facilitates value creation that is shared with the restaurant and guest, not just extracted to the centralized network.
If you’ve heard anything about Blockchains, Crypto, or Web3 in general it’s likely tinged with some degree of skepticism. Rightly so when a nascent technology has already seen the FTX fraud and the rise and fall of multimillion dollar digital apes. But the hype and collapse is always how these things go. It even has a branded name- the Gartner Hype Cycle-see above. All this Web3 stuff is currently living in the Trough of Disillusionment; the period after a new technology fails to meet the hyped expectations. It’s very exciting to me that there are multiple companies focused on restaurants and food on the Slope of Enlightenment. This is the period where real world benefits emerge as companies and consumers find compelling uses for the technology. As operators we’re inundated with new technology “solutions” that are often less solution than problem. There will undoubtedly be similar pain points along the way as companies like Nosh, Roux and Blackbird come into our world. That said, I’m here for anything that has the power to cut out middlemen, facilitate cooperation, and increase profitability. Like I said, watch this space.