Consumer Goods have experienced an explosion in “digital-native brands.” These brands, defined by Bonobos CEO Andy Dunn are “born on and primarily experienced via the internet [and] features a vertically-oriented business model which combines the margin of the retailer and brand.”
Digital-native brands offer consumers three benefits:
- Frictionless brand experience from exploration to ordering to delivery to returns
- Relationship with the brand and product that makes use of the features of the internet (e.g., customized marketing offers, customization of product, personalization of product, subscription delivery)
- Better value as costs are reinvested from items consumers care less about (e.g., a retail presence, salespeople) to things consumers care more about (e.g., digital self-service, delivery convenience, price or product)
Almost every category of consumer goods has seen an entrant (or ten) trying to disrupt their respective categories. Growth rates have been astronomically higher than underlying categories. And valuations have been similarly high.
As consumers vote with their wallets and migrate online, offline retailers are feeling the pinch. Nearly 7,000 brick-and-mortar stores closed in the United States in 2017. During the same year, Shopify grew by 73% and powered over 600,000 unique stores, generating a $26.3 billion yearly gross merchandise volume (GMV). Credit Suisse predicts that 25% of all US malls will close over the next 5 years.
Restaurants are starting to see similar trends emerge. Independent restaurants are declining, and growth in chain restaurants is decelerating. Meanwhile, online ordering for restaurant delivery is growing at a double-digit pace (Cowen’s Digital Delivery Survey estimates 16% growth in digital ordering in 2018). And I expect the growth rate will accelerate as more and more Americans adopt this behavior.
In spite of these signs of things to come, restaurants have not yet gone digitally native. Large brands are famous for their twitter feeds. But only Sweetgreen has really shown a digitally-oriented approach to interacting with consumers. A few small virtual restaurants have been seeded by Uber; but they are mostly food fulfillment relying on the third party marketplaces to generate demand. There is no digitally native restaurant brand that interacts with the consumer primarily on the internet – conveying their brand, generating demand, and selling through the internet.
What would a digitally native restaurant brand look like? How would it tell its story? What would its menu be like? Would it follow the DNVB’s to dramatically reduce the prevailing price for its products? How would it make use of the interactive environment to customize sales in ways too challenging for a brick & mortar to execute?
Answers to these questions and others are precisely why we at Kitchen United recently launched our very own digitally native restaurant brand: Fresgo.
Fresgo: A Study in Progress
Fresgo (a mash-up of Fresco or “fresh” in Italian and “Go!” that is an explicit reference to food on-the-go) was borne out of a desire to both learn and demonstrate how a virtual restaurant brand would work and succeed. All learnings and data gathered from launching Fresgo will be shared and discussed with Kitchen United’s other restaurant partners to help everyone involved learn and grow more efficiently and effectively. One of Kitchen United’s goals from the beginning has been to leverage our collective restaurant and business experience to demonstrate our leadership position within this quickly emerging and high growth segment of the restaurant industry. Fresgo, in this sense, is simply a way for us to put our money where our mouths are and learn by example.
To start, all facets of the brand and business are being designed with the end user in mind. We began with an open-ended process to select the proper cuisine. Through our research into the demographics and competitive landscape of the trade area, we settled on authentic Italian sandwiches or Panini, salads, pasta and more.
Fresgo has the benefit of being built from the ground up for off-premise, meaning that the restaurant model incorporates:
- Broad menu appeal (by customer, but also by daypart and dining occasion)
- Food that will travel well (including proper packaging that adds rather than detracts from the experience)
- Food that is not overly difficult to prepare or that requires expensive equipment
- Pricing that is appealing to customers but also allows for a profit after delivery fees are included
- Branding that is familiar and authentic but also forward-thinking for today’s delivery-centric target audience
- Digital marketing that meets the customer where and when they are most likely to engage and order
We believe that these benefits to off-premise can apply to both digitally-native brands as well as traditional restaurant brands with standalone off-premise kitchens.
Fresgo is by no means the only solution to creating a virtual restaurant brand. In fact, certain trade areas in which we might consider expanding into with Fresgo going forward may be over-developed with Italian concepts. That process of understanding individual markets’ relationships with off-premise dining and digital ordering is one we’re heavily investing in for the success of all brands at KU.
Meredith Sandland is the Chief Operating Officer, and Mike Mirkil the VP of Consumer Marketing, of Kitchen United.
KU offers restaurant brands a turnkey way to expand into new markets and reach the off-premise diner. Subscribe to the KU Insights newsletter where we break down industry trends and give an insider view of what’s happening in the world of KU.
Featured photo by Bree McCool.