The Bikky Restaurant Strategy Playbook, Part I: Are you a Brand, or a Wholesaler?

May 10, 2019
Abhinav Kapur

This is not a test. Do not adjust your set. You will need to fundamentally reevaluate every aspect of your restaurant strategy.

Third-parties like Grubhub, DoorDash, and Uber Eats are growing quickly. This growth unlocks new revenue channels, but also comes at a (more than just financial) cost. Every order cedes control of the customer relationship to these aggregators, along with the data that comes with it. But brands large and small – from local mom and pops to McDonald’s – have found it hard to resist.

As the industry evolves, we see a bifurcation emerging. The typical restaurant strategy hinges on your decision to be a brand or a wholesaler.

In part one, we’ll define what this means. We’ll then dive in to the nitty-gritty impacts on your go-to-market strategy (i.e. how you acquire customers) and financial model.

Are you a brand, or a wholesaler?

There is one simple premise underlying the brand vs. wholesaler dichotomy: do you own the customer relationship, or outsource it to a third-party?

We’ve already seen this play out in retail more broadly. When I shop on Amazon, I don’t care who sells the item I need. I make sure the price is right, delivery is quick, and the ratings and reviews are favorable. But when I shop at Warby Parker, Everlane, or sweetgreen, I do so because of my affinity with the brand; shopping there conveys something about my lifestyle and values.

Restaurants today are no different than retailers and brands at the dawn of the Amazon age. They need to decide if they’re going to own their brand, the customer relationship, and all that comes with it, or if they’ll build their business inside the walls of various third-party platforms.

There is no wrong answer – only wildly different approaches to running a business. It’s much easier to be a wholesaler, and this path affords you greater agility. But building a brand is the closest capitalism comes to being sexy; it’s higher risk, but much higher reward.

The choice is not an easy one,and its ramifications stretch across your entire organization. Your business model, P&L structure, organizational structure, operational strategy, real estate choices, technology investment, approach to data, and marketing strategies all follow from this one consequential decision.

Now on to part 1 of the playbook…

Brand vs. Wholesaler: Go-to-market strategy

Go-to-market is the cornerstone of your restaurant strategy. It’s how you acquire customers. Do you prioritize first or third-party? Do you even need a channel beyond delivery / off-premise? What level of brand recognition can you expect? How does that affect your ability to compete? What’s your potential market size, i.e. how many customers can you reach?

As a wholesaler, you can reduce operational complexity and prioritize the ability to adapt to customer demand. You also open up your market opportunity, as your customer reach becomes the same as your third-party partner’s. However, you lose control of the customer relationship and the ability to showcase your unique values, both of which are part and parcel of a good brand strategy.

The go-to-market strategy is mainly a question of who owns the responsibility of acquiring customers. As a wholesaler, you’re outsourcing a central piece of your restaurant strategy to a third-party like Grubhub, Uber Eats, or DoorDash. You make a conscious decision to play inside their ecosystem, for better or worse.

In a highly fragmented and competitive market like restaurants, this could be a blessing. Sustainable customer acquisition is one of the hardest parts about this industry. What differentiates your pizza / trendy health food / fast casual Mediterranean concept from another?

The answer is most often brand, but if you don’t have the resources, talent, or time, then how do you effectively stand out? Building inside a third-party is the default choice, as customers choose their delivery app based on their affinity with that brand.

The choice is Uber Eats first, your burrito concept second.

The benefits are less complexity in building your business, and greater agility in responding to customer preferences. You can spin up multiple virtual brands within Uber Eats’ walls, ensuring you cover the breadth of customer expectations. You also limit competitive variables to price, convenience / speed, and ratings + reviews (i.e. how we shop on Amazon). If you have the right cuisine type, fast delivery, great ratings, and a competitive price point, then you have a shot.

As a brand though, your go-to-market informs everything that follows. Retail or digital? If the answer is “both”, are you prepared to invest resources in the talent, technology, and physical space required to execute an omni-channel restaurant strategy?

And because you’re making a stand as a brand, you need to ensure consistent communication of your values and food philosophy into everything from how you train employees to the end-product you serve to customers. And what if people don’t agree or care for these values? As a brand, you can’t be many things to many people. Are you prepared to deliberately limit the scope of your market opportunity?

There are myriad trade-offs just from a go-to-market standpoint in the brand vs. wholesaler dynamic. And while the wholesaler path does reduce operational complexity, the long-term financial rewards skew in the opposite direction…

Brand vs. Wholesaler: Financial model

The problem with playing in a third-party’s ecosystem is that you need to pay a fee for the privilege. Again, you’re outsourcing customer acquisition, one of the toughest parts of the business. That doesn’t usually come cheap, and so you consistently give away a healthy slice of your margin for the ability to serve customers.

And in turn, you adopt the business model of your third-party partner. You both know that margins are thin, and so prioritize revenue growth + volume in order to realize real profits.

Brands have higher cost structures, but reap much richer financial rewards for building a business on their own terms. On the other hand wholesalers simplify their P&L – you just need to keep pace with current trends and keep your customers happy. Long-term innovation or disruption aren’t pressing concerns, but that of your third-party partner’s.

As a brand though, you need to invest consistently across the spectrum. From your team, to innovation, to your supply chain, to your menu…each of these are measured bets towards unlocking a much stickier, more profitable customer base. Undoubtedly, the payoff for becoming a brand is the financial reward it unlocks, and the flexibility it enables in continuing to build on your own terms.

The upfront investment required dwarfs that of quickly spinning up a wholesale operation. Moreover, there’s consistent risk of disruption from other brands. However, you’re rewarded by breaking free of “normal” competitive pressures in our industry, namely the intertwined concepts of price and being viewed as a commodity.

What’s your restaurant’s strategy?

Digital ordering and delivery will propel industry growth over the next 5-7 years. The “brand vs. wholesaler” question is rapidly becoming an existential one for operators.

And it’s not limited to size or geography. In my home market of NYC, I see smaller enterprises building a big brand presence, and large, well-established players comfortable with a wholesaler mentality. Ultimately, each restaurant must make their choice.

In part II of our restaurant strategy playbook, we’ll cover how the brand vs. wholesaler dynamic impacts your real estate, tech, and data strategies...