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A weekly(-ish) newsletter on commerce, media, science, tech, investing, & internet culture by Alex Taussig of Lightspeed.

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A weekly(-ish) newsletter on commerce, media, science, tech, investing, & internet culture by Alex Taussig. I am a partner at Lightspeed in Silicon Valley.

Follow along with Alex:

Drinking from the Firehose #140

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I received an unusually high number of comments on last week's post on the challenges restaurants face in the presence of online food aggregators. It's great to see this community activating around interesting material, and I love engaging on it.

In particular, Ben Sun of Primary Venture Partners has a view of the space that I thought was worth sharing (with his permission, of course): 

"I have been spending a good amount of time in this space because of Slice, Deliveroo (from Maple acquisition), and Coupang recently launched Coupang Eats.  This space is not as fragmented as you think. I agree that restaurants are super fragmented. However, food delivery is not all restaurants. The cuisines that dominate:

 
1. Travels well
2. Very Affordable (feeds a family of 4 for under $30)
3. Addictive
 
Pizza and Chinese dominate the food delivery category because it checks off all those boxes. Pizza is about $25 billion in delivery alone in the U.S. (across big chains and independents). In comparison, Grubhub total GMV run rate is $6 billion.  However, DoorDash, Uber really enabled Fast Food/Fast Casual to enter food delivery. Those cuisines check off the boxes, especially affordability, and are a massive category ($150 to $200 billion in total in the US). 

I think those three categories (pizza, Chinese and fast food/fast casual) remain the heads SKUs. I think most restaurants can't hit the mark on those 3 delivery attributes. Will ghost kitchens help? Maybe. Hitting all of those attributes are harder than you think, especially the price point. Your average US household makes $48k per year, and the majority of the country still lives in suburbs. Feeding a family for 4 for under $30 is not easy. Anything above that is occasional or will only work in markets like Manhattan because of higher income and more single people/couples without kids and less time for food to travel. I have spoken to a bunch of ex-Uber Eats people about this, and they agree that for this to become really big, you will have to innovate across the entire value chain (supply chain, prep, packaging, logistics, etc.) to solve this. UberEats and DoorDash - GMV is majority Fast Food/Fast Casual.
 
How does this shake out? Big fast food/casual chains will not let one aggregator to work. They will work with multiple. At the same time, they will want customers to order directly and either do logistics themselves or partner with someone to be their logistics partners (Yum brands is already doing this with GRUB). Grubhub does it as a loss leader to create utilization for their delivery people. As for pizza, Domino's, PapaJohns, and Pizza Hut already have logistics, and they do 70% of their revenue online with 95% of that directly and not through an aggregator. Slice is allowing independent pizza guys to band together and act like a big chain. Independent pizza shops is a $35 billion market in the U.S., and most of their business is delivery."

Ben makes some good points. Restaurant food is differentiated supply, and different cuisines have assorted value propositions.

Pizza is indeed the cheapest and fastest way to feed a large group of people. It also skews "delivery friendly" in most geo's. On the other end of the spectrum, sushi delivery is not likely to work outside of core urban markets that can afford to pay its delivery premium, or make it well. It's unclear if delivery costs will scale down in such a way that all cuisine types will be available in all geo's inside an app. Also, the most deliverable foods (pizza, Chinese) tend to be the least healthy. It's hard to imagine eating delivery quality food every single day from both a cost and health standpoint. Humans are multi-modal eaters, and even when they choose restaurants, for many cuisine types the most reliable experience may be sitting down and ordering "old school."

While OTAs benefited from the relative commoditization of their supply (i.e. 600 sq ft room is equivalent in most chain hotels), what may save the restaurant industry is its relative diversity and flexibility. 

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#commerce

Private parts.

Consumers are increasingly shopping private label goods, which have grown in volume 33% over the last 5 years. Nationally branded goods have only grown volume 1% over the same period of time. As a result, private label goods have gained nearly 500 bps of market share in units, transacting $129 billion in 2018.

Much of the change is driven by millennials, the majority of which have no stated preference for branded vs. private label goods. Millennials seem to build their preferences either directly (e.g. Rothy's*) or with the retailer (Sephora, Trader Joe's). Brands who rely solely on retail for distribution are competing with their customer for the consumer's attention.

Empathy training.

Bravo to Pillpack for pushing its employees through deliberate empathy training. As my partner Ashley Brasier wrote in her recent blog post on the topic, "walking the talk" is an essential part of product development. 

In order to empathize with older customers on multiple medications, Pillpack employees don extra sets of gloves to reduce mobility and wear glasses that simulate reduced vision. One insight garnered was that child proof pill boxes are often too "adult proof" for seniors, who upsettingly spill pills on the floor.

#media

Cord cutting accelerates (PDF).

Cord cutters now account for 23.8 million U.S. households (21% of all those connected to the internet). The median cord cutter is 47 years old, which is 10 years younger than "cord traditionals" and 15 years older than "cord nevers."

Cord nevers watch the least TV each week of any of these groupings. Only 39% watch more than 5 hours per weekday. That compares to 68% for cord traditionals. It appears that, as new generations grow up on streaming, the portion of their media consumption devoted to TV is actually shrinking relative to past generations. The TV pie may be shrinking as more streaming services compete for these customers.

#tech

All the moats that matter.

Jerry Neumann wrote a very comprehensive blog post that proposes a framework to incorporate all structural competitive moats in a business context.

I highly recommend reading this and testing it with your own business.

#science

Fuzzy protons.

When you graduate from high school to college physics, one of the first illusions you must lose is the Bohr model of the atom. Remember that nice picture of the electrons orbiting the nucleus in clear, circular orbits? It's simple, but unrealistic.

Quantum mechanics is necessary to describe the dual wave/particle nature of electrons orbiting a nucleus. The math can get really complicated, even for simple atoms like Hydrogen. Now physicists are getting closer to understanding the structure of subatomic particles like the proton. Moreover, they are confirming the length scales of the proton with insane precision. The results confirm the Standard Model of particle physics.

#culture

Flyin' solo.

"Matt Short lives in Austin, Texas, works in the tech industry and is a father to two children under the age of five. He tries to spend a total of about two weeks a year traveling alone."

Solo traveling is becoming the norm, even for married folks. In today's work-a-holic culture and chaotic social media environment, more people are looking to disconnect, hit the road, and gather some inner peace. No surprise, but Millennials are leading the charge here too.

Disclaimer: * indicates a Lightspeed portfolio company, or other company in which I have economic interest. I also own stock directly in AAPL, ADBE, AMZN, CRM, FB, FTCH, GOOG/GOOGL, NFLX, SNAP, SPOT, SQ, and TWLO.

Lightspeed Venture Partners, 2200 Sand Hill Rd, Ste 100, Menlo Park, CA 94025 USA Sent to ataussig@gmail.com — Unsubscribe