McMillanDoolittle logo


Eatsa Evolves To Take A “Wow” Bao

A few weeks back, I wrote about a significant retrenching of the eatsa business, which involved the closing of their New York restaurants and retrenching back to their San Francisco units. At the same time, the company announced that technology would begin to appear as an end to end platform in other restaurants soon.

In many of these announcements, the second part is really nothing more than a graceful way to mask some painful news. Not so in eatsa’s case.

Wow Bao’s order kiosks using the eatsa platform.

Opening on December 1, Wow Bao, a fast-casual restaurant concept in Chicago specializing in buns, dumplings, and rice and noodle bowls, is using the eatsa platform as the foundation for a new, automated restaurant experience. Wow Bao plans to roll out additional eatsa-enabled locations in 2018.

In a discussion with Tim Young, CEO of eatsa, he described this evolution of the eatsa brand from a restaurant concept to an end to end technology platform. Tim suggests that the biggest challenge is “where to focus growth and apply effort”. Running a day to day restaurant operation in four, geographically remote markets challenged the resources of a start-up and led to the key question—is eatsa a restaurant chain or great technology?

From the onset of the opening, the company has been deluged with requests to potentially license the technology and finally decided to take those requests seriously. The conversation with Wow Bao went from a first sit down to a restaurant opening in an incredible 90 days!

Cubby holes deliver Wow Bao buns, dumplings, and rice and noodle bowls using technology driven by eatsa.

While a consumer may be dazzled by the front end technology and the cool cubby holes that deliver product, eatsa has been working on “disrupting the entire experience, from ordering to production” according to Tim.

In eatsa restaurants, this technology has “enabled us to get meals to customers in 90 seconds versus the industry average of five minutes or more, and drive up to five times the customer throughput than the average fast casual restaurant – translating into over 500 customers per hour”. And, this is all done with a higher degree of order accuracy and customization.

The key components of the eatsa platform include:

  • Ordering across multiple channels, including in-store kiosks and a custom-branded, fully integrated mobile experience. In the San Francisco stores, mobile now accounts for over 40% of all orders in one unit.
  • Customizable in-store digital displays and canvases
  • Order fulfillment tools that optimize labor for speed and accuracy
  • Remote management of digital marketing and menus
  • Robust customer and store-level analytics. As a customer, I have been impressed with eatsa’s ability to immediately solicit real time feedback and satisfaction.

While Wow Bao is the first deployment, the company suggests more deals are in the pipeline and to expect to hear and see more in 2018.

Of course, eatsa would not be the first company to pivot from a retail concept to technology platform. I am reminded of Hointer, which has tried to take a similar path. In eatsa’s case, I believe the technology is strong and robust enough for them to make this leap. This is an exciting evolution in automated technology. I expect many other brands could follow the same path soon.

Neil Stern for Forbes


Eatsa and the Challenges of Innovation

As part of my job as a retail strategy consultant, I travel the country and the world preaching the need for innovation in an industry that is being overrun by the growth of e-commerce on the one hand and the generally poor experience at brick and mortar retail stores on the other. After dutifully cataloging the woes of the industry, I then give numerous examples of companies, large and small, who are changing the retail experience for the better through innovative new ideas.

Enter Eatsa, the fully automated restaurant that allows for seamless ordering via an app or ipad and tremendous speed of delivery, delivered into a touchscreen cubicle that harkens back to the day of the automat. Not only was the concept cool and fun, but also delivered some of the best technology I’ve seen. It is seamless, efficient and customer centric, offering real time feedback, as an example, with every order and a memory for past purchases.  In other words, a poster child for great disruptive innovation.

Eatsa recently announced a significant retrenching of their business, closing all of their New York stores and one in Berkeley, while retrenching back to their two San Francisco locations. This move is eerily reminiscent of another similar innovation darling, Pirch, who is also retreating back to its California base. Pirch offers a joyful experience in creating high end kitchen and baths, and like Eatsa, also is an example of a “too good to be true” customer experience. Yet, both have suffered in their quest to redefine retail.


What are some key takeaways from these two innovation retrenchments?

  • Change is incredibly hard in an industry that is resistant to innovation. Not only do you need to get the concept right but you also need to get customers to come along with you. Meeting the sweet spot of what customers want and a profitable business model is incredibly difficult.
  • Retail expansion is extremely difficult. Like Pirch, eatsa’s decision to move across the country was probably fueled by the conventional wisdom of getting there first. Plant the flag in New York, as the wisdom goes, and you are well on your way to becoming a national chain and avoid someone else pre-empting you. I dispute this notion—eatsa would be better off building a brand in California first before jumping across country. A fledgling chain needs to manage their resources carefully. The rent factor and operational complexity of New York City is not one to be taken lightly.
  • Retail is hard but it begins with the basics. Even with great innovation, you still need to get the business basics right. For eatsa, this has to start with the menu itself and then move on to costs, operational efficiencies and the like. While I love eatsa technology, I’m not sure the menu is ready for prime time. Eatsa is focused not just on technology but also on healthy eating—is the world is ready for a concept built primarily on quinoa bowls? It’s great but very narrow.  For Pirch, delighting customers is one thing…making sure you are closing and converting traffic to sales is quite another. Retail may be changing but basic retail math does not.

As a teaser among the bad news, eatsa suggested this technology platform will soon appear in other restaurants. It would be great to see this applied to other retail businesses—it doesn’t need to be limited to their food platform and the technology is really spectacular.

Like any innovation idea, I urge existing brick and mortar retailers to see beyond the limitations of the current business model and focus on what lessons can be learned from the disruption. While eatsa has suffered a setback on its way to becoming a chain, the question I ask when I present this case doesn’t change—how can you adapt the great ideas of an eatsa or a Pirch to reinvigorate an existing business.? The lessons are there even if the originator struggles.

Neil Stern for Forbes


Lidl Reshuffles U.S. Management Supervision: Move Suggesting Challenges Here In The U.S.

The spacious entry at Lidl. Photo by Neil Stern.

According to German trade press, Lidl announced a management change that will lead to new supervision in Germany of the U.S. market. Though local U.S. management disputes aspects of the store which pointed to “frighteningly weak” performance at some of the current 37 stores, it does seem to be a signal that conquering the U.S. may be a bit more difficult than first planned. From Tesco’s ill-fated Fresh & Easy effort to a long litany of other foreign chains that have failed to succeed, breaking into the U.S. market can be more difficult than it would appear.

I had a chance to visit one of the North Carolina units a few weeks back. After the much publicized initial burst of stores and very high consumer demand, I would characterize the store we visited as one of the under-performers. Traffic was light, in-store programs like sampling were being poorly executed and there was a general low energy level that signifies poor results.

More critically, there are some potential systemic problems that Lidl must address if they are to succeed in the U.S. market:

  • The stores, in my opinion, are way overbuilt. They are too large, too overly-engineered and too costly to operate. 11 full sized checkout lanes, as one example, adds costs to the box and seems overkill for demand.
  • The stores are too big. At 25,000 square feet, they are overly spacious and feel sterile, particularly with the dearth of customers during the visit. While Aldi and Trader Joe boxes feel tight (and perhaps a bit cramped at times), it lends to efficiency and a feeling of excitement.
  • There is too much reliance on non-foods. While this is a critical part of the European experience, U.S. consumers have far more choice in these categories, which were also merchandised with little flair. Perhaps when the Heidi Klum line launches, this will add some momentum, but the U.S. consumer may not appreciate this mix in the stores.

Lidl’s large non-foods area. Photo by Neil Stern.

There are some excellent moments as well. Leading with an in-store bakery adds a greater element on fresh, as does the expanded produce area. The wine section is well done, and prices on private label are very sharp.

However, when competing head to head against Aldi, I would give their more established German competitor the edge. The Aldi stores, particularly the newer and remodeled units, are better merchandised and better designed to sustain lower costs and prices.

Lidl is an enormously tough competitor. Well capitalized and easily capable of making course corrections, they are not to be taken lightly, despite some early miscues. The road to 500 or 1,000 or 1,500 stores, however, must begin with a store model that works. I don’t see that yet. It will be interesting to see if new corporate management makes any significant course corrections.

Neil Stern for Forbes


Whole Foods: The Price Drop Heard Round the World

Whole Foods dropped prices in their stores on the first day of Amazon’s official ownership. It is the first of what I suspect will be many new actions as of a result of this marriage and it certainly was one of the easier ones to take: make some much needed improvements of Whole Foods beleaguered price reputation.  

As I visited my local store, I honestly was expecting a lot more based on the hype and press coverage. Boneless ribeye steak had been reduced from $18.99 to $13.99/lb and conventional bananas from .57c/lb to 49c/lb. Elsewhere, an avocado went from $2.50 each to $1.49 each. While these are improvements, no doubt, it doesn’t exactly take them into the realm of Walmart or Aldi. It is, as the old what do you call 100 lawyers at the bottom of the ocean joke goes, a good start.  A quick look on the Amazon website features the news, with some Whole Foods private label now available on-line.

Other changes, of course, will take longer to implement and are probably better indicators of where this future partnership might head. Amazon announced the eventual integration of Amazon Prime as the foundation of a Whole Foods loyalty program, a very fast way to add value to customers and analytics to Whole Foods which trailed the rest of the industry. Tying shoppers into the Amazon ecosystem is a powerful weapon for Amazon, which now counts half of American households as members.

Other “omni” aspects will be slower to deploy. It requires capital, systems, and physical store changes. Even adding lockers to the Whole Foods stores for pick-up can’t be done instantly.Other changes, of course, will take longer to implement and are probably better indicators of where this future partnership might head. Amazon announced the eventual integration of Amazon Prime as the foundation of a Whole Foods loyalty program, a very fast way to add value to customers and analytics to Whole Foods which trailed the rest of the industry. Tying shoppers into the Amazon ecosystem is a powerful weapon for Amazon, which now counts half of American households as members.

Less clear is the long term impact of this acquisition. Will Whole Foods help power and expand Amazon Fresh? Will Amazon use Whole Foods as in-store pick-up centers or as a way to deliver fresh products to consumers as part of a Prime Now package? To be sure, the end game of this acquisition doesn’t involve simply optimizing Whole Foods-there are bigger stakes at play.

Round one was fired today in the form of lowered prices. It will be the first of many moves that the industry will be closely monitoring.

Neil Stern for Forbes


Would you like a Cabernet with your Cheetos?

I’ve been to the Meow Mix Café pop up (a chance to dine with your cats?) so there is not much that can shock me anymore. So, the news of The Spotted Cheetah, devoted to Cheetos-inspired dishes, which will open in New York City’s Tribeca neighborhood between August 15th and 17th, seems like a natural progression in the world of pop-up retail, designed to drive PR as much as sales.

The Spotted Cheetah is a collaboration between Cheetos and celebrity chef Anne Burrell, featuring an all-Cheetos menu with prices between $8 and $22. Dishes will include Cheetos Meatballs, Flamin’ Hot and White Cheddar Mac n’ Cheetos and Cheetos Sweetos Crusted Cheesecake (hmmm…).

Why? The reasons are obvious. How can you drive PR, brand buzz and social engagement? I don’t think they will be winning any Michelin stars, Anne Burrell’s involvement notwithstanding. But, it can be fun, buzzworthy and have people like me talk about it. And thankfully, it will only be around for a few days. I’m not sure that I would want to sign a long-term lease anytime soon.

Brands are going to have to become more creative to build awareness as traditional marketing vehicles become less effective. Cheetos has been effective in creating some interesting brand partnerships of late, with Burger King Mac n’ Cheetos, deep-fried mac n’ cheese coated with Cheetos and Taco Bell ‘sstuffed Cheetos in their Crunchwrap Slider.

As a public service, I’m attaching the link to the reservation site. You had better hurry.

Neil Stern for Forbes


Blue Apron’s Tepid IPO…Wall Street Adopts A Wait And See Attitude

Meal prep pioneer Blue Apron went public under the symbol APRN. The stock was floated at the low end of the expected range and the stock closed at the opening price after a brief rally earlier in the day.

The wind instantly came out of the sails, as higher expectations for the IPO were quickly muted for two reasons:

  • Sales growth has been incredibly impressive, with revenue having grown tenfold in two years, from $77.8 million in 2014 to $795 million in 2016. However, the company has yet to show a full year profit and on a full fiscal year basis for 2016, the company spent $144 million in marketing, or around 18%, and marketing costs seem to be on the rise in the latest quarter, climbing to 24.8% of net revenue, perhaps in an attempt to accelerate revenue growth ahead of the IPO. 
  • Amazon’s $13.7 billion acquisition of Whole Foods has shaken up the entire retail industry. This mega acquisition may ultimately have no direct impact on meal prep companies like Blue Apron but it is making everyone rethink what the future of food retail will look like.  Amazon and Whole Foods have both dabbled in this space (Amazon with Martha Stewart and Marley Spoon) and they could rapidly become significant competitors.

I think Wall Street and investors have gotten this one right so far. It seems wise to adopt a wait and see attitude toward Blue Apron for many reasons:

  • There are a lot of very viable competitors like Hello Fresh, Home Chef and Plated. It is unclear whether Blue Apron has achieved clear separation from the pack despite being the first to become public.
  • The company must address its high marketing costs and churn rates. The marketing costs are not sustainable and churn remains problematic, which calls into question the loyalty of their customers and perhaps, the viability of the weekly shipping model. Many of the key metrics to judge the company seem to be in a mild decline with average order size, average number of orders per customer and average customer value all down in the latest quarter.
  • I believe that these models must adapt, from creating a more efficient way for customer attraction towards having a more convenient way to access their meals. Clearly, developing a retail or brick and mortar partnership seems to make a lot of sense as well as potentially partnering with other grocery e-commerce providers.

Now, Blue Apron must prove the model under the rather harsh glare of becoming a (still) highly valued public company. I will be watching with interest!

Neil Stern for Forbes


Understanding the Meal Delivery Startup Casualties

Food delivery startups gained popularity among Venture Capital investors around 2010, leaving Blue Apron and other large players to pioneer the industry with high valuations and encouraging more new competition to enter the market. While there has been a remarkable diversity of proposed solutions, from prepared meal apps, to meal kits and online grocery delivery services like Instacart, the challenge remains finding a financially viable business model. 

When demand for quality food, convenience and value is high, but the complexity of owning meal production through delivery at scale presents a challenge, so does the ability to stay afloat. Many of these meal-service startups have relied on venture funds to deeply subsidize their prices to customers.  Good for consumers, not so good for sustainability.

Food delivery service, Sprig, joins the growing list of shuttered startup companies. It joins other entrants such Radish, SpoonRocket, Kitchit and Maple to name a few. In a climate where many food delivery startups have been acquired or died, the market has changed quite a bit over the last few years:

  • Successful entry: Startups like Blue Apron received large valuations ($2B), DoorDash ($659M), and Postmates ($609M) that led to a host of other entrants eager to join in.
  • Slowdown in the market: Instacart and Blue Apron received significant funding in 2012 and 2013 as they attracted investor attention. Lately, only a few smaller players have joined the pack with 7 new entrants in 2016-2017; 8 in 2014; and 12 in 2013.
  • Unsustainability leads to exit: Many M&A’s happened as well as deaths among the food delivery companies due to customer acquisition, production, sustainability, and scale efforts.

The shutdown of these delivery services comes down to the question of sustainability and scale. Meal preparation and services is a labor and logistics intensive program, and these startups are struggling for efficiency, and solving the question “How do you keep variety high without costs creeping up?” And with customer acquisition costs high but deeply subsidized, churn is a huge concern.

We’ve tried many of these programs and are still working to understand what the real difference is between the ones that have failed and the ones still around. The basic premise behind companies like Sprig and Radish is creating consumer promise, but at a very costly enterprise of delivery and cash burning fast. Blue Apron and companies alike are trying to scale, reaching a larger geography and subscription based consumers fulfilling their nightly need for meals. Does the difference lie in consistency and membership?

In light of this, many companies are now modifying their portal for deliveries from local restaurants, rather than owning their own kitchens and having to invest in infrastructure. Grub Hub Uber Eats, DoorDash, and Seamless have shown better performance with an asset light model that relies on existing chains.

There will undoubtedly be several companies that solve the meal delivery puzzle but there will also be a large number of failures left in the wake.


The Big Question About Blue Apron’s IPO

Meal prep pioneer Blue Apron has filed for an IPO on the NYSE under the symbol APRN.  If successful, it will be the first of its genre to make the transition to a public company. This is happening at the same time that some notable start-ups in a similar space like Sprig and Maple have ceased operations.

If successful, Blue Apron could open the gateway for similar companies like Hello Fresh and Sun Basket to try their hands. Other notable rivals include Plated and HomeChef, which bills itself as the second largest service, providing almost 3 million meals per month. 

The IPO, of course, is accompanied by an S-1 filing, which provides an opportunity to peak (a bit) under the hood at its underlying performance. I must admit to being both a user of these services as well as a skeptic: while there is no doubt an underlying consumer appeal, the economics of customer acquisition and churn have always seemed to be problematic. I love the product but I question the business model.

Blue Apron has undoubtedly proven that there is a consumer market. Revenue has grown tenfold in two years, from $77.8 million in 2014 to $795 million in 2016. The company fulfilled 4.3 million orders in the latest quarter and $244 million in revenue suggests an easily achievable $1 billion-plus business by year end at its current growth. Not surprisingly, the company has yet to show an annualized profit, with an adjusted EBITDA loss of $46 million in the latest quarter. Many of the key metrics to judge the company seem to be in a mild decline with average order size, average number of orders per customer and average customer value all down.

According to Pat Vihtelic, CEO of Home Chef, business has grown 10x over the last year, is cash flow positive and has been profitable since March of 2017.  A case could be made that if these companies ratchet down their marketing spend and slightly slow growth, the underlying business model for meal kit delivery remains sound.

The real question surrounding Blue Apron (and any of its cohorts) is the cost of acquisition per customer and the churn rate of a customer once acquired. In this regard, the IPO filing sheds little light. On a fiscal year basis for 2016, the company spent $144 million in marketing to generate the $795 million in sales, or around 18%, and marketing costs seem to be on the rise in the latest quarter, climbing to 24.8% of net revenue, perhaps in an attempt to accelerate revenue growth ahead of the IPO.

My own experience with several of these services suggest that churn is an issue, much of it driven around the subscription nature of the model. While the experience (and food quality) has by and large been excellent, the need to order ahead doesn’t work particularly well with my busy lifestyle. Blue Apron’s product quality, recipe sophistication and commitment to the planet all resonate well with my values. I’ve also used services like Plated and Home Chef, the latter of which focuses on slightly easier to prep meals and seemingly more accessibility.

However, I tend to order for a few weeks and then stop, enticed by a new offer or a new service.  An excellent local grocer in our area, Standard Market, offers its own version of these kits and requires much less advanced planning, with an easier answer to, “What’s For Dinner Tonight?”

I think the future of meal kits might look as follows:

  • Expect grocery chains to get involved, with the ability to provide more immediacy. Chains like Kroger, Publix, Giant Eagle and Whole Foods are all currently testing variations. These might be private label or done in conjunction with the existing services. Pat Vihtelic, CEO of Home Chef, suggests that these programs need not be “mutually exclusive” and I would agree. With these programs in their nascent development, several models can and will emerge.
  • This might also be an e-commerce sweet spot, with a built-in delivery mechanism that presumably has lower costs and slightly more immediacy. Peapod, Fresh Direct and Amazon Fresh all have offers.
  • Already prepared meal services abound, from Diet to Go, Nutrisystem and BistroMd also abound, offering more convenience, but perhaps also more weekly commitment.
  • As mentioned earlier, on-demand complete meals like Sprig and Radish were intriguing but also more complicated to master from a supply chain standpoint. There remains plenty of competition in this space as well, with options like Freshly on a national basis and lots of local competitors.  The need for localized production and distribution suggests a more costly and complicated model.
  • Variations on the theme of meal kits are occurring to meet the diverse dietary needs of consumers, from healthier options, vegan options, paleo options and the like. Additionally, more nuance around portion size will also be critical, being able to serve families of 2,3,4 or 5.

Clearly, these companies have tapped into a real consumer need for simplification of the meal while also providing some family togetherness in the process. Not all of them will make it, though, so I would expect inevitable consolidation along the way as the industry evolves and matures.

Neil Stern for Forbes



Marsh Files Chapter 11: Storm Clouds On The Grocery Horizon

The underlying troubles that are resulting in 2017’s Retailmageddon are well documented, with the growing number of bankruptcies fueled by the growing impact of e-commerce and the general overcapacity of retail space.

Grocery, however, has long been considered immune from the e-commerce space and even the vagaries of economic downturns. No more. Historic deflation, a new round of price wars, and yes, the growing impact of e-commerce are taking a toll on what was once a highly resilient sector. Comparable store sales are anemic across almost every key grocery retailer and I’m starting to see a growing number of chains that might follow general retail down the bankruptcy trail.

To date, these potentially troubled retailers are regional stories. Central Grocers, a key wholesaler and retailer in the Chicago market, now faces a very uncertain future with planned store closures and independents scrambling to find new suppliers. Private equity owned Marsh, once a regional powerhouse in Indianapolis, is likely on its last legs unless it finds a buyer quickly.  They filed Chapter 11 today and are attempting to restructure. Southeastern Grocers, a large regional chain in the Southeast United States is closing 20 stores and citing significant competitive pressures—more upheaval may be coming.

Besides the obvious competitive pressures that might be cyclical in nature, there is evidence that these storm clouds might well turn into a tsunami. Younger consumers are shopping less at traditional supermarkets and alternative formats (dollar stores, club stores, discount formats) are all scheduled to grow at more than double the rate of conventional grocers. The biggest concern? E-commerce hasn’t even begun to disrupt food in the same manner as traditional retail. I would estimate that food e-commerce is probably around 2% today.  It is estimated to grow to perhaps 7% in the next five years.  While still substantially below general retail, it will further disrupt as players like Amazon make an aggressive play into food.

While supermarkets might ultimately prove to be more resilient than traditional retail, it’s clear that this segment is no longer immune.

Neil Stern for Forbes


FreshDirect Takes To The Road In A Move To Washington D.C.

FreshDirect joins another prominent New Yorker (insert your own political commentary here) in moving to the nation’s capital as the online grocery wars heat up. Earlier this month, Fresh Direct built a distribution center in Prince Georges County to serve residents living in D.C., Arlington and McLean, Virginia, and Bethesda, Maryland. This adds to their existing footprints in the New York City and Philadelphia metropolitan areas.

The D.C. metro area is becoming a battleground of sorts, as Fresh Direct joins Amazon Fresh, which moved in last year as well as long time incumbents Peapod and, which is now a division of Albertsons. And, of course, there are a plethora of options from third party delivery services like Instacart.

FreshDirect has always sought to differentiate themselves by being less focused on the means of delivery and more focused on pushing their competitive advantage of sourcing and curating the freshest, highest quality foods. By going directly from farm to consumer, they can justifiably tout the superiority of their supply chain and the slightly more premium nature of their offerings, which emphasizes local, organic and directly sourced produce. FreshDirect will deliver around 12,000 items. In keeping with the trends, they will also offer no-subscription meal kits in addition to an extensive range of prepared foods. They will also have an “At the Office” service program, which includes chef-prepared breakfasts, luncheon platters, and catering services for events. Amazon Fresh has similarly partnered with Martha Stewart for meal delivery as they battle fast growing options like Blue Apron and Plated.

FreshDirect customers can order next day delivery with a two-hour window. Customers can either pay per order for a service cost of $7.99 with a $40 minimum spend per order or pay an annual fee of $129.00 for unlimited free delivery through DeliveryPass. Key to any online delivery service is figuring out a delivery plan that works for customers and is profitable for the provider. Amazon Fresh, by contrast, has been all over the map, with an initial fee of $299/year, which has been lowered to $14.99 per month with a Prime subscription.

All of this is a preamble to the economics of online grocery delivery. While the consumer demand is undoubtedly there, and the services now mature to a point of delivering a high-quality customer experience, processing, picking and delivering fresh grocery items is expensive and margins in grocery remain slim. Providers are experimenting in a multitude of ways, from pick in-store to automated warehouses, in-store or dedicated pick-up facilities and direct to third-party delivery.

It does feel that critical mass is fast approaching in solving the last mile of grocery, potentially unlocking a sizable e-commerce opportunity in the $600 billion-plus grocery space.

Neil Stern for Forbes