A Conversation with Greg Dollarhyde
Given all of the experience you’ve had in terms of building brands from scratch and working with a variety of big players, I’m curious what your outlook on business is when it comes to the food space. There are a lot of new brands and business models cropping up, and I’m wondering where you think this is all going. Where will we be in five years?
There are a couple of big categories that are definitely starting to grow or will continue to grow. One big category is something I’ll call “food here now.” We saw the first wave of “food here now” many years ago in drive-thru restaurants like McDonald’s and Burger King, since the choices were really that or a sit-down restaurant. That then progressed to delivery pizza. If I’m able to make a phone call and a hot pizza will show up at my door in 30 minutes, then why wouldn’t I do that? So delivery pizza enjoyed a long, long day in the sun.
That model worked really well in places like downtown New York and busy suburbs, but it was limited to pizza and some Chinese delivery.
So then came services like Seamless, Grubhub, Doordash, and Postmates, and those are just a few. Every city has their own ensconced player, and they want to get into a bigger pool and make more money by doing things like delivered catering. When I was running Zoe’s Kitchen, for example, I was able to expand our catering delivery footprint by having third parties like these deliver food. And that has only increased.
So today this is an even larger idea, based on consumer demand. The big guys with drivers already on the road – Uber, and Amazon, and the like – are now in the restaurant business, and they don’t need to worry about making their own food, or recipes, or packaging. And the big guys, as always, will get economies of scale.
In the future, I think consolidation will play out, and there will be just a few providers. Whether it’s something like Alexa or others, you’ll be able to conversationally order your food on this platform and it’ll be at your house when you get home or whenever you expect it… and that’s going to be big.
The second thing will be the continuation of this wave of customization. Food will become even more customizable. A place like Blaze Pizza, where I sit on the board of directors, is a good example of this. If you have a family of four and you go out to Blaze, every member of your family can get exactly what they want…and as many toppings as they want.
In the not too distant future, food won’t be customized in the way that it is now. It won’t just be things like “no hot peppers,” but full customization on a much more fundamental level. I think people will be carrying around what I call their “DNA food stick” (a mobile device) and will be able to plug it in and get a fully customized, health-driven meal that supports their wellness and is designed specifically for them and their allergen needs. And that’s not more than five years away.
The third big change will be driven by Hollywood; it already is. Leonard DiCaprio and others have invested in Beyond Meat, following the likes of Kleiner Perkins Caufield Byers and Bill Gates. There are going to be even more celebrities coming out as vegans and moving into the wellness and sustainability space.
But those three things are only a few high-level ideas; there are plenty of other sub-categories beyond customization, sustainability, and “food now” that will emerge as well.
I’m curious to hear your thoughts on smart fridges and other smarthome technologies. What do you think about the tech invasion in the kitchen?
To be honest, the smart refrigerator doesn’t mean much to me; I wouldn’t go out of my way to buy one. I might, however, go out of my way to buy a communication device where I can stand in front of the fridge and say “Okay, Alexa: I need a quart of almond milk, two bags of Daiya cheese – one pepper jack and one cheddar” and then it’s done. I’d use the technology if it were truly interactive. But for now, someone has to explain to me the benefits of a smart refrigerator. I understand it can keep track of how much milk you have, but what can it really do?
Now, I think having good storage devices is important. I actually have two refrigerators in my kitchen, one for produce and one for all the other stuff. So I think the kind of smarter technology that preserves your produce longer is something that we’re seeing more of. And I think that smart fridges are now are going to be obviated by Google and Amazon and what they do with AI in the coming years.
I’m curious, then, what is your message to food entrepreneurs? What’s your message to the ones who are just diving in to the food world? It’s very different than it was 10, 15, or 20 years ago. What would you say to a 20-something who wants to start a food company instead of a technology company?
That’s a great question, and I’m actually already talking to three of them at different parts of the food chain. It comes down to which part of the food space we’re talking about. My advice differs greatly whether I’m talking to a take-out restaurant owner, or a robust grocery store owner, or someone developing a product that’s on the shelf inside that store, or a product that could be delivered by Amazon.
It’s important to remember across the board, however, that direct marketing is the key to new consumer behavior. You can have 500,000 views on an ad you produce, and get only 500-1,000 orders – and you’re going to go broke if you just depend on that viewership. Selling products in grocery stores is hard; keeping shelf space is hard. And there are always new brands coming along.
I’m working with a few great, young companies, like TeaRIOT which is a combination of tea with fruit and vegetable juice. It’s functionally nutritious and also gives you energy. When you look at those brands, it’s a fight for distribution, positioning and a fight for shelf space. There are a million teas, right? But most of them have 80 or 90 calories a bottle and 30 grams of sugar, so that’s not going to work well for many people.
The entrepreneurs who are coming into the grocery stores need to figure out where are the white spaces – and there aren’t that many left. But when white spaces have been discovered, companies have been extremely profitable. Like coconut water. Who thought we needed to drink a lot of coconut? So when COCOLOCO came out it was very impressive, and I think wellness drinks are still trending – they’re not oversaturated.
There’s another brand I’m an investor in, called DRINKmaple. It’s fresh maple water. Why do you need to drink maple water? Well, it’s natural, hydrating, it’s got a great maple-light flavor, it’s shelf stable, it’s $2.99… there’s a whole host of reasons.
It’s a great time for entrepreneurs to find white space inside of the grocery store. It has to play into wellness, it has to find a unique white space area, and it has to be crave-able and repeatable. It has to make the buyer say “I want to go back and get that flavor in my mouth again.”
If an entrepreneur can do that and get enough distribution, they have a chance of getting to a level where someone like Nestle or Coke wants in. And those guys still need new brands to scale.I think there’s a significant opportunity for entrepreneurs, especially after they finish the first few rounds of investment, then they can find a larger player to help them with the grocery channel – because distribution is critical. Big brands are getting a lot smarter at how to deal with small brands and are learning how to scale them. For a while, the stock prices of the big players were going down, but now they’re starting to figure it out.
But those big back-end realizations are not going to happen for the entrepreneur who’s making just another bar or another type of granola. If the entrepreneur doesn’t get up in the morning and crave and eat what they make, then why should anybody else?
Now, when it comes to the restaurant business, that’s a different beast. Restaurants serve our basic needs. People need to eat, and they also need to entertain themselves in a convivial environment. Now that’s changing to a certain extent, but it’s not going to go away. The constant innovation in the restaurant business is one of the most exciting things for me personally, but it’s also challenging because it involves a combination of excellent product, occasion-fit place, and superior service.
Places like Salt & Straw and Voodoo Doughnut are executing on this combination really well. Who thought the world needed another ice cream store? But they’re great; and they’re both doing really creative things with their flavors and capabilities.
You need to taste, and taste, and taste until your product and offering is really great. I saw Beyond Meat go through that, and now that they’ve achieved it, everyone wants more than they can produce of their new burger. It’s an excellent product and it’s brilliant!
You also need to put in a lot of effort, be very committed, and have a strong enough ego to say “I’m going to raise $30-$50 million and make a chain work.” I’m not saying it’s easy, but I am saying that if you come up with a product/environment that tastes as good as everything else but it’s really healthy and has differentiation, then you have a good chance of being a winner in the marketplace.
Our last question is about the QSR ecosystem. Where do you think that will be in 25 years from now?
I think that anything that is currently franchised on a national level is going to be around – as long as they continue to improve. I really believe that. I’ve eaten Taco Bell since I was 16, and they have made massive changes to get to where they are today, and made a lot of money for their franchisees. You only have to look to KFC in China to see how American ingenuity solves people’s food needs… and they are selling a lot more than chicken there. It’s genius.