- Tech layoffs are sweeping the US, including in the foodtech sector.
- The restaurant-focused startups Nextbite, ChowNow, Lunchbox, Reef, and Sunday have laid off dozens.
- Amid slowing e-commerce spending, analysts say startups are course-correcting with leaner staffs.
The rush to help restaurants survive the pandemic put the spotlight on foodtech companies. These startups, which range from ghost-kitchen operations to restaurant payment platforms, grabbed the attention of venture capitalists and restaurants alike.
In November 2020, the SoftBank-backed startups Nextbite and Reef Technology raised a combined $820 million. The QR-code-payment startup Sunday raised more than $120 million in less than a year in 2021. New York’s Lunchbox, billed as the anti-Grubhub of digital ordering solutions, nabbed $50 million in early 2022.
But tech companies are facing a reckoning as the days of fast growth and limitless capital are over. Layoffs are sweeping all sectors, and companies such as Spotify, Netflix, and Gopuff haven’t been spared. The foodtech sector, in particular, is spiraling as diners’ habits continue to shift as the pandemic recedes. Hundreds of workers have lost their jobs at Nextbite, Sunday, ChowNow, Lunchbox, Gopuff, and Reef. Online grocery startups are taking a beating, if not collapsing. Getir and Gorillas are also laying off workers, while Fridge No More, Buyk, Jokr, and 1520 have shuttered their US operations.
Chris Webb, the CEO of the online-ordering company ChowNow, said the tech industry has been “addicted to venture capital” for a decade. After cutting almost 100 staffers in late July, he told Insider it was time to go “cold turkey” by “trying to kick a bad habit.”
‘Everyone was playing the same game, which is growth at all costs’
Over the past two years, CEOs took their venture-backed war chests, hired like crazy, expanded restaurant-tech services, and projected growth based on pandemic-fueled e-commerce trends.
“We are all drunk on VC capital,” Nabeel Alamgir, Lunchbox’s CEO, told Insider after he laid off 33% of his staff last month. “Everyone was playing the same game, which is growth at all costs.”
Analysts say cheap money has evaporated, especially for businesses perceived as pandemic tech. Bloated startups are now course-correcting by cutting staff and streamlining operations amid record inflation rates and a leveling off of online buying trends.
“It is clear that many companies overinvested over the past few years, particularly the ones that greatly benefited by the favorable demand environment caused by the pandemic,” said Arun Sundaram, a senior equity analyst at CFRA Research.
Jim Balis, a managing director at the restaurant investment firm CapitalSpring, said investors are now “looking more closely at burn rates, realistic modeling, and what the competitive set is and how they differentiate.”
To make matters worse, restaurant visits are down. The NPD Group said in-store and online restaurant traffic declined by 2% in the second quarter versus a year ago and is down 6% for the same period in 2019. Foodtech companies often earn revenue per digital transaction.
Even savvy, tech-forward companies such as Chipotle are experiencing a dip in online orders. Last week, the chain, headquartered in Newport Beach, California, said second-quarter digital sales accounted for 39% of sales, down from 48.5% for the same period in 2021.
Still, foodtech founders and consultants told Insider that the recent spate of layoffs didn’t mean digital was dead.
Webb, of ChowNow, said a slowdown in digital ordering was not the reason for his company’s downsizing. June was the company’s best month of 2022 in terms of adding new restaurants, he said.
But the company mistakenly projected 2022 growth based on a 2021 bull market.
“That era is now behind us,” he said.
Preparing for the storm ahead
“I don’t think there’s anything fundamentally wrong with these companies,” said Carl Orsbourn, a foodtech consultant and a coauthor of “Delivering the Digital Restaurant.”
Corporate layoffs and operational cuts, Orsbourn said, are more likely tied to preserving runway as founders manage out-of-control burn rates.
“Businesses that are perceived as pandemic tech, i.e., their models were accidentally or purposely suited to the unique consumer behaviors or conditions that occurred during the pandemic, are out of favor,” Zolidis said.
And many of these companies offered restaurants the same services. Sunday, which cut staff and pulled out of four of its seven global markets, offered QR-code-payment technology. But this service was also found on Toast, a popular point-of-sale provider, and Thanx, a loyalty-focused restaurant-tech startup. The rapid-delivery grocery players, including Gopuff, Buyk, and Getir, have a similar list of products with a similar 30-minute or less promise. Many of these startups have folded, laid off staff, or closed businesses in certain cities.
But it’s not all bad news for foodtech. Some are growing, adding employees, and finding investors, including the ghost-kitchen startup Kitchen United and SoftBank-backed EzCater.
Kitchen United recently raised a fresh $100 million to supercharge its growth to 500 locations over the next five years. Its backers include the owner of Simon malls, Circle K, and the parent company of Burger King.
Stefania Mallett, EzCater’s CEO, said business for the corporate-catering app is “stronger than ever” as demand for food at work keeps increasing.
“Our June business was 101% higher than January’s. The week of July 11, we hit an all-time high,” she told Insider. The company added 140 employees in the second quarter and is eyeing an initial public offering in 2023.
But for companies struggling, industry analysts are expecting consolidation.
Tim Powell, a restaurant consultant, said consolidation makes sense for companies that can’t demonstrate a “competitive advantage” or thought they could be acquisition “bait” during last year’s IPO boom.
“Many of these startups go into business with the hopes that they will be purchased by a larger company,” said Powell, a managing principal at the consultancy Foodservice IP.
In an editorial column published last week in Nation’s Restaurant News, Orsbourn and his book coauthor, Meredith Sandland, said some delivery-focused startups might not make it. “Many will be acquired by the powerful few. Many more will close their doors,” they wrote.
For now they’re hunkering down.
ChowNow’s Webb said if he’s wrong about the “storm” ahead, he’ll call back those he had to lay off.
“That would be a fantastic scenario. But let’s see how the next few months go and the next six months, before we make that determination.”
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