How the Creator Economy Can Save the Hospitality Industry
Culinary entrepreneurs can build their own empires by leveraging new digital platforms from the "passion economy"
Welcome to our new readers! At Back of the Napkin VC, we use super simple methods to evaluate startups, business and technology. Our mission is to identify and amplify the ideas that are so compelling that they’re explainable on the back of a napkin. To that end, we spend a lot of time “researching” in our favorite restaurants, bars, and cafes. You can receive lots more ideas like by subscribing to our newsletter and checking out the site!
This week, we have an essay that we’re really excited about. It articulates a transformation that we’ve identified in the hospitality industry, and announces a venture we’re launching to help entrepreneurs build in the space. Special thanks to the talented individuals and businesses in the hospitality business who read and contributed to early drafts of this piece. Cheers, all. 🥃
Like the clinks and clamor of a crowded dining room, the chatter around the trajectory of the hospitality industry has crescendoed over the last few weeks.
It’s no secret that restaurants are hurting. Lockdown restrictions have decimated entire markets, like my hometown of New York City, and the increased reliance on third party delivery apps, like DoorDash, poses an existential threat to the industry. But amidst the devastation, we see signs of hope for a renaissance in culinary entrepreneurship in our beloved city and beyond.
In this essay, we’ll leverage the Back of the Napkin VC framework to:
Examine the challenges confronting the hospitality industry
Articulate the business model that has enabled a handful of “empire chefs” in recent history to escape the pitfalls of the traditional restaurant and thrive
And, finally, demonstrate how new digital platforms can empower independent hospitality entrepreneurs to build scalable, sustainable, and robust business for themselves
Much has been written lately on the predatory influence of third party delivery apps, and for good reason. Their increased influence has demonstrated the threat their model poses to stakeholders in the dining ecosystem. But, restaurateurs faced an abundance of challenges long before the pandemic and the rise of parasites like DoorDash.
The challenges faced by the traditional restaurant are evident by a back-of-the-napkin look at their business equation and unit economics. They sell perishable inventory for thin margins. Their capacity is constrained by both space (seats, kitchen, etc.) and time (freshness, temperature, etc.), and they cannot scale without the high variable costs of food and labor. They are exposed to the risks of a single income stream, which has proved fragile to say the least.
However, despite these challenges, some chefs have escaped the pitfalls of the traditional restaurant business by establishing a new model. We call them the “empire chefs”.
The Empire Chef
When Anthony Bourdain was offered a $50,000 book deal after the success of his 1999 New Yorker essay, titled “Don’t Eat Before Reading This,” he quipped, “I’m no dummy, I’m dunking french fries at age 44, I’ll write the damn book.” That book would become Kitchen Confidential and propel Bourdain into a lineage of chefs who evolved their restaurant careers into media and commerce empires.
The trailblazers of this model leveraged their unique brands and celebrity to win partnerships with traditional media and merchandise companies and build robust businesses. Wolfgang Puck grew his “pizzeria to the Stars” in Hollywood’s Spago into a multi-million dollar frozen pizza business with a Gelson’s grocery chain partnership. Bobby Flay parlayed his New York City star power at Mesa Grill into original television programming on the Food Network. By selling physical and digital products, these chefs expanded their empires beyond the constraints of the physical restaurant.
Best yet, this model established flywheels of accumulating advantages. A successful restaurant generated demand for authentic, productized extensions of the brand, which could be satisfied with scalable, higher-margin media and merchandise. These products established a wider audience for the core restaurant business and strengthened its financial health enough to reinvest in new concepts, thereby resetting this positive loop. Flay recognized this early on, saying: “Every time I'm on TV, I'm gonna get people to understand that I own a restaurant, and I'm gonna put more asses in the seats.”
Today’s champion of this model is David Chang. He runs a constellation of successful restaurant concepts, called Momofuku Group. In 2018, he leveraged his celebtrated success in the kitchen to launch Majordomo Media, which produces content, including a Netflix show and podcast on Spotify’s The Ringer. He also runs an e-commerce business, called Peachy Keen, which sells products that feel like a natural extension of his entire brand, like soy sauce and seasoned salts. Even more, he leverages the digital delivery platform, Goldbelly, to ship frozen prepared meals nationwide.
He, too, recognizes the significance of the flywheels here. “If the media takes off, that’s more stuff that we can bring back to the restaurants. Maybe people will never want to pay that much money for food. Maybe we can subsidize some of the costs with other stuff that’s elevating our business,” he told ReCode.
These shows and products engage a much wider and diverse audience in a distinctive and more engaging format than he can deliver in his restaurants, alone. He’s generating a wider customer base for his traditional restaurants, while diversifying his income stream with scalable, higher margin sources like production contracts, advertising revenue, and merchandise sales. By carefully staying true to his message, his brand becomes more intimate as it gets bigger because he’s able to introduce new ways to engage his audience authentically.
Surely, we can’t all be David Chang. But new digital platforms are empowering a new generation of culinary entrepreneurs to pursue a similar model without the previously required scale or star power.
Culinary Creators and the Passion Economy
Whereas the “empire chefs” of yesterday required partnerships with traditional gatekeepers in media and commerce, the independent restaurant entrepreneurs of tomorrow will leverage technology to build scalable, resilient, robust businesses on their own.
Entrepreneurs have access to digital business-building tools that simply never existed before, democratizing access to a new kind of internet-fueled “empire” building (a concept popularized by the “passion economy”). Independent businesses can leverage digital platforms to grow and engage their audience, spin up digital and physical products, monetize these efforts, and manage multi-faceted businesses without the technical expertise or financial investment that was previously required.
In the old model, celebrity chefs looking to expand their empire needed partners for everything from production to distribution to capital to infrastructure. Bourdain needed the publishers. Puck needed the grocery stores. Flay needed the networks. Today’s restaurateurs only need an internet connection to build a business that can scale larger and penetrate deeper.
Using these new digital platforms, culinary creators transcend the constraints of the physical space and variable costs of the restaurant. The tactile aspects of their business — the food, the people, even the real estate — can be productized into authentic, scalable extensions of that brand through things like courses, communities, and content. This model generates momentum as it grows, benefitting from the positive flywheel effects of an internet business, like network effects and economies of scale.
Perhaps most excitingly, this model increases the viability of local, independent restaurants by maximizing the value they can extract from their niche. Whereas before the only real option for a restaurateur looking to grow sales was to expand to new geographic markets, now they can generate more income by penetrating deeper into their audience. They can segment their customers from casuals to superfans and use these platforms to offer tailored products and services at varying price points. These offerings are more scalable, higher margin, and diversify local businesses away from a single income stream, strengthening their overall health.
This transformation is already underway, and it’s being led by individuals.
Molly Baz left her position as an editor at Bon Appetit (and earlier as a cook in NYC) to pursue her own business. Thanks partly to her media background, she is able to produce a seemingly infinite supply of compelling content, then use more tactile dining experiences to engage her most passionate fans in ways that generate positive flywheel effects.
At the top of her funnel, Molly cultivates a wide audience of more than 600,000 Instagram followers, offering a glimpse into her world of food photos, recipes, collaborative livestreams, and plenty of weiner dog content. She then productizes aspects of that world in authentic ways and sells these offerings to different segments of her audience. Her casuals might purchase her forthcoming cookbook on Amazon, more engaged fans might collect “Molly Merch” from her Shopify store, and her superfans will subscribe to her Recipe Club on Patreon and join her Discord community.
Her most recent venture embraced the value of a more tactile dining experience within her the flywheel of her overall business. In collaboration with Belcampo Meat Co, she created “Molly’s Meatloaf Sandos” to sell through their California locations. While this wasn’t the most scalable of product offerings, it was an authentic extension of her brand that engaged a passionate segment of her fans. That experience could then be repackaged into more scalable and higher margin products like reaction photos, meatloaf recipes, instruction videos, and merch, thus spinning that virtuous flywheel effect.
My friend, Brandon, left his role as Wine Director at NYC hot spot Charlie Bird to build his own business, vin-decision. He has a small, but fiercely engaged community of wine enthusiasts for whom he builds digital and physical products. He manages his email list with Mailchimp at the top of the funnel, uses Paypal and Zoom to orchestrate weekly virtual wine tastings, and at the bottom is building an e-commerce and consulting business around wine purchasing, called vin-picks. By penetrating deeper into his niche using digital platforms, Brandon maximizes the value he extracts from his customers way more than he could as a traditional sommelier. In addition, he benefits from a virality that couldn’t be realized at Charlie Bird, as his perpetually-engaged superfans spread the message about his digitally-attainable products.
Independent restaurants are catching up, but there is still room for growth.
To use a tangible example, the delicious and always-buzzing pasta restaurant on our block, Misi, launched its own pasta brand, Misi Pasta, in 2019 and successfully pivoted to grocery and meal kits amidst the pandemic. These businesses diversify their business away from a single revenue stream with more profitable margins, while maintaining an authentic representation of their brand. They could further embrace the “culinary creator” model by building a subscription-based community on Patreon where members get access to special content or early access to reservations and merchandise. Chef Missy or her sous chefs could sell a pasta-making course on Teachable or charge for live streams of kitchen prep on Twitch. Owner Sean could lead a paid community on Circle with fans interested in the ins and outs of the business’s operations. All of these efforts would be relatively easy ways to strengthen an already-successful business, increase the breadth of their audience, and deepen the relationships with their most loyal customers in ways that generate accumulating advantages.
At Back of the Napkin VC, we’d like to empower the entrepreneurs that are fueling this renaissance of culinary entrepreneurship. We built The Hospitality Stack, a platform of resources and community for culinary creators building scalable, sustainable businesses. If you’re working at all in the space, we’d love to hear from you. Whether you’re a hospitality entrepreneur or operator, content creator, or a digital platform, we’re excited to learn from you and help you achieve your mission.
Please reach out at firstname.lastname@example.org or get in touch via the link above to the Hospitality Stack.
About Back of the Napkin VC
Back of the Napkin VC is a simple way to evaluate startups, business and technology. Our mission is to identify and amplify the ideas that are so compelling that they’re explainable on the back of a napkin. To that end, we spend a lot of time “researching” in our favorite restaurants, bars, and cafes.
We publish these ideas regularly through our napkin sketches, which you can subscribe to a weekly digest of. If you're interested in what some of these look like, the DoorDash Business Equation, OpenDoor Unit Economics, or Peloton Flywheel napkin posts are all good places to start.
Sometimes these napkin ideas lead to longer form essays with actionable investment or startup insights, like this one. If you’re interested in more like that, try our piece about why we’re riding with Peloton.