Start-up Dives - Ritual
A business built on the upsides of social ordering from local restaurants
Origin Story
Ritual is an ordering app that lets users order and pay at a variety of local eateries and coffee shops. It also lets you know when to leave your home/office to go pick up the order thereby removing the hassle of ordering and waiting for your order at the restaurant. More on their product, business and value proposition in a bit.
Founded in 2014 by three serial entrepreneurs - Larry Stinson, Ray Reddy, Robert Kim, Ritual has raised $127M in funding and is live in 40+ cities across North America, Europe, Asia and Australia.
In this video from a 2017 Product Hunt Toronto event, Ray has shared how his experience at a London Pub along with years of work at Google focused on local businesses, inspired him to launch Ritual. Here’s his London story in brief - Londoners take pride in being ‘regulars’ at pubs. Pubs therefore honor and build the sense of pride in being a regular by personalizing the experience of their patrons. Even going to the extent of having mugs and in some cases bar-stools with names of their regular customers. At a particular pub Ray and his friend signed up to be regulars and were delighted by the experience when they dropped in the same pub 3 days later to be surprisingly greeted by their names and brew of choice. This made Ray question, how can the digital world enable local businesses to identify their customers as ‘regular patrons’ and not anonymous customers. Some of the features in his product answer this question.
So, what is the business?
Ritual makes money by taking a small cut (10-to-13 %) from restaurant sales that the app generates.
For example, if you buy a $10 burrito from your favorite local restaurant using the Ritual app, $1-$1.3 of that would go to Ritual and the remaining to the restaurant. This is much smaller than the fees charged by food delivery services such as Doordash, UberEats etc. which are typically between 25-30%. The difference though is that when using Ritual, you go and pick up your order from the restaurant yourself, while the delivery apps bring your order to you. The delivery apps therefore have large courier compensation expenses, while Ritual doesn’t have to spend anything on the last mile logistics that are covered by you. Ritual’s business model resembles more of a technology company that is enabling local restaurants to sell online as compared to Food delivery companies that are also heavily involved in last mile logistics in addition to providing the technology that enables digital orders and payments.
Market and Competition
Ritual plays in the extremely competitive market of food ordering. Let me first explain the restaurant industry and then will lay out the competition in food service.
Industry - The restaurant industry is worth ~$700B in the US and ~$70B in Canada. See here for latest projections. These numbers will be drastically altered by the impact of the Coronavirus pandemic though. The overall market is divided in three categories:
Quick service restaurants - ~$250 B (Gross sales of Ritual’s potential customers). See here for data.
High Frequency - 80% of 60 B annual restaurant visits are to quick service restaurants. These visits are mostly to get coffee and lunch. These visits comprise of low ticket value - average order value is $5.30 at QSR like Starbucks and it is $7.40 at fast casual restaurants like a Subway.
Table service - ~$250 B
Low frequency - 12% of all restaurant visits are to table service restaurants. These visits are mostly dinners but have higher ticket values. Fine dining’s average order value is $28.55 and casual dining’s average order value is $13.75.
Others - ~$200 B
Ritual’s target is to work with all Quick Service Restaurants and skim off ~10% of the order value. This is a huge market and could actually be a solid profitable business which justifies the kind of money that Ritual has raised.
Competition - The competition in this market is formidable with several big players including Uber Eats, DoorDash, Skipthedishes, Foodora, Caviar, Postmates, as well as other local competitors. Despite the competition, Ritual has been able to create a name for itself in some of its early markets. The ‘food pick-up’ product in itself is fairly easy to replicate for the food delivery apps and UberEats as well as Doordash already have it live. However, I believe that Ritual has been ahead of the curve in building a loyalty program (more on it below) and a corporate meal product (details below) which can help it keep the competition at bay.
Who is a Ritual customer?
Ritual is focused on takeout orders that users pick up at the restaurant without waiting in line. Their customers are office workers who use the app to grab coffee in the morning while on the way to their desk, or buy lunch near their office. In the pre-Ritual world, lunch hour would mean that you would have to go to a restaurant near your office, place your order, wait for the order to be cooked, pick it up and come back to your desk to eat it. In the post-Ritual world, you place your order from your seat, Ritual tells you when to leave the office to get to the restaurant at exactly the time when your order is ready, you walk into the restaurant, pick your order and get back to your desk to eat it. Their ideal customers are busy office workers who want to avoid the hassle of waiting in queues for ordering food. Also, Ritual does not charge any fees on your order and the menu prices are the same as what you’d pay without the app.
Why do they call it social ordering?
Given that Ritual doesn’t do the delivery, they have come up with a clever solution to compete with the apps that deliver your lunch to you and have also given it a social angle.
The app has a feature called ‘Piggyback’ that encourages users to make bulk orders with colleagues, effectively creating a ‘free delivery network’. So, let’s say I work at organization X and around my lunch time, I am planning to order food from my favorite restaurant - Freshii. If one of my co-workers is also ordering from the same restaurant, I can piggyback on his/her order and can ask them to pick my lunch for me when they go to pick theirs. Now, I will save the time as I won’t have to leave my desk to grab lunch, my co-worker will get some reward points that they can then use on Ritual app for their next order and if I and my co-worker decide to hang out and eat together - Ritual has just enabled a social connection between the two of us. That’s social ordering for you.
What are these Ritual Rewards that you mentioned?
Ritual Reward Points are Ritual’s loyalty play. You get some points when you show good behavior on the app such as - when you signup, when you upload a profile picture, when you order on the app, when you offer to make pickups for your colleagues, when you report incorrect menus etc. You can then use points to earn rewards such as discounted price on some items. Here’s a short case study on Ritual Rewards for further reading.
Value Proposition for Customers
Discovery - discover new eateries/cafes in your neighborhood on the app.
Save time - Skip the queue, seamless pickup experience
Earn rewards
Piggyback (see social ordering above)
No additional service fees or markup pricing - You pay the same as you would have paid at the restaurant
Value Proposition for Restaurants
Customer Acquisition - Acquiring new customers is a big challenge for the restaurants and given small mom and pop establishments don’t have a brand/marketing budget, Ritual solves a real problem for them.
Better customer experience - Restaurant side experience of Ritual enables restaurants to see a profile picture of their customer as well as a visit count so they know if they will be seeing a first time customer or a regular. Restaurants can use this information to build relationships with their customers. Even being able to thank someone for their 10th order can go a long way in building positive relationships and loyalty with customers. More importantly, customers no longer have to wait in line and crowd the restaurant counters.
Loyalty Program - Most restaurants don’t run a loyalty program as they are usually a waste of money. Intuitively, it is your most loyal customers that participate in such programs and you end up providing offers to them. The rewards program at ritual is slightly sophisticated because they are able to measure your visit frequency and encourage you to go to the restaurant a little more through specific offers thereby likely having a higher ROI.
Pulling the demand curve - Restaurants service only during certain hours of the day but almost everyone comes during lunch and dinner and not the rest of the time so Ritual gives additional points if you order from the busiest restaurants before 11 am. This way Ritual is helping restaurants in pulling the demand curve a bit and likely increasing their sales.
Analytics - I don’t believe most restaurants will be using this, nevertheless, Ritual provides some sort of analytics on the restaurant dashboards in case restaurant owners find time to make use of data and base their operational decisions on it.
What is exciting about Ritual?
I believe that Ritual has a pretty solid product and is well equipped to strengthen its position in the food ordering industry. Below are some of the things that keep me excited about Ritual in addition to their strong team:
Relatively lower cost structure - As I have mentioned above, Ritual is truly a technology product that is enabling local restaurants to step up their offerings in the digital age. Given that they don’t have to spend on the last mile delivery, their costs are restricted to product development, marketing and extensive sales. This is also the reason why they can charge lower fees to the restaurants which likely helps them partner with restaurants faster. Ultimately in this low margin - high volume game, having a lower cost structure would help Ritual stick for a longer time.
Ritual’s Loyalty Play - Both Ritual Rewards and Social Ordering are tied together and help Ritual build loyalty. In this extremely competitive market, beyond the sign-up credits, customers continue to look for coupons and additional free lunches. Ritual definitely has a leg up in terms of having a decent loyalty program that incentivizes customers for repeat ordering and for sticking to one app day after day.
Ritual for Teams - Ritual has a corporate meal program that provides office managers, and business owners the flexibility to setup a credit system for employees and get rid of catering programs that are cumbersome to manage.
Employees get Ritual credits Monday to Friday between noon and 2pm or however the office manager chooses to distribute credits and they are free to then use these credits for lunch at their choice of restaurants
If order exceeds the credit then the employee’s credit card is charged, if credits are unused then the company gets the credits back. This eases accounting for the company while removing the hassle of catering as well as cleaning
Employees get to eat whatever they like and through the piggyback social ordering feature they also bond with their colleagues
What makes me nervous about Ritual?
Despite all the positives, there are certain threats to Ritual’s success:
Formidable competition - Yes, Ritual has a good product and has secured good funding, however, its competitors are truly big players with billions of dollars behind them. The pickup product in itself has already been copied by some of the other players and Ritual now is left with very little of its own to differentiate and keep its customers on its platform. Unless Ritual continues to innovate and have exceptional product, sales and customer service people on its payroll, it will be hard for Ritual to fight the competition.
Restaurant Churn - After the initial push for growth in any city, it becomes critically important to maintain an extensive selection of restaurants on the platform. Restaurants are hot commodities for all these food service companies and it’s not uncommon for one restaurant to have 4 different iPads to receive orders from 4 different apps. Not every restaurant is okay with giving up counter space to these devices, particularly when some of them bring less business than others. The devices that bring little business will have to go and those companies will lose the partnership with the restaurant. Ritual will have to continuously deliver high value to its restaurant partners to keep churn at a minimum.
Additional Resources for Further Reading
The next section is only for those of you who may consider interviewing at Ritual in the future.
Interview Guide
This section is only for those of you who may consider interviewing at Ritual in the future.
Although, I will not be sharing the exact questions that I was asked in my interviews at Ritual because of the NDA, below is a list of questions that I scraped off Glassdoor to save you some time. I found these questions to be very much in line with my interview experience. At the end of the list, I have also shared my thoughts on answering the questions that are in bold.
Behavioral
Describe an achievement you are proud of.
Describe a time when you had worked really hard to achieve something.
How would you launch Ritual in a new market?
What do you think are the costs of running a restaurant?
What’s your favorite app on your phone?
If you were going to open a business what would it be with a focus on operations?
Tell me about a time when there was a big problem at your job, how did you handle it?
Tell me about a time you contributed to a team.
How would your friends describe you?
Who inspires you and why?
If you were to be the owner of a startup which three core values would you instill within the company ?
What do you geek out on?
What is not on your resume?
Cases
Create a fictional cafe or restaurant and describe the cost breakdown and how you would operationally break even.
How many lattes does Starbucks sell in your city in a given week?
How many ice-coffees do people drink in a year ?
How many 6-inch subs does Subway sell daily in downtown Toronto?
How many restaurants are there in Toronto?
My thoughts on answering some of the above questions
Launching Ritual in a New Market
The winning strategy for Ritual is to on-board high # of restaurants in a particular neighborhood and then scale across the city by adding one neighborhood at a time. Also, the best neighborhood to start with would be the one with high corporate office density. So, I will start off with building supply in the downtown core of the new market. Next step would be to brainstorm on all the ideas that will help you build supply - looking for google reviews and reaching out to restaurants & cafes with high ratings, selling the value proposition to initial few restaurants etc. 2nd step would be to generate demand. This is when I would brainstorm ideas on new user promos, corporate partnerships etc.
Costs of running a restaurant
Read here for details on costs of running a restaurant.
How many restaurants are there in Toronto?
It is a classic estimation problem with really no correct answer but the interviewer is looking for your approach. Here’s how I had prepared to answer this with a top down approach where I started with the population of GTA to estimate demand for Restaurants.
Step 1: Population of GTA = ~6M, Population of Toronto = ~3M
Step 2: Segmentation - High Income = 750k, Mid Income = 1.5M, Low Income = 750k
Step 3: Frequency of Restaurant visits - High Income = 5 times/week, Mid Income = 3 times/week, Low Income = 1 time/week
Therefore weekly demand = 750*5+1.5M*3 + 750*1 = 9M guests/week
Step 4: Some assumptions: Average Seating Capacity of Restaurants = 25 guests, Peak Occupancy = 80% , Non Peak Occupancy = 40%, Peak hours = 5 hours, Non Peak hours = 5 hours
Step 5: Capacity per day = 5*.8*25 + 5*.4*25 = 100+50 = 150/day
Step 6: Capacity per week = 150*7 = 1050
# of Restaurants = Demand/Capacity = 9000000/1050 = ~9000 restaurants
That’s all for now :)
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