Episode 2: Brian Howenstein

ClusterTruck Chief Operating Officer Brian Howenstein is our guest on episode two. ClusterTruck is a ghost kitchen operation based in Indianapolis, Ind. The company built its own tech stack and operates a fleet of delivery drivers. Brian talks about the benefits of building in-house technology and how delivery and finishing an order are timed to maximize quality. 

Episode transcription

James: Welcome to episode two of the Food Tech Podcast, where we’re exploring the changing nature of the food industry and technology. We give operators quick, actionable ways to improve their business in the new omnichannel environment. I’m your host, James Shea, publisher of Food Delivery News. Our guest today is Brian Howenstein, Chief Operating Officer at ClusterTruck, a ghost kitchen company based in Indianapolis. Brian has a background in software development and helped implement ClusterTruck’s innovative technology. Welcome to the show today, Brian.

Brian: Yeah, thanks for having me.

Brian: Yeah, absolutely. So Chris Baggott, our CEO, is a longtime software entrepreneur, had a lot of success previously, and he really noticed a problem come up when third-party delivery was kind of really just getting started. So through the success of his software companies, he got into farming and sustainable agriculture and then got into restaurants. And when delivery first started  happening, you know, he was trying out, you know, Grubhub when it first got started and he really noticed, you know, there’s a few problems here. One, the economics don’t work for anyone. It doesn’t work for the restaurant. And the restaurant is paying extremely high commissions. It doesn’t work for the driver. The drivers are not making enough money for the deliveries they’re they’re taking. It doesn’t work for the consumer. The consumer is paying, you know, extremely high fees and often getting poor quality food. The food’s going to sit, it’s going to wait. It takes a long time to get to them and it’s not it’s not super high quality. Once it once it actually makes to the customer and then the delivery companies themselves are just not making enough money on the transaction to actually be profitable themselves. So looking at all this, the economics just didn’t make sense, you know, like, this is never going to work.

And then on the other side, and this just came from, you know, kind of history in the technology industry and the way previous industrieshave gone is there’s a massive data problem here. And data is is maybe what’s really most dangerous about this situation is that the customers that are coming to restaurants through third party delivery are not actually those restaurant’s customers. Those customers belong to the third party delivery company. And you know, if if a customer goes on to a third party delivery company, they order from one restaurant. The third party delivery company now knows that they like that type of food. And if that restaurant does not pay to stay at the top of those listings or stay in the in the good graces of that company, that third party delivery company can choose to send those customers to another restaurant. And even on top of that, they’re encouraging restaurants, you know, to encourage their existing customers to go use them on third party delivery apps. And what’s happening is the restaurants are just, you know, sending and ceding control of their customers over to another organization. So that’s where really, you know, things get kind of dangerous as you lose control of your customers, you lose control of your business and things kind of go sideways. You know, we saw this in the travel industry, you know, the online travel agencies came around and, you know, Expedia, Travelocity, Priceline, all that kind of stuff that happened when that industry first started.

And, you know, it was the exact same way. There’s a quote by Dara, the current CEO of Uber and formerly the CEO of Expedia, that kind of talks about this where, you know, folks are really upset about the commissions he was charging. He’s like, Look, you know, you should treat me as a cheap source of referrals. You know, once I send you a customer, you should convert that customer being your customer, if you don’t, if they keep coming back to me, you know, that’s that’s your fault. You need to convert that person to be your customer. So we’re seeing a lot of parallels in the third party delivery world that we already saw in the online travel industry. And, you know, now an online travel 70 percent of business goes direct to the airlines or the hotels rather than through those marketplaces. And I think we’re going to see the exact same thing with third party delivery where they were going to see it all. I’ll go direct. So of course, to. We built a system that completely controls the system top to bottom, from ordering to kitchen production to delivery. That’s all done in-house, all done on our technology platform. We keep the food hot, fresh and we’re able to deliver profitably with no fees. And then we have complete control over the data. Those customers are our customers and they choose to return to us again and again. So we really use technology to kind of solve a lot of these fundamental problems that we’ve seen in the delivery space

James: So what you’re saying is that you built an entire technology stack for your operation, from taking orders all the way through delivery, right? You have your own delivery drivers. How difficult was that approach to try and get, you know, whole system from beginning to end? Like, what were the challenges that you guys faced?

Brian: Yeah, it was definitely challenging to start. I think, you know, when we first got started in 2016 is when we we first opened, we started writing code in 2015 and 2016. We first opened, you know, nobody was kind of thinking this way, you know, everybody thought things were going to go the other way. That third party delivery was just the way to go. And in fact, a lot of the segment is that way is still that way today. But we want to offer an alternative, but we originally just wanted to manage the orders and the driver component of it. You know, we just wanted to be able to time orders so that they were done when a driver arrived just to kind of control that freshness aspect. And so we were looking at. Systems to see, you know, who could we integrate with to manage the timing and it just didn’t exist, it wasn’t possible the technology had not arrived at that point to be able to build some of this stuff. So we really had to build the entire system just out of necessity in order to accomplish the things we wanted to do. We had to control it top to bottom. And so, you know, we had to write that all ourselves.

James: And now, as far as you know, you have your own delivery drivers. I know some restaurants kind of have thought about that or have done that. What are the pluses and minuses of having your own delivery drivers?

Brian: The challenge and maybe the hesitancy of having your own delivery drivers maybe stems from just the experience that the third party delivery companies have had with their drivers. So, you know, kind of our argument is that the model third party delivery has does not make enough money to the drivers. So there’s really high turnover. So, you know, that’s one of the values that that they claim they offer is that they kind of abstract that away because they’re constantly having to recruit new drivers. Drivers are turning over and it’s a really, really tough gig. So we kind of flip that on our head and said, you know what, if we design this system from the driver perspective, first, to make sure that they make enough money, they’re as engaged so that we’re going to have extremely low turnover and we can eliminate as much as that overhead as possible. So we designed a system so that an average third party delivery driver is only going to get one to two jobs an hour. We make sure they get four to six. We make sure they’re highly engaged. We’re only curbside delivery, so they’re not having to park their car and run off into apartment buildings. The customer kind of tracks their order just like an Uber. They made him at the curb in the drivers back on their way so they don’t have to get out of their car. They can take four to six jobs an hour and we make sure the economics work out for them. We don’t oversaturate our pool, they can work when they want. There’s no scheduling to truly make sure this is the best gig job in the gig economy. And that’s what really I think changed the game for us as far as managing drivers is if you build a system that kind of eliminates that turnover and those headaches, it’s muc more manageable and it’s really quite possible.

James: Yeah, I thought I read somewhere that your drivers make like $40,000 to $60,000 a year or something.

Brian: Yeah, I mean, that’s the great thing they make. They make great money. Our top drivers have made over $80000 in a year. And, you know average is probably in the 40 to 60, and it’s completely flexible. They can choose to work as much or as little as they want. We have everyone from his they our power drivers who will drive all the time to, you know, with our curbside model that really opens up some interesting opportunities for drivers from, you know, retired folks to maybe not get around so well, they don’t have to get into their cars. So that’s not an issue to, you know, we have some, you know, some new moms who may have a, you know, an infant or a one or two year old who just rides in the back seat of their car while they’re making deliveries. So it’s it’s not any place that you can make 20 or $30000 a year, just part time, a couple of hours over lunch and not have to pay for childcare. So it’s really opened up some, some interesting opportunities for for folks to make money in some kind of nontraditional ways.

James: Yeah. So like if you were an operator or giving advice to operators who are thinking about kind of bringing stuff in-house and having more control of their technology, I guess what advice would you give with the advice?

Brian: I would give this to look at the service you’re planning to implement holistically. Don’t just assume that the way the mainstream market has gone is the way that you have to go. So, you know, truly look at those economics to see, you know, these commissions that I’m paying to third party delivery, do I have to pay them like if I’m paying these, am I actually profitable on this, on these orders? You know, our argument, our kind of belief is that it may be that every single order that goes out and third party delivery for the vast majority of restaurants is just unit unit economically unprofitable. So it doesn’t actually make sense and then does a solution like our software make this really work well? And can this not just be a little bit of incremental revenue on top of an existing restaurant? But could this be a whole new revenue stream that opens up just a wide array of possibilities? So we’ve decided to make the transition. We made this argument for a long time. You know, this is the way to go. This is the way to go. And we realized that not everybody has the ability to hire a big engineering team to build software to make this this all work. So you know, what we’ve decided recently do is we’re going to start licensing and selling our software and our technology platform to other operators to let them take advantage of these, these efficiencies and and this model that we believe is the way that the food delivery is going to go.

So, you know, take a look at the spectrum of software out there and make sure it works for you. And, you know, maybe look at something like us and maybe the right thing for you.

James: Yeah, talk a little bit about franchising or selling your software platform, I guess. Who do you see as the market for that? Or kind of have you talked to people about it like, where’s that process at?

Brian: Yeah. So we’ve kind of decided to go in both in two directions. So one just fully franchising the ClusterTruck model. So if you would you like to use our brands, our you know, our our recipes, our logo, our you know, our our full model, we’re going to franchise the entire cluster truck concept. Now, if you have your own, you have the own brands. If you have your own restaurants, if you have your own stuff that you would like to do, you like to deliver, you just need the delivery model to make it happen. Then we’re going to license our technology platform to do that. So we’ve got several pilot customers that are already talking. Into, you know, in a pretty broad scape across the across the country and where this really sings as if, you know, if you kind of have multiple brands that you want to do, delivery will do delivery out of a single kitchen. And, you know, we think it has really, really sky high possibility. So we’re really excited about those, those pilot customers. And obviously, we’d love to have some, some more time to talk to you as well.

James: Now, do you think this would mostly work in multi-brand units? I mean, could you see a single brand operation benefiting from this or could it be adapted to that?

Brian: Yeah. So it really kind of depends upon volume. So analogy that I like to make. It is the way third party delivery works right now is. Imagine imagine if you were ordering from Amazon and Amazon had 2000 fulfillment centers in your city like the economics. Just don’t start to make sense because only like 20 orders are coming out of each film at center. But if you if you start consolidating that and say, you know, instead of delivering out of every single little building in town, let’s deliver out of, you know, eight or 10 different buildings in town. And we kind of consolidate these these brands into one place. Let’s take take all the delivery orders out of the restaurant where they’re competing against the dining room, where they’re competing against everything else. Put them in their own dedicated space. And then all the economics really start to make sense. So that’s where we kind of see is if you start to combine brands to deliver out of a central ghost kitchen that not only keeps the couriers highly engaged and make sure they’re highly utilized, but it also makes their labor, makes sense, makes their rent makes sense, makes it and makes all the other economics of the running facility really start to make sense.

James: So almost kind of a hub and spoke kind of model, right, where you’re centralizing production and then moving everything out from there?

Brian: Yeah. Or even if you’re just, you know, doing delivery out of those facilities.

James: So yeah that’s what I meant. Like moving the moving delivery out, right? Reduce the food out of one central location and then the spokes of the drivers would like move it out to the customer’s right?

Brian: Yeah, no. Exactly. So if you know in a single brand model, you know, if you’re doing super high volumes out of a single brand, then yeah, it may absolutely make sense. Just have a single brand. But for, you know, for folks who may only be doing 20 or 30 deliveries a day, you know, all of a sudden if you combine maybe five or six of those into the same kitchen, then then things start to look really, really great.

James: Where do you think the third party delivery is going? I mean, I know it’s changed a lot in the last two years or so, and you’re around it a lot. Do you get a sense of if it’s here to stay or if it’s going to be different? Or, you know, do the economics somehow start working for it?

Brian: I think we’re going to see a lot of things happening here in the new future, and I think we’ve already started to see it. You know, things like with with DoorDash as acquisition of Bbot, where it looks like the third party delivery is starting to hear some of the pain from the restaurant tours and trying to provide solutions to some problems. But it may end up being, I guess, kind of a blessing and a curse, you know? You know, if you if you end up using DoorDash as technology offerings, then you’re also locked into DoorDash ecosystem and they’re their career force. So I think we’re going to see perhaps some consolidation. I think we’re going to see some, some changes in the model. But in the end, those advantages may be just small incremental changes rather than, you know, one of my favorite cliches is is, you know, is the faster horse versus the automobile, you know, comparison. You know, I think we’re we’re firmly in faster horse land right now. And you know, with with what we’ve done with cluster tracking our technology platform and, you know, kind of turning a lot of those questions on its head and saying, Do I really need to do this way? You know, we’re trying. We’re trying to bring the whole new, a whole new generation of of solutions and a whole new a whole new way to think about this.

James: And how many locations do you have for cluster truck? I thought it was, what, two or three?

Brian: So we we operate in three markets, eight kitchens, most heavily concentrated in Indianapolis. That’s where we’re headquartered. But we also we also exist in Columbus, Ohio, and Kansas City, Missouri.

James: And do you think that more densely populated areas is kind of what you need to operate or can you work in the in the suburbs and more sprawled out areas?

Brian: So it’s it’s a it’s combination of of all of those. So we are our downtown kitchens obviously do the highest volume, but we’ve done a lot of work in the past few years to also make sure our system really works well in suburban markets as well so we can do our downtown kitchens. We haven’t been proven otherwise yet, we believe may be the busiest ghost kitchen in the world. Does you know? Oh, well over a thousand deliveries a day to, you know, working in suburban kitchens. You know, they’re in the 80 to 120 deliveries a day in our system works the same way in both markets. You know, the drivers make the same. The drivers make money in both places. They make the same amount of money. They the customers behave the same. It really just became, you know, the way we manage it in software. So we’ve done a lot of work to make sure it works in both places.

James: And I would assume customers just get used to using the software just like they use Uber software or whatever to order a taxi, right?

Brian: We kind of had a great example happened recently. So in one of our suburban markets, we were we’re operating out of an old restaurant. It was just a month to month lease because the the developer had plans to redevelop the block in the near future. So we’ve been making plans to where we’re going to move the kitchen when that happened and fortunately, they gave us our notice just a little bit before we were ready to move to our next kitchen. So we’re closer out four months in that. Market, so what’s interesting is that all our customers had four months to go out and try every single other delivery service out there. And the second we reopened our kitchen in that market, they all came back. So what we found is that using our model, the customers, it becomes their default way to order. If you can order cluster track, they choose to order order from cluster check because the model just gives such a better experience and it works out better for everybody. So it ends up being right. It’s just that default way that, you know, rather than going on to a third party delivery app deciding what restaurant to order from the open cluster track. We have a very broad menus and multiple concept same kitchen, so they know there’s something they can find. There just eliminates one decision and they know it’s going to be great.

James: All right. Well, I want to thank you so much for your time today, Brian. I hope you have a good day.

Brian: Yeah, appreciate it. Thank you.