Home Restaurant Platforms: Connecting Home Cooks and Consumers Who Want Delicious Food
Humans have been cooking food and sharing it with their friends and neighbors for generations. In contrast to other food sharing trends that have morphed into food technology platforms, like food delivery, home restaurant marketplaces have been unable to take off due to regulatory barriers. In California alone, there are thousands of people selling food out of their homes illegally. That lack of food sharing innovation and the absence of an all-in-one technology solution to combat regulatory barriers changed when Josephine was founded in 2014. This startup worked with home cooks to sell their meals locally by providing them with liability insurance, business assistance, a marketplace with the different vendors, and food safety training. Ultimately, they were unable to continue because local health officials were not aligned with their mission. They subsequently closed in 2018.
Still, these types of marketplaces are beneficial to both sides because customers get truly local food from their neighbors and chefs get to test out their restaurant concepts for less money compared with building out a brick and mortar restaurant. For example, Cooks Alliance, a home restaurant advocacy group, has estimated that the cost to launch a home restaurant is less than $1,000, compared with $400,000 to start a brick and mortar and $50,000 to start a food truck. Home restaurants also help many underserved populations, like single parents and recent immigrants, supplement their income. According to the Cooks Alliance, existing informal food economy participants, are 84% women, 48% black or Latino, and 30% first-generation immigrants.
Later in 2018, California passed AB626, which enabled Microenterprise Home Kitchen Operations (MHEKHO), which are restaurants that operate in one’s private residence. The food produced in these kitchens is able to be consumed on the premises or via delivery, but cannot be sold to other businesses, like catering or grocery stores, or use third-party delivery services. This law expanded on the existing Cottage Food Laws by allowing the local county’s health department to oversee these MHEKHOs. The individual restaurants are on the smaller side because they can only have up to $50,000 in yearly sales, but the potential in serving these customers is the growing number of these types of restaurants. The services that offer backend logistics support to these restaurants are in high demand. Unfortunately, the local health departments took time to enable these types of restaurants, but in January 2020, Riverside County began permitting these restaurants with others soon to follow, like San Bernardino and Alameda Counties.
While regulations are shifting to permit food innovation, it is important to understand US consumer's dining habits as well. In 2018, there were about 660,755 restaurants for consumers to dine at or get takeout from. Americans had a slight preference for dining out compared to ordering delivery, pre-pandemic. Data from Restaurant Dive shows that 56% of Americans dine out at least once or twice a week, while only 47% order delivery once or twice a week. However, this same report found that off-premise sales (takeout and delivery) now make up 60% of sales across the industry, and that number has jumped up due to the pandemic. According to survey data from the National Restaurant Association, the number of adults who ordered takeout or delivery jumped up 8% between February and November 2020. Similarly, meal kit adoption is up 7% since the start of the pandemic after being down in 2019. While these trends may not continue on the same growth trajectory once people can go to dine out more frequently, the convenience and habits of delivery or takeout are here to stay. These types of products needed broader market penetration, which they have been able to achieve due to the increase in home cooking and a decrease in eating out. Restaurants will need to adapt their food to cater more towards delivery, which can be hard. However, for home restaurants, which can more rapidly test new dishes and interact with consumers more personally, they can rapidly apply insights from customer interactions to ensure that their food is optimized for delivery.
I personally became interested in the industry when going down a personal rabbit hole about starting a cottage food bagel business. Despite that idea not going very far, my fascination with the ability to share the products of one’s kitchen with others continued to interest me. I still think these startups don’t fully do that (I don’t know if what I am asking for will ever be legally possible), but it is good progress towards that.
· Shef — Shef is a home restaurant platform that offers food just via delivery to its customers. Customers must order through the website and ahead of time, unlike other applications that offer a website and freedom to order whenever. The meals start at $7 and they have sold over 300,000 meals. Shef also has partnered with companies to allow them to set up a program for their employees to order. In order to circumvent regulations that don’t allow home cooks, they work with the cooks to give them access to commercial kitchens. Shef is available in the Bay Area and NYC. They have raised around $9M to fuel their growth.
· Josephine — Worked with over 3,000 home cooks to help sell their home cooked meals. The Josephine platform creates “clubs” that helped these home cooks sell to their friends and neighbors. The price per plate ranged from $7-$13, with Josephine taking a 10% cut. Every chef had to pass a test by the Josephine team and receive a food handler’s license. Ultimately, they had to shut down in 2018 due to cease and desist orders from local health departments.
· FoodNome — A web platform that matches customers searching for food and home cooks trying to sell their meals. They take a 15% fee from all reservation transactions, so the customer is covering the cost. In order to onboard a chef to their platform, it costs the chef about $1,000 and they must pass the food safety test, but they receive tools to help them maximize profitability and have efficient operations. FoodNome also lists all the restaurants on the platform, so customers can browse through the many options. The typical meal is between $10 and $20. The chefs are a mix of part-time and full-time employees. They have raised a $1.1M seed.
· DishDivvy — Not only do they support home restaurants in California, but they also have expanded to Utah to support home food producers there. Compared with the other companies in California, they are the first to expand outside California. Diners in each location have their order fulfilled by the home cook and then can either pick it up or have it delivered by DoorDash, who DishDivvy has a partnership with. Most of the customers are people in their community, while the cooks are typically highly skilled with previous cooking experience. DishDivvy charges a 15% commission fee that comes out of the home cook’s revenue. They haven’t raised any VC funding yet.
· Appetivo — This startup also enables home cooks to sell their food to people nearby. It had a head start over the other startups, as it tested the concept in Mexico City before it was legal in California. Once it became legal, it immediately rolled out in Los Angeles. It has raised some angel funding, but hasn’t raised any VC money yet, which makes it an outlier in this list. Appetivo charges a 10–15% commission fee to the customer. Their strategy to onboard chefs involves having them try listing one dish on the platform and then slowly expand their menu on the platform. Sit down restaurants can also list their products on Appetivo. Order management is done through a proprietary dashboard, and notifications are sent on SMS and email.
· WoodSpoon — This startup is on demand home food marketplace that provides customers with food from local chefs. The chefs on the platform are a mix of professional cooks and local cooks utilizing a mix of professional and home kitchens. The chefs are located across Manhattan’s east and west village, but they have plans to expand outside NYC. NYC’s evolving regulations on home chefs will play a big role. WoodSpoon makes their money from three different fees: delivery fees, service fees (15% of total order), and small order fees. They have not raised any funding yet but have $46,000 in revenue since their launch in mid-September.
Government regulation — California typically leads the rest of the United States on legislative innovation and with MHEKHOs that leadership is similar as well. Typically, the MHEKHO legalization process goes from allowing limited cottage foods, to expanding Cottage Food Laws, to enacting food freedom or MHEKHO laws. Already, three states have enacted food freedom laws, which let residents sell almost any homemade food, but not in a sit-down restaurant setting. In 2019, 17 Cottage Food or Food Freedom Laws were enacted, which illustrates states are trending in the direction of allowing home restaurants.
Restaurant Layoffs due to COVID-19 — Restaurants have been harmed by restrictions on capacity due to COVID-19 and decreased consumer interest in eating at a restaurant, leading to layoffs across the industry. According to National Restaurant Association data from September, there are 2.5 million fewer restaurant workers than before the pandemic. These workers need employment, and a cheap, easy alternative to utilizing their skills is home restaurants. Plus, consumers may be more inclined to order from local restaurants because they are cheaper, their purchase supports a micro-local business, and they don’t have to travel as far to get the food.
Workers Demand Flexibility — A 2018 survey found 62% of respondents “desire to choose when to work” and 49% “desire to be (their) own boss,” which is provided by having a home restaurant. Given these types of restaurants can only do $50,000 a year in revenue, these restaurants provide a side-hustle opportunity to meet people’s desire to have more work flexibility. Additionally, the startups that are supporting home restaurants can offer other products to help the top entrepreneurs expand their businesses to a food truck, ghost kitchen, or even a brick and mortar location.
CA County Permits — At the county level in California, MHEKHO policy innovation has been driven by Cooks Alliance, an advocacy and organizing group created by the founders of Josephine. They are focusing on getting MHEKHOs allowed in every county in CA. As the country watches to see how California’s home restaurant pilots go, the Cooks Alliance will be instrumental in expanding these programs. The chart below summarizes the progress of implementing AB626 at the county level in California’s 58 counties based on Cook Alliance’s efforts. The number above the bars illustrate the number of people in the category.
Whichever startup can figure out the best way to partner with local health departments quickly and make sure food quality is consistent will be able to grow the quickest. However, I do not think the Uber model of act now, ask for forgiveness later will work this time because local governments are more attune to that strategy now and most consumers don’t want to buy food from an uncertified kitchen. Despite the change in the presidential administration and this type of policy being in line with his policies, I do not see federal action happening because this is reliant on individual health departments. Instead, I think states will be more inclined to pass home restaurant legislation due to the restaurant industry being decimated. In addition, restaurateurs will be wanting to start over for as cheap as possible. With regard to quality control, it will originate in the vetting and training of the chefs. Chefs with previous kitchen experience and a built-up social media following will be crucial. Finally, one strategy I have enjoyed is how Wood Spoon created a video of one of their chefs telling his backstory and background. While this may not be scalable, I think it will go a long way to getting consumers to trust home chefs in the initial phases.