The future of the restaurant business, in 3 IPOs

Uber, Beyond Meat, and Luckin Coffee offerings show where the industry is headed, says RB’s The Bottom Line, but each has its challenges.
Photograph courtesy of Uber Eats

the bottom line

A domestic restaurant chain hasn’t gone public in the U.S. through traditional channels since 2015.

But that doesn’t mean the industry isn’t top-of-mind for investors. Indeed, a trio of recent initial public offerings paint a picture of where the restaurant industry is going.

Those offerings—the plant-based burger maker Beyond Meat, delivery service Uber, and fast-growing Chinese coffee chain Luckin’—show that the industry is increasingly digital, more likely to delivery, caters to people who want meat-free items, and is big in China.

Let’s start with the biggest: Uber.

The ride-sharing company began trading at $42 a share, below its $45 offering price. The company did not raise the $120 billion it was hoping to raise, according to CNBC. And the stock declined on its first day of trading Friday

Uber Eats is an important subsidiary, of course. The service has exploded since it was created in 2016, and the company scored an important client the very next year in McDonald’s Corp.

But neither Uber nor Uber Eats, is profitable.

And that profitability is being challenged at the moment by that biggest client. McDonald’s and Uber Eats have been renegotiating their deal, with the provider agreeing to a 15% commission—among the industry’s lowest.

Uber in its IPO documents acknowledged having to give better deals to its biggest customers.

Restaurants, of course, need lower fees to improve delivery’s profitability. Or they might raise prices on delivery orders, which could theoretically cap the potential of the service.

I ultimately believe demand for delivery is too high for these companies to not figure out these issues.

Then there is Beyond Meat

While Uber’s IPO struggled out of the gate, Beyond Meat had no such problems last week. Its offering was one of the best-received new stocks in recent history, rising 163% on its first day of trading. It then just kept going up, leading to comparisons to the 90s Dot-Com bubble and others calling the valuation “absurd.”

Absurd or not, Beyond Meat is at the moment generating enthusiasm among restaurants that have been using its plant-based meat in burgers and tacos. Del Taco, in particular, is thrilled with its Beyond Taco. Chains are getting marketing boosts by using its name in their products (or Beyond Meat rival Impossible Foods).

The products have enjoyed explosive growth, to the point that Impossible is struggling to meet demand (which appears to be at least a temporary boon to Beyond Meat).  

That said, there are concerns that this is more of a fad that will fade over time. The product is also expensive, which could limit demand further. Yet investors seem to buy Beyond Meat’s argument that the market could mimic the alternative milk market, which has enjoyed sustainable demand with higher quality products.

Last, but not least, there’s Luckin

China is the world’s most populous country and is a destination for just about any restaurant chain that hopes to make it big on the world stage.

As we’ve detailedmultiple times, Luckin Coffee emerged just two years ago to become the country’s second biggest coffee chain and is well on its way toward No. 1, currently occupied by Seattle-based giant Starbucks.

That it is doing so this quickly should send a major signal to any U.S. chain that it needs to be both big on delivery and understanding of the Internet-savvy Chinese consumer. The rapidly growing nature of the Chinese consumer, and the aggressiveness of many of its entrepreneurs, mean this could happen again. Especially if it works.

Luckin has profitability challenges, much like Uber. And it will have to convert early value users into long-term customers willing to pay higher, more profitable prices. But the company could provide a model for future concepts, both in China and even the U.S., with its convenience-heavy, digitally focused model.

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