Frazer Nagy of Transparent Kitchen champions more profitable business models for restaurants


Rosanna Caira: How did you get started in the industry?

Frazer Nagy: I had a family friend who got me my first job when I was in grade nine, at a golf course with a banquet hall. From that point, I had a shift once a week, somewhere, forever. Looking back, it wasn’t nearly as stressful as some dining-rooms I worked in later but as a wide eyed 13-year-old, everything was new and fresh.

RC: What was the impetus behind Transparent Kitchen?

FN: It started with my own family history. We’ve had a family farm in the Grand River Valley in Ontario since 1840. We’ve had long ties to the land, something that I would love to see continue, and from that standpoint, my parents were also early adopters into the farm-to-table movement in the in the late ’90s, early 2000s. I came from a place where we didn’t necessarily just go to the average chain restaurant Friday when we went out to dinner — we went to an independent restaurant or we cooked at home. So, I did start with the foundation of where your food comes from is important but I really started to discover its depths once I started working in fine-dining restaurants. When you first watch a chef take a whole halibut or a whole lamb and de-construct that animal protein, it’s an eye-opening experience, because you see the love and care. And you see, more importantly, the time it takes for an individual with that skill set to portion 64 fillets from a halibut for dinner and have handpick mushrooms and vegetables all around it.
I’ve worked as a server, I’ve worked in kitchens and I’ve been a dishwasher. I even worked in a very small gastropub in my hometown, where I even had to be the French-fry fryer at times. But I had the gift of the gab, so the minute I was 18-19 and could start serving alcohol and get back on the floor, that made sense for me. My favourite part of being a server was communicating that story of that dish, trying to translate what the chef had just told me to the guest. I started to realize how little the guests knew [about] where their food comes from. Unfortunately, there was no way for them to find it. We had a PDF menu online; our Instagram wasn’t very great and Instagram isn’t really designed to tell that complex story of where your food comes from. And there was this constant battle between the guest’s expectation of the price of a dish or what that dish should be, and what was actually on their plate — that disconnect between the value of that food is massive. So that inspired Transparent Kitchen.

RC: What is the goal of Transparent Kitchen?

FN: We celebrated our five-year anniversary on June 6, 2016, when we launched our very first platform website with five amazing restaurants. We’re still working with two of them, Redstone Winery in Niagara and Social Restaurant
in Ottawa.

Back then, we wanted to re-imagine what you could do with a digital menu online. Now, in the COVID-19 and post-COVID-19 world, digital menus and ordering from table [are important] but most of it’s just these QR codes that pull up a PDF menu. When we talk about re-imagining the menu, it’s not ordering from the table per se, but it’s the actual visualization of — and I’m going to use that halibut example again — what that dish actually looks like in a digital space and how we can communicate even more about where the raw ingredients came from.

One of my co-founders, Andrej Sakic, who’s just an incredible self-taught photographer, asked a chef to cook 10 dishes and pull out the raw ingredients associated with each one of those dishes so he could photograph them. We wanted to create a database of all these raw ingredients, eventually planning to get economies of scale. But the idea is that as we scaled up across these 400 restaurants across North America, you could go in and see each individual dish on their menu and all the ingredients associated with that dish and where those ingredients came from. So, our end goal with Transparent Kitchen, and we didn’t quite get there, maybe we will, in the future, is that not only could you have this interactive menu experience where you could you see the food, where it came from and the price of that dish, but we ultimately wanted to get a carbon price on every single dish. As a tech company, we were looking at blockchain technologies and a lot of things happened behind the scenes with DNA barcoding of food so we could create a consumer facing element to supply-chain management. Ultimately, that was the mission of Transparent Kitchen.

RC: Do you think customers want to know where their food comes from to that extent? Have you found that it’s necessary?

FN: Yes and no. We’ve seen that experiences are very important for the millennial generation and with experiences come social justice. It’s not unique to our generation; it’s been enshrined in a lot of different generational movements. Millennials do want to know where their products come from and choose ethical products, however, is it a driving force for change at the restaurant level? Unfortunately, not enough, I would say. Now, for our company, though, pre-COVID-19, it did. It was a passion of mine. So, build it and they will come was the hope. But there were some other residual benefits as well, such as 18 per cent of adult Americans believe or think that they have some sort of food allergy or strong preference — that’s one in five adults — and 33 per cent amongst their children. But not all of them actually have an allergy — we’re in a day and age where many people are making this up in their head, or they just believe in these very strict diets. So, imagine a software which could tell you every ingredient, every dish, and it could match-make that preference. That was there’s a huge market for that, too.

RC: What type of restaurants have you helped and are those in Canada, the U.S. or combination of both? How have they used what you do to their benefit?

FN: We started with a collection of restaurants in Ontario, since it was our home market — from St. Catharines all the way to Collingwood and across to Ottawa and worked with most of our favourite chefs and restaurants.
The original Transparent Kitchen model would only work if you were an independent, were a scratch kitchen and had a unique dining-room. A perfect Transparent Kitchen restaurant has all three — an amazing chef that knows where every ingredient was coming from, who’s buying from different suppliers; you’ve invested in this beautiful dining-room; and you’re independent. Can you be part of a restaurant group? Absolutely. We’re working with the cookie-cutter restaurant you see in every suburb. There’s roughly 30,000 of those restaurants across North America so it’s what I would describe as the front-of-the-table category today. And in 2021, it’s a big niche. There are 43 cities in North America with more than a million people in them today. Most of them have seen an urban revolution — call it gentrification, which can sometimes be a negative word — but we’ve actually seen a lot of positive changes. For those who went through the ’80s and saw that suburban glut and these big walls built and our downtowns destroyed, you know urban development can be both good and bad. But truthfully, what we’ve seen in a lot of urban courses is quite wonderful — watching these restaurants re-open, these amazing, amazing people creating community in urban centres. So, we wanted to help tell that story and a big part of our mission was to help push that movement even further, as there are very few technology companies that were really servicing this niche. And then we ended up launching in Seattle, in Minneapolis.

RC: You recently produced a series called Why COVID Will Save The Restaurant Industry. Why do you believe that COVID-19 will actually help restaurants.

FN: In every industry, COVID-19 has been described as the great shake up. So, I’m curious how these conversations are taking place. In our industry, we’re going into, I think, year 11 or 12 of declining profit margins. We were facing an industry that didn’t quite know where it was headed. We were spending going into 2020 — in North America, we were going to spend more money dining out then on groceries for the first time ever and [foodservice] would become the largest consumer disposable-income sector in the world. So, there are two things there. One is on the technology side. For years, I, and so many other entrepreneurs, have really tried to modernize the restaurant industry and bring new technology to it. It’s gone through three waves, starting with some really early development in terms of what OpenTable did through the ’90s, which was really impressive. It’s a great piece of hardware, and you have to give credit where credit is due to those founders who made restaurants switch from pen and paper to a system that has changed the space. Did it positively benefit the ecosystem today? Not really. They should fundamentally change how they operate, being the massive incumbents, and should enable integrations and actually help that ecosystem.
You see what Shopify does, — it allows everyone to integrate, to benefit, and that mentality needs to happen in our space. Because in the second wave of technology, where you saw the POS come around, you saw these massive legacy systems just hold on for dear life rather than innovating. So, everything in the restaurant industry going into 2010, and then 2015, and then now was siloed — nothing would speak to the other thing. No wonder the operators were losing their minds come 2018-2019 as you got this wave of new inventory-management offerings. POS has expanded its offerings, you then have this plethora of digital media and social-media apps that came through that wanted to help promote your dining-room or crazy platforms like ours that wanted to trace every ingredient back. Imagine if that ecosystem had had open arms to that third generation of entrepreneurs, which was myself, we would be in this golden age. In the cloud-based immersive-technology space that is happening, it just took our industry way longer.
That said, we can have the fanciest bells and whistles of apps and tech, but we’re in an economic crisis and we’re in a crisis of pricing. Because we’re the last fixed-capacity business that doesn’t premium price or dynamically price; we have flat feet. So, whether you come in at 5 p.m. on a Monday to sit by the bathroom, or 7 p.m. on a Saturday sitting at the best table, you pay the same for that dining experience. I want to dive deeper into this concept. It’s not about menu pricing because it’s been tried and it has mostly failed on dynamic menu pricing because again — it goes back to my original love, the storytelling, your own value — people’s perception of what food is worth versus what it actually costs is an impossible thing to change. We get what real estate is; we get that the courtside tickets for the basketball game or first class on the plane or the best hotel room is different and that’s where the industry needs to focus its attention.

RC: The whole dynamic model works well when you’re looking at a sports arena with courtside or gold seats but how would that work in a restaurant? How do you translate that?

FN: I’ll touch on dynamic pricing first, and you’re spot on there with this hesitation consumers will have, and the actual economic theory around that is elasticity of demand. So, for every dollar you increase, you’re actually scaring away potential customers. It’s hard to say what that perfect price is for your burger; you’d have to do true economic theories, A and B testing. Of course, the restaurant owner can’t do that and you would never expect someone to be able to do that while they’re operating an independent business.

Restaurants should continuously increase prices year-over-year to make sure they’re in line with inflation and other costs, but they’re always going to hit a limit. And we haven’t even touched on the labour shortage, which is huge on both sides of the border, or the fact we’re seeing double-digit food price increases right now. But when we look at bottom line, profit and actual healthy profit is another thing restaurant owners are sometimes afraid of — it’s a weird cultural thing where we’re almost afraid to be profitable at times. We need to make sure we have healthy businesses that, if an event like COVID-19 happens, we don’t die within a week.

Before we even get into dynamic pricing, I’ll do a little mini history on just the history of pricing. There’re premium seats — that’s actually just the first thing we’re trying to tackle; we’re not even at dynamic pricing yet with our new system tables, we’re just trying to get restaurants to premium price — and premium pricing has been around since the gladiators, when you had to royalty up here and then you have the proletariat’s everywhere else.

So, what pricing is, from an economic standpoint, is actually just trying to match one’s utility. You and I might have two very different utility curves — you might like the booth table way more than I like the booth table. I personally love sitting at the bar, if I can, if I go on a date, if I’m out with friends, I covered the bar, you might cover the booth, someone else with a big family might cover that price point. You’re supposed to just be matching the utility, CUSP activity of your customer with the price of your product. That should be a goal of the restaurant and if you translate that to an even level deeper, that’s what’s called guest service. Why would you want to put someone at a table they don’t want to sit at, and then in a business where we can barely make money. So, we’re just trying to get to premium seating.
Dynamic pricing is when an algorithm kicks in at that point. It was first started by American Airlines in the 1980s after the U.S. de-regulated its pricing structure nationally. Hotels followed in 2000. And then, Uber came along with something called surge charging, where, for example, if it’s raining, it’s now four times more expensive to get in a vehicle. And then Airbnb said, ‘Well, we can co-relate billions of data points around the world, both independent and dependent variables and say, “Hey, host on race weekend, your Airbnb should be this price, and on this weekend [it] should be this price.’ So you can dynamically price to the minute you can dynamically price to the day — we’re going to be somewhere in between to help restaurants, but we just need to get them to start seeing their dining-rooms as real estate.

RC: The restaurant industry can be very stuck in its ways and making that big change is a huge departure for them. How challenging is that for you?

FN: Before COVID-19, my gut feeling was it was impossible to do so — or at least impossible with my bank account. Maybe someone with far more money could have could have chipped away at that problem, bit by bit. And that was, truthfully, our plan. We’d gotten up, as you mentioned, to 400 restaurants and our goal was to raise more capital to get into more major markets. After the menu software, our goal was to launch what we are doing today, this table system.
So just to clarify for the audience, what we actually do today is go into restaurants and 3D map the inside of the restaurant with those real-estate matterport cameras or other 3D cameras to provide beautiful HD walkthroughs of a dining-room. We work with independent restaurants and all restaurants now under the tables model. So big or small corporate chain or otherwise — anyone can participate. We don’t care about every table in the dining room — we care about that 10 to 20 per cent of that dining-room real estate that generally doesn’t move, because as a restaurant manager, I know you need to turn twos and fours and six and eight tops into tables very quickly in service. But it’s those corner tables, those booths as window tables, those bar sections, those the people are fighting for and are coveted. We list them on this 3D system that goes right on the restaurant’s website and their Instagram on our platform and people can choose now to sit in that particular seat or section. And on peak times, when there’s a huge amount of demand and not enough supply, we’re giving restaurant consumers an option to pre-buy that table — $5, $10, $10 — to guarantee that booth for that time. It’s fully voluntary. If you don’t want to pay, you don’t have to, you just go through their usual reservation system. Usually you roll the dice, you might be at the bathroom, you might get the table you want. For the restaurants, what’s so important is it’s a win for consumers. For restaurants, most importantly, there’s no cost of goods associated so that $10 is straight bottom-line profit. I’m 99-per-cent certain we’re the first
ever profit-sharing tool for restaurants.

It’s still the same team as Transparent Kitchen. We were able to weather the storm of COVID-19 and make it through. The world is a different place since last March 15, 2020, here in North America and it’s been this great shakeup. This is why we’ve taken this idea I’ve been thinking about for years, been writing about for years, and put our money where our mouth is. We’re launching in six markets — three in Canada (Vancouver, Toronto and Ottawa) as well as Miami and San Francisco. The demand is there because restaurant owners are open to anything now and this message resonates. It’s not about adopting some app that’s helping potentially with social media, which is still important, but this is a bottom-line profit tool that customers are demanding. We haven’t invented 3D mapping, we’re putting it together in a way that can help a huge amount of people match that price to the utility curve, rather than just trying to guess what the price of the burger people would be accepted.

RC: What are some of the biggest challenge for the industry as it starts to now look at a post-pandemic recovery?

FN: I’m going to continue to believe in what we’ve talked about — this real-estate concept and how they’re going to have to use that — but it’s about the profit they can get from this and what they’re going to use it for that’s at the root of what my answer will be. We touched on it briefly today, the labour shortage. Enrollment in the culinary institutions are high — the highest it’s ever been — and we still can’t fill these positions. So, what’s it going to take? In Canada, we were seeing, we’ll call it a capable cook/chef situation, where people would come into the kitchen and think they could just start working. But it’s not the case — it’s a trained skill with decades of talent. So even these young chefs with three years in the kitchen that think they can just go open their own restaurant; that’s a learning curve many cannot survive. Even if you go to front of house, it’s not a fun job at times. This despite a lot of the social benefits and the cash benefits. So, I don’t know what it’s going to take for people to return. In the U.S., they can’t find servers. Because of their immigration policy and a lot of illegal workers, they’re finding [workers] in the kitchen, but they can’t find servers. In Canada, generally, it’s the opposite, we can’t find cooks and that’s a huge problem. My only short-term solution is we have to pay these people more and we need benefits. We’ve seen some great initiatives in Canada and in the U.S. around making sure restaurants, those with the means to do it, can invest in in benefits for their staff and creating other workplace protocols that make it comfortable place to work. Aside from that, labour will continue to be a challenge and for consumers, it’s going to be hard to find a table over the next couple of years. As restaurants re-open, [many] are still going to have half their dining-room closed, because they don’t have the staff.

Food costs are always an issue but they are a function of oil prices and demand, but they’re going to increasingly become a function of climate change and food scarcity. We’re seeing how the forest fires across B.C., in California and in Australia, have impacted our global food supply chain. So, the industry has a lot of questions. I have very few of the answers. We are in this exciting period, though, where we’re going to get into this roaring ’20s. What do you do in a market like that? Where the actual vendors, actual owners are facing multiple threats yet they have a lineup out the door? It’s going to be a fascinating next couple of years because most businesses die because no customers are coming in — this industry might die with a full dining-room.

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