If you’ve been remotely plugged into pop culture over the past several years, there’s no doubt you’ve gotten a taste of the metaverse. The virtual worlds of Hollywood blockbusters The Matrix and Ready Player One depict futuristic visions of a fully-immersive virtual-first experience. And though we can’t savor virtual steaks just yet, the tech is heading in that direction – fast.
With the hard-hitting pandemic, the restaurant industry was barely hanging on. Industry sales in 2021 were down $65 billion from 2019's pre-pandemic levels with over 90,000 locations temporarily or permanently closed. Meanwhile, digital assets like bitcoin, ‘altcoin’ digital tokens, and non-fungible tokens (NFTs) have been advancing at lightning speed.
If you’re a foodie, NFTs mean physical and cutting edge digital restaurant experiences. If you’re a restaurateur, NFTs are a chance to go beyond the plate to offer your customers unforgettable social and cultural experiences.
Last year, Gary Vaynerchuk announced his VCR Group’s plan to launch the Flyfish Club, the world’s first NFT restaurant in Manhattan, scheduled to open in early 2023. With NFTs, restaurants will offer customers a chance to be part of a community, which is healing as so many people emerge from the self-isolation of the pandemic.
What’s an NFT?
A non-fungible token (NFT) is a unique digital asset that exists on a blockchain that is not interchangeable – no two NFTs are identical. A blockchain is a public, distributed database or ‘digital ledger’. Blockchain records are kept honest by a vast network of independent computers running special software that anonymously verifies and continually comes to a consensus on which version of the ledger is the most recent and contains the correct data. Blockchains are unhackable.
In short, an NFT is a non-fungible token. “Non-fungible” means it’s unique and can’t be replaced with something else. A one-of-a-kind baseball card, for example, is non-fungible – if you traded it for a different card, you’d no longer have your original card and have something else. This means that the record of who owns an NFT at any given moment, and its entire transaction history – is indisputable public knowledge. There’s no need for laws or courts to verify its authenticity.
Source: Nation’s Restaurant News. An example of a CHFTY Pizzas NFT avatar. Each is unique.
NFTs make property rights, scarcity, and ownership of digital objects possible for the first time ever. The property rights and ownership of scarce physical assets like houses or cars depend on laws passed by governments to verify, transact and enforce ownership rights. NFT owners are self-sovereign – they are individuals who hold private keys to digital wallets that store NFTs in. They are their own bank vaults.
An NFT’s authenticity and provenance is easily verifiable, and NFTs are impossible to forge.
NFT collections like CryptoPunks and Bored Ape Yacht Club have captured the market’s attention with pieces from each series selling for six figures. NFT art and video games have exploded in popularity, along with use cases including event ticketing, fashion, romance, and decentralized finance (DeFi).
Source: The Bored Ape Yact Club
Even household brands like McDonald’s, Burger King, Taco Bell and Pizza Hut have started to experiment with NFTs. Last year, McDonald’s famously minted a 10-piece NFT collection for a giveaway.
How are restaurants using NFTs?
So why are NFTs making front page restaurant news? From pre-funding campaigns and Discord communities, to virtual restaurants and art collections, the restaurant industry is tapping into the potential of non-fungible tokens. Restaurateurs bravely traversing the metaverse are pioneering new business models, unlocking new revenue streams and more.
1. NFT Restaurants and Virtual Restaurants.
Restaurateurs pushing into the metaverse frontier are offering foodies a chance to be part of an exciting community as well as providing early investment opportunities.
NFTs even empower restaurants with a following to give back to their fans.
Source: The Flyfish Club on OpenSea
Vaynerchuk’s Flyfish Club is branding itself as the world's first members only private dining club. Upon opening, foodies who bought Flyfish Club membership NFTs will enjoy a 10,000 square foot private dining room plus exclusive culinary, cultural, and social events.
The upscale seafood restaurant will feature a cocktail lounge, dining, and private Omakase room. The club will host private parties and culinary events for members and monthly virtual cooking demos and in-person wine tastings with GaryVee himself.
The venture’s fundraising was conducted through the sale of NFT tokens in two phases. First, a pre-sale lot of 350 NFT memberships were sold to investors, partners and project contributors, then a public sale of 1,151 NFT memberships were sold to the public at two price points:
Standard Flyfish (FF) NFT memberships priced at ~$7,300 USD each, paid in 2.5 ETH, aka Ether – the native cryptocurrency of the Ethereum blockchain.
Exclusive Flyfish Omakase (FFO) NFT memberships priced at ~$12,410 USD each, paid in 4.25 ETH.
Though the initial sales (or ‘public drops’) of membership tokens is now over, FF and FFO NFTs can still be acquired on secondary markets via Opensea.
Virtual NFT Restaurants
Lunchbox’s NFT virtual restaurant.
Lunchbox recently announced the sale of the first virtual NFT restaurant via OpenSea. Proceeds from the sale went to a charity helping marginalized entrepreneurs in the culinary space with business development resources and support.
Nabeel Alamgir, Lunchbox's CEO and co-founder, said, “Today's announcement marks an important step in our metaverse strategy. We're excited to bring our first concept into the metaverse, where restaurant operators can come together and evolve the future of ordering and experiencing food."
Bareburger purchased Lunchbox’s NFT, and can fully retrofit the virtual restaurant model to reflect their branding. Euripides Pelekanos, CEO of Bareburger, said Lunchbox’s virtual restaurant allows them to present their offerings to users in evolving digital neighborhoods of the metaverse and order delivery.
2. Restaurant NFT collections.
Another emerging NFT-powered tactic restaurants are using to innovate their businesses is issuing NFT art collections that offer special perks to token holders. For instance, a Dumpling Mafia NFT grants membership to the private dining group started by two-time Top Chef Finalist, Shirley Chung. NFT token holders get to participate in draws and private events, and even social causes.
If you’re NFT savvy you can invest in a Burger Boy NFT, a digital art collection featuring the brand’s mascot. The collection also features “Fancy Boy” rocking a top hat, mustache and bowtie, and “Moon boy,” who wears an astronaut helmet holding a burger in space. The business plan is to use the funds from NFT sales to host special pop-up events where NFT holders can try the burgers.
Source: Burger Boy NFT from Burger Boy
3. Restaurant communities on Discord.
With 250 million users, Discord, the voice, chat, audio and video channel formerly geared towards gamers, is now expanding to entertain friends and families.
A host of communities have also popped up in Discord to fund charities, premium cooks groups, expert communities, financial tips and more. Decentralized Autonomous Organizations (DAOs) allow community members to connect, self-organize and finance a project in a flash mob fashion.
Dinner DAO, uses NFTs to bring in-person superclubs to different cities. Founders Austin Robey and Gabrielle Macheletti created it to make Web3 friendly. To participate, you can buy a season pass token for $300 in ETH which is pooled to fund dinners over three months.
What are the benefits of doing NFTs as a restaurant?
Pre-funding, marketing opportunities, and new revenue streams are a few of the benefits NFTs can provide the restaurant industry. The metaverse is evolving so quickly that many of its advantages remain undiscovered. Here are some benefits as of today:
1. Appetizing Marketing Opportunities.
Some restaurants are using NFTs as memberships to bolster customer retention, attract early adopters and generate buzz. NFTs use ‘smart contracts’ that can be programmed to automatically execute special perks or experiences. Because of their utility, these NFTs may also then be bought, sold or traded in secondary markets.
Kurt Zdesar, owner and founder of Chotto Matte, recently announced the release of an exclusive membership NFT he’s calling “The Founder.” The NFT will be a one-time-release collectible chip card that comes with exclusive access to any Chotto Matte location in the world, and gives the token holder many VIP benefits like private invites to restaurant openings, five-star accommodations, an exclusive at-home experience with the restaurant’s executive chef and more. Like social media marketing, NFTs offer a variety of community engagement opportunities that helps build brand awareness and buzz.
2. Dynamic Pricing and Perpetual Royalties.
NFTs make it easy for restaurants to offer preferred pricing or perks to NFT holders. Since non-fungible tokens are programmable, they can also become new sources of perpetual royalties deals built into NFTs. For example, an NFT can be programmed to send a small percentage (say 3%) every time it is bought or sold, back to the restaurant that issued it. If demand for that restaurant’s NFT grows, its price on secondary markets goes up, and it may generate a lot of re-sales. Each re-sale then sends 3% of the transaction (whether that is $100, $1000 or $10k) automatically to the wallet of the restaurateur that issued it.
3. New Revenue Streams.
Virtual food courts like Lunchbox’s first virtual NFT restaurant are being auctioned to brands like Bareburger, digitally customized according to their virtual brand strategy for metaverse patrons. The branded virtual storefront will be accessible in metaverse worlds like DecentraLand and The Sandbox, where users can place orders online and get real, hot food delivered to their homes.
Bareburger isn’t the only name entering the virtual restaurant space in search of new revenue streams. Recently filed trademark applications show quick-service behemoth McDonald’s is also looking to offer ‘virtual food and beverage products,’ NFTs, and real-life and online events and concerts. The metaverse turf war for virtual diners is just starting to heat up.
4. Pre-funding Prior to Opening
Funding a new restaurant has always been a challenge, and the pandemic has made it even more difficult. Last year, more than half of food services and drinking places in Canada were uncertain about how long they would continue to operate before considering closure or bankruptcy. And American banks had fewer restaurant-related loans at the end of 2021 compared to 2020.
Bureaucratic banks may avoid loaning to restaurants, but selling NFTs directly to supporters is a fresh way to fund and market your restaurant before grand opening.
Pre-funding success stories like Flyfish Club and Burger Boy are redefining fundraising for NFT-minded restaurateurs willing to tackle the work that comes with issuing an NFT collection launch.
In exchange for capital, NFT holders get to enjoy special events and other VIP perks that come with their NFT purchase along with the potential success of their restaurant project investment.
Source: Flyfish Club, Gary Vaynerchuk’s NFT Restaurant in The Spoon.
Should restaurants do NFTs?
Without a doubt, NFTs are a bleeding-edge technology that are as full of opportunity as they are risk. There are important pros and cons that any restaurateur looking to head into the metaverse needs to weigh, to decide if doing NFTs is the right choice.
1. Are NFTs accessible?
NFTs are still in their infancy, and like any innovative technology, they come with costs to implement: both financial and technical. The reward for restaurants willing to navigate these costs is the opportunity to be among the first to cater to an emerging and enthusiastic early-adopter segment.
And this is a segment that is very likely going to grow as the technology becomes more available and sophisticated. Global spending on the two biggest technologies critical to metaverse growth is expected to rise from $12 billion in 2020 to $72.8 billion in 2024 according to a recent analysis by Gartner.
Financial costs that may limit who can experiment with NFTs can be measured in the ‘gas fees’ required to mint a new NFT on a blockchain. Both the creator of a new collection, and the individual supporter making the purchase are required to pay the network a transaction fee, which is determined by how busy the network is. It’s not uncommon for gas fees on the Ethereum network to add up to hundreds of dollars per transaction.
Technically speaking, there is a steep learning curve to actually implement an NFT strategy to support your business. You will need a blockchain developer to code your smart contracts, artists to design the images, and you may want to consult a crypto-native strategic advisor to help time and execute your campaign.
You also must learn how to buy, sell and safely store digital assets with a digital wallet. There are third party companies like Voice who are making the minting process free and more accessible by accepting credit cards and bank transactions. Because fact is, as of today, minting an NFT is complex.
2. Are NFTs a distraction?
Right now there are many NFT use cases that can help restaurants expand and thrive. On the other hand, NFTs are volatile and not all created equal. There’s lots to explore and we don’t yet know the full potential impacts NFTs will make in the food space.
If technology innovations like ghost restaurant concepts helped the industry survive the pandemic then digital innovation brought about by blockchain technology could lead to further evolution. But pioneers embracing NFTs should be cautious and diligent, there are scammers out there that could not only distract – but cost you more than you bargained for.
3. Are NFTs a scam?
There are many, many scammers in the unregulated crypto industry, so anyone looking to experiment with NFTs must do so with eyes wide open. There are also many aspects of NFT tools and technology that need improvement – product usability and accessibility are at the top of that list.
That said, NFT technology is certainly not a scam, it’s still in active development, being refined, and improved everyday. So if you do decide to jump in, consider yourself a beta tester with an asymmetric risk to reward opportunity, rather than an end user.
Be mindful as you explore and learn, watch out for unsolicited advice or help, and always verify sources, don’t just take someone’s comment in a Discord server or Telegram chat at face value. Bad actors in crypto are prevalent and cunning. The industry is neither properly regulated nor mature, so proceed with caution.
4. NFT Red Flags to Look Out For.
Here are some important red flags to look for:
DMs on Discord with sketchy urls from supposed project organizers, claiming an additional mint of a sold out NFT collection? Ignore them, block them, and carry on. Better yet, turn off your DMs on Discord altogether.
Don’t ever share your private keys with any individual or website that asks, protect your crypto wallet with maximum diligence. Many who give in to FOMO and rush into a scenario where they “must” mint an NFT from a new collection “immediately before they miss out” on a chance to “be early,” often fall prey to scammers.
Ignore most free airdrops, especially if they’re from unknown projects. Accepting free random tokens could expose your wallet to malicious code that can self-execute (basically malware that can steal your crypto assets), gain access to your funds, and compromise your wallet’s holding. Don’t do it!
Stay away from collections selling NFTs as part of a bigger project claiming perks that “will follow later.” This is a common tactic, and tell-tale warning sign of a potential “rugpull”. A rugpull is crypto jargon for when a person or group abandons an initiative and disappears with the funds raised before following through on delivering what they promised.
Metaverse Meals to Go
The metaverse is coming and it’s hard to imagine how it will impact restaurants in the next 5, 10 or 25 years.
Restaurants are using NFTs to promote their brick-and-mortar locations, and are developing digital kiosks to serve early-adopters looking to order takeout from inside virtual environments. Restaurants are launching NFT collections to engage and raise funds, and are creating Discord servers to build strong communities of metaverse die-hards.
NFT technology, in its infancy, is certainly not perfect or without challenges, but trailblazing restaurants are using the tech to market their projects in new ways, like offering customers innovative value and exclusive experiences. They’re also experimenting with perpetual royalties and net-new revenue streams, not to mention crowd-funding completely new project openings.
Who will win the race to make NFTs work? Restaurants that can surmount NFTs technical and financial accessibility issues stand a chance. And entrepreneurs who can steer clear of scammers and hype, while avoiding the critical red flags will have a leg up too. What’s for sure, is that some handful of restaurateurs will be the first-movers in this emergent market set to more than quadruple in size in the next two years.
Whether your restaurant should implement an NFT strategy or not, depends on your knowledge, team, resources, situation and risk tolerance. The future of tech is fast evolving, and the more you learn, the better prepared you'll be to potentially benefit from being early. Good luck!