The "Zero to One" wisdom is that lots of competition means low margins for the business. It's very difficult to afford much more than minimum wages for your sandwich shop employees. That's part of why you don't see a lot of venture-funded restaurants.
LA has quite a large number of them. The restaurant startup space is quite big these days.
Regardless, the optics of venture funding changes this analysis because now we're looking at ROI and not just say, creating successful enterprises that create wealth and value.
The latter is the thing of interest to me. In technology we've focused too much on the former. A say, twenty person software company where everyone is paid well and the customers like the product is a worthy, fine goal. $5,000,000,000 MRR is fine as well, but the vegas-style way people think of tech shouldn't be the only road out there.
Actually, in the UK at least there are VC firms which invest solely in retail and food businesses. Usually they take an already existing restaurant with a single location and turn it into a chain. It is possible to create scalable value in the retail and restaurant businesses, mainly due to the power of brand recognition.
Creating a recognizable brand means answering the question about differentiation, though.
People know how KFC is different from McDonalds is different from Pizza Hut is different from Chipotle. Hell, most of the time they even know how Burger King is different from McDonalds (white meat chicken tenders and more meat in the burgers), how In'N'Out is different from McD's (simple menu, Thousand Island dressing, onion rings), and how Chick'Fil'A is different from KFC (sandwiches over buckets; Chick'Fil'A sauce; lighter frying). The extent to which these are viable as VC-backed chains is exactly the extent to which they can be differentiated in customer's minds.
Oh, I was referring to how In'n'Out will slice a whole onion (in concentric rings, still attached) and put that on your burger, while McD's uses diced onions sprinkled over the top. Used an unfortunate phrase to describe it, because onion rings are also a real side dish (which I don't associate with any fast food joints - more like clam shacks and stuff). Maybe that makes it a bad example anyway, if nobody knows what I'm talking about.
