Restaurant software meets the pandemic moment

Food delivery companies have predictably done well during the pandemic. But restaurant software providers are also having a moment as eateries race to handle the avalanche of online orders resulting from severe in-person dining restrictions.

Driving the news: Olo filed last week for an IPO and Toast is rumored to be preparing to do the same very soon.

  • Toast’s listing would come just a year after it laid off about half of its employees due to a revenue drop of more than 80% in March.
  • Now that the company has expanded from primarily a point-of-sale business to one offering more online ordering tools, it’s said to be seeking a valuation of about $20 billion, up from $5 billion when it raised funding a year ago.

The big picture: When the pandemic shuttered dining out almost overnight, restaurants had to quickly pivot to take-out and deliveries.

  • That meant turning to software to make their menu and ordering accessible online. Many also signed up for delivery services.
  • Even apps adapted to the pandemic, like reservations-focused Tock, which shifted to helping restaurants manage takeout orders instead.
  • However, eateries are still struggling. Exorbitant fees for delivery services, and fees charged to some for being listed on their customer-facing apps, are among the many financial challenges restaurants face.

Between the lines: Unlike delivery companies, those only selling software tools to restaurants don’t have to manage large labor pools—and the associated costs.

  • Even GrubHub, which began providing delivery services to restaurants in 2015, admits that its margins are fatter when it only provides software and access to its restaurant marketplace.

By the numbers:

  • Olo’s revenue grew 94% year-over-year, from $45.1 million in 2019 to $92.8 million last year. It had a $3.1 million profit in 2020, though it operated at a loss most of the year (as well as in 2018 and 2019).
  • It has 400 chains like Shake Shack and Chili’s as customers, covering 64,000 restaurants. In 2020, Olo processed its one billionth transaction, and recorded $14.6 billion in gross merchandise volume for the year.
  • For comparison, ChowNow, which provides independent and smaller restaurants with online ordering tools, grew its restaurant customers from about 12,000 before the pandemic to more than 20,000 now. It went from processing roughly $500 million in orders in 2019, to $2 billion in 2020 and says its revenue is at similar levels to Olo.

Yes, but: While these companies are often cited as the more restaurant-friendly alternatives to the likes of Uber Eats and DoorDash, they don’t solve for needing to get food orders delivered.

  • In fact, many of them have teamed up with third-party delivery providers, such as DoorDash’s Drive service, to enable restaurants who don’t have their own drivers to get orders to their customers.
  • ChowNow CEO Christopher Webb says that all delivery services partnered with his company calculate their pricing entirely based on distance, instead of charging restaurants a commission fee. The restaurant industry has sharply criticized these commissions for making it hard to make money.
  • He also argues that this gives restaurants much more control over deliveries, including distance, the data, and whether they or customers pay the fees.

The bottom line: The pandemic has been a boon for everyone making it possible for restaurants to go digital.

Source: Axios Breaking News

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