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Can Restaurant Tech Help Industry Compete with Food E-Commerce? POS Startup Toast Says Yes.

April 3, 2019

With food delivery startups becoming more popular than ever, restaurants are turning to technologies like food-focused POS systems to keep pace with the rapidly rising digital tide

Restaurants are more competitive than ever these days, with fickle diners finding themselves inundated with options including everything from doorstep delivery to Instagram-worthy fine dining experiences at trendy new locations.

Most restaurants are averaging somewhere between 3% to 5% in profits, according to food tech startup Toast. The all-in-one POS and management software platform just raised $250 million in Series E funding at a valuation of $2.7 billion led by TCV and Tiger Global Management with participation from Bessemer Venture Partners and T. Rowe Price Associates as well as existing investors. The Boston-based startup has raised a staggering $499 million to date, closing a $115 million Series D last year, and posted 148% sales growth in 2018 alone.

Through its software platform, Toast helps restaurants increase sales and develop front-of-house and back-of-house systems that streamline operations. It supports loyalty and gift card programs to encourage guests to become regulars, online ordering, and aggregation of customer dating into one interface. The service also helps with inventory management and features a ‘Kitchen Display System’ to help improve communication between food preppers and food servers, removing the disconnect between the kitchen and the floor.

Toast also offers a handheld device capable of accepting payments called Toast Go, allowing servers to help guests pay more quickly while linking sales in real-time. This is especially appealing for the lunch-time rush where hurried workers may seek sustenance elsewhere after seeing long lines at the cash register. The handheld device also alerts servers when a diners’ dish is ready to be served.

Tens of thousands of restaurants are already using its service, according to the company, ranging from mom and pop cafes to smaller regional chains in cities across the country including Boston, Ann Arbor, Pittsburgh, D.C., Chicago, Cincinnati, Denver, Indianapolis, San Antonio, Dallas, and NYC.

Food Delivery Competition

In 2018, In-store Retail and Restaurant Tech startups like Toast captured $1.7 billion in venture funding, according to AgFunder’s 2018 AgriFood Tech Investing Report, making it the third-best funded category in the industry. But that’s after online Restaurant Marketplaces and eGrocers that raised a total of $3.9 billion and $3.6 billion respectively.

And investment in food delivery categories keeps on growing with startups continuing to snag massive fundings including Postmates’ recent $100 million pre-IPO funding in January of this year.

Food delivery startups have also garnered seven-fold returns in Europe over the last five years, making them an attractive option for investors. As consumers start to see food delivery as less of an occasional indulgence and more of a regular routine in their diets, restaurants stand to lose even more interest unless they also adopt e-commerce technologies.

Restaurants are Sluggish Adopters, but Generally Open to Innovation

Four out of five restaurant operators agree that technology could make their businesses more productive and profitable, according to a 2016 survey of 500 owners by the National Restaurant Association. More than 80% of restaurants were already using some type of POS system, but only 12% considered their businesses to be at the leading edge of technology.

Although there are a plethora of industry agnostic POS systems available, most of them do little more than payment processing, leaving restaurants with several other functions to manage in analog or through outdated spreadsheets.

Some startups have been trying to fill in the gaps. Founded back in 1998, OpenTable created a restaurant management system called the Electronic Reservation Book to allow diners to discover new restaurants, read reviews from other eaters, and make online reservations. The company went public in 2009. Resy is a competing service offering tech-driven booking services for high-end restaurants that may soon be getting acquired, according to Recode.

Restaurants have been one of the slowest groups to adopt food tech. Factors driving this include everything from having to take the time to train staff on how to use the system to fears over whether the cost of the service will pay for itself in terms of increased customer satisfaction or new clientele.

Restaurant Tech is a Growing Category

The restaurant market may be crowded, and the profits may be slim, but there are reasons to be hopeful, and opportunities abound for restaurant tech entrepreneurs. Restaurant sales have been on a steady nine-year climb, reaching an estimated $825 billion last year according to the National Restaurant Association, up from an estimated $799 billion in 2017.

POS systems are one approach to help restaurants improve sales and operations, and Omnivore is another well-funded example. It raised $10 million in Series A funding in 2018 led by Coca-Cola. Omnivore offers a universal point-of-sale connectivity platform that allows hundreds of third-party technologies to integrate seamlessly. It calls itself the “industry standard for POS integration.”

But other approaches include online catering marketplaces such as ezCater, which is aiming to help the 60,000 restaurants and caterers on its platform interact with larger clients. ezCater just announced the close of a $150 million Series D-1 led by Lightspeed Venture Partners and GIC, according to Restaurant Dive, bringing its total funding to $320 million and acquired Monkey Group’s cloud-based platform for takeout, food delivery, and catering.

Fast Food Brands Grab New Tech

Fast food brands are also getting in on the action, realizing they need to digitize to stay competitive. Starbucks recently announced a $100 million investment in Valor Siren Ventures to back food tech and retail tech startups by hunting for companies creating innovative solutions for the food and retail segments. Starbucks may even enter into direct commercial arrangements with some of the companies it finds through the endeavor.

And McDonald’s has made two moves in as many months, acquiring Israeli startup Dynamic Yield for $300 million to make its fast food ordering experience more personalized. This includes a new digital menu in the drive-thru that displays different information depending on factors like the time of day and its most popular items.

This week the fast food giant announced a $3.7 million investment in mobile app developer Plexure, which included an agreement that the startup won’t offer services to McDonald’s competitors in the quick-service restaurant world.

Yum Brands, which owns KFC and Taco Bell has also invested in new technology, investing $200 million in online food ordering platform Grubhub, while Domino’s recently added in-car ordering to its tech portfolio to reach its goal of hitting $25 billion in sales by 2025.

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