Restaurant tech is serving up funding deals mid-pandemic – but will adoption stick?

As Covid-19 rocks the restaurant industry, operators have been looking for ways to navigate shelter-in-place orders, reduced workforces, and shuttered dining rooms. While the flow of investment dollars into many sectors seems to be cooling as investors wait to see how the pandemic plays out, deal flow in restaurant tech is rising to a roiling boil.

A number of startups offering In-Store Retail & Restaurant Tech (a category developed by AFN‘s parent company AgFunder for its sector research reports) have announced fundings of late. These include include automated smart store technology developer Pixevia’s €1 million ($1.18 million) round, cloud kitchen startup iKcon $5 million seed raise, and food pick-up point creator Minnow‘s seed round of $2.2 million. 

There have also been a few acquisitions.

Sysco, the US foodservice giant, sold its restaurant management platform CAKE to Mad Mobile for an undisclosed amount this month. Another management platform, Canada’s TouchBistro, acquired US loyalty and marketing company TableUP earlier in August.

More recently, New York-based restaurant discovery and rewards platform Seated acquired VenueBook while also raising $30 million. It’s using the capital to broaden its platform by building out products for pickup and delivery, as well as a private events service.

It’s hoping that VenueBook, a software-driven marketplace designed to bring event planners and event spaces together, will offer financially beleaguered restaurant operators with a new stream of income as they attempt to recover.

“Covid-19 took our revenue from a lot to a little in the course of a week, because pre-Covid we only did dine-in,” Seated CEO and founder Brice Gumpel told AFN. “Obviously, we wish it never happened. But it has pushed us to expand into these two other revenue verticals and once they are fully established and integrated we will have a much better and more robust way to help restaurants drive more customers.”

Supersized adoption

Before the pandemic, restaurants may have been curious about new point-of-sale (POS) systems, online ordering, delivery, or contactless pickup. But the incentive to adopt was low. Switching operations not only costs money; it costs time, and usually comes with a steep learning curve for employees. 

According to restaurant management platform Toast’s 2019 Restaurant Success Report, 26% of restaurants used one technology vendor, 22% used three vendors, and 26% used four or more. Over half (57%) of survey respondents also reported that they planned to add new tech for back-of-house and POS innovations. But one of the biggest takeaways of the report was the pains that come with juggling multiple tech providers. 

Consumers were driving some of the pre-Covid adoption curve, with one study from OnBuy.com last year suggesting that 75% of customers expected restaurants to use new technologies like at-table digital feedback, ordering, and tracking as well as interactive menus and call buttons. The majority of respondents (65%) said they felt drawn to try new restaurants that have adopted such tech solutions, while 71% believe that new, exciting technologies are a good way to entice curious consumers.

Then Covid-19 happened.

Technologies designed for dine-in operations have been feeling the squeeze. Toast cut half of its staff recently as its restaurant client base has seen demand for tables plummet.

Food delivery, ‘contactless’ models ascendant

But online and mobile ordering have seen massive upticks since the pandemic swept the globe in the early months of 2020. Covid-19 caused double-digit growth in restaurant takeout orders alone. Third-party delivery services like Grubhub, DoorDash, and Uber Eats saw major spikes in usage – as did models built around the food delivery paradigm.

“The pandemic certainly made it easier to sell,” Steven Sperry, founder and CEO at Minnow, told AFN. The startup’s Minnow Pods are a system of tech-enabled lockers where restaurants and cloud kitchens can deliver meals ‘contactlessly’ to be collected later by their customers. 

Each IoT-powered cubby is fully insulated to allow for hot or cold foods and meets food safety standards. Users retrieve their order by using their smartphone to open the locker. The device also features an order pickup reminder function as well as an order withholding function if someone doesn’t collect their food before a food safety-related window of time expires.

When the pandemic hit, a number of food delivery startups adopted contactless protocols to cut down on exposure. This mostly consisted of setting a customer’s order on the ground and stepping back six feet so they could collect it.

“It was obvious to us that this was not a very good solution or scalable for deliveries at hospitals, office buildings, and universities. We recognized right away that our tech could solve this problem,” Sperry said.

There have been a number of efforts to prop up struggling restaurants, too. In August, contactless dining platform Order For Me announced that its service will be available “free for life” to Black-owned restaurants, with no commission or service fees ever. The platform allows customers to view the entire menu, place orders, pay, split the bill, and tip – all with their mobile phone. 

Third-party food delivery companies have also announced various relief measures like waiving fees or putting a hold on collecting marketing fees from independent restaurants who agree to stay with the service for at least a year. 

Boost for grocery

And it’s not just restaurants that are finding new reasons to turn to tech. The pandemic sent online grocery sales soaring to a record-breaking $5.3 billion in April, topping March’s record of $4 billion by 37%.

“The pandemic has helped our business quite a bit because we have been able to grow with our customers faster,” Stefan Kalb, co-founder at grocery demand forecasting startup Shelf Engine, told AFN. The company recently closed a $12 million Series A round. 

Its software assists over 1,000 grocers — including big names like Kroger, Target, and Whole Foods — to manage their inventories while mitigating food waste. Roughly one-third of perishable foods in the supermarket don’t sell before their sell-by dates, according to the company.

“We are unique in that we step in as a third-party and guarantee the sale. The grocer doesn’t pay for any product that doesn’t sell,” Kalb said.

“They love it because we manage their inventory and they don’t have to deal with the burden of waste.”

As the pandemic took hold, panic buying and supply chain issues led to empty store shelves and product shortages, he said.

“The impact of Covid-19 was bigger than Thanksgiving Day for a two week period. Then demand dropped. It really accelerated our growth because the grocers needed someone to take over.”

Here to stay?

“I think it’s a ‘new normal’ now, which is funny because the ‘new normal’ is what we were trying to get restaurants to adopt for years,” Peter Kellis, founder of restaurant POS provider Tray, told AFN. [Disclosure: Tray is an AgFunder portfolio company.] 

“The new normal will be all about technologies that enable restaurants to operate with minimal staff and put more control in the hands of the guests,” he said. “The restaurants that survive will be the ones who can figure out how to do this quickly.”

When shelter-in-place orders lift and consumers return to normal activity, we can expect at least some decline in online and mobile orders. Whether such numbers will fully sink back to pre-Covid levels or if they have already crossed an inflexion point is a question on everyone’s mind.

Fortunately, many of the Covid-19 tech adoptions in the food retail sector play into the consumer’s biggest craving of all.

“Convenience is still important. They still want that and it won’t go away,” Minnow’s Sperry said. “Pandemic aside, customers like having the option of walking into a restaurant, getting their food, and not having to interact with anyone or wait for an employee to get it for them.”

The Amazon-ization of the restaurant business

While Covid-19 appears to have encouraged more consumers to cook at home, convenience remains key. In May 2019, Americans ate out nearly six times each week, while only 10% said they love to cook, according to a Johns Hopkins School of Public Health study. The rest were either ambivalent towards home cooking or detested the process. Considering that eating out is five times more expensive than cooking, consumers are motivated by the convenience and time-savings of letting restaurants or supermarkets offering ready-to-eat options do the heavy lifting.

“What Amazon is doing is training consumers to expect a very high level of convenience and that is forcing every other retailer including restaurants to match that level of convenience the best they can,” Sperry said. 

This convenience factor spills over into the grocery aisle. Once grocers become accustomed to another company like Shelf Engine handling their inventory for them, it will be harder for them to go back to managing things in-house, he added.

In the same way that it has caused restaurants and grocers to adopt innovation quickly, Covid-19 will also expedite the timeline for figuring out which technologies work and which do not.

“At the beginning of Covid-19, we were seeing restaurants signing up for anything. We are seeing a lot of smaller players crop up or larger players launch products that are not really optimized for the service they are aiming to deliver,” Seated’s Gumpel said.

“There’s probably too many players across the space doing too many different things. Once this is behind us, we will see who is actually committed to new lines of business and who is not. There will be some churn as restaurants consolidate around the best products.”