What Rampant Consolidation in Restaurant Tech Means for Operators
A late-comer to digital transformation, the restaurant industry is ripe for technology innovation. That’s why restaurant technology is booming and startups are everywhere. It’s happening all across the restaurant technology space, from delivery to ordering and payments (POS), and front to back of house. Emerging tech is bringing new and innovative approaches to solve age-old problems. Consider, for example:
- Plate IQ, which automates invoicing and payment by replacing manual data entry.
- The Starbar app, which will launch later this year, and can voice-enable a variety of processes in a range of industries, but has particular promise for voice-enabling inventory in restaurants.
- Itsacheckmate, the third-party aggregator that integrates third-party orders directly into POS systems.
These are just a few examples of powerful, modern solutions that solve a real business pain or need. They help address the pressing business challenges facing restaurateurs such as rising labor and food costs, labor shortage, and more. These companies and others continue to disrupt old business models, bringing innovation for the entire restaurant. So these are exciting times, but they’re also times of great change — even disruption. And it won’t be long before even these nascent companies find themselves disrupted by existing or emerging brands.
The ‘Three C’s’ of Restaurant Tech Disruption
My esteemed colleague Fred LeFranc, Chaos Strategist & CEO at Results Thru Strategy, outlines tech disruption this way:
Confluence: Hot Schedules, which is the leader in Internet workforce management, found itself in a position where indirect competitors began offering internet scheduling as an “add-on” module to other services. While the product does not have the same robust features as Hot Schedules, it was “good enough”. This level of acceptability is appealing to restaurant operators where they can get the primary benefit of a product at about 80% of functionality for about 50% of the price.
Collaboration: In this scenario, complementary services join onto a single platform. This is best illustrated by online ordering and loyalty apps. For example, in the past two years online companies (OLO and Monkey Media) have partnered with Loyalty/CRM companies (Paytronix, Punchh, Relevant Mobile) to create an app for a restaurant company. This has occurred dozens of times and it may only be a matter of time until one acquires the other to make it a solid platform play.
Consolidation: This is the typical acquisition of a complementary service or a smaller player. Grubhub has acquired many smaller regional players in the delivery space. Compeat bought Ctuit to fill out their accounting platform with a robust BI system, doubling their client base in the process. Bridg bought Relevant Mobile giving them more skills in mobile.
We’re in the disruption phase of the technology curve, and the signs are everywhere.
Today, major change is everywhere. Many companies that today are independent, standalone solutions probably will not always be so. They will likely be acquired and integrated into a larger technology or solution provider. Indicative of this trend, consider recent acquisitions in a number of areas of restaurant tech.
In delivery alone fairly recently, we’ve seen GrubHub acquire Eat24; Alibaba buy Ele.me; Sweetgreen pick up Galley Foods; and even managed food service provider Aramark seems to be getting into delivery with its purchase of Good Uncle.
Beyond delivery, consolidation is happening across other areas from front to back of house — and beyond.
- Paytronix, which offered Gift, Loyalty, and CRM, recently added an online/in-app order and delivery component to its solution lineup with its acquisition of Open Dining.
- Lavu acquired MenuDrive online ordering.
- Upserve bought Simple Order inventory management.
- Toast purchased StratEx HR, payroll, and talent management.
- McDonalds’ acquired Dynamic Yield. This technology has the potential to dramatically improve personalization (automated suggestive upsell/cross-sell) at every touch point, starting with the drive-thru.
Let’s learn from the past.
The past has taught us to take a hard look at who’s buying companies and why they're acquiring them. Jordan Thaeler, Co-Founder, WhatsBusy, remarks, “If a non-tech/non-innovator is buying a tech or innovative company, cultures tend to clash, and this clash is often at the root of many merger & acquisition failures. I would be very, very skeptical of any non-technology investors buying their way into tech.”
Where will it all lead? And what does it mean for you?
If you’re a restaurant owner, operator, manager, staff, or even someone just considering joining the ranks, what future do these trends paint? Having served over 40 years in hospitality and technology, here’s my take:
- Tech disruption, including acquisition and consolidation, will continue.
- Confluence may benefit you. You could have more tech options to choose from, with much of the functionality you need, at a better price point.
- That nifty software-as-a-service you subscribe to may soon be acquired and integrated into a larger solution stack.
- Integration can be bumpy. The well-managed ones ensure that neither company’s service and support suffers.
- Pay very close attention to the acquirer and ask why the acquirer or investor is acquiring or investing. At the end of the day, investors must always be appeased.
- A historical retrospective, without naming any names, shows that acquisitions can be both great and calamitous. Product innovation, customer-centricity and responsiveness can suffer or they can improve. It depends entirely on the company and how they manage the consolidation, integration, and change.
- Often, a small company being absorbed by a larger organization means more stability and more resource availability. While all of us hope that this translates into continued excellence across the board, a larger company may slow the pace of innovation, simply by virtue of its size.
- Generally, having multiple solutions that share data tends to result in a more streamlined operation without having to do manual data gymnastics. These can provide more visibility into customer information such as ordering habits and preferences, for example. And restaurant owners can use this information to customize and deliver both attractive offers and experiences.
- One hand to shake, one throat to choke can also mean fewer integration headaches and much, much less finger pointing if something goes wrong.
- Will new ownership result in price changes? Impacts to your end user agreement? Review any contract you signed to make sure your interests are covered and considered.
With all the rapid changes happening in our industry, technology among them, it can be difficult to navigate your way through decisions. As you do with other aspects of your business, reach out to your network of peers and mentors for advice. As technology becomes an ever more important component of operating great restaurants, you may want to consider working with an experienced consultant to help with your technology strategy.
About the Author
Christopher Sebes has spent his entire career in hospitality management and technology. He created the first Microsoft Windows point-of-sale company, Twenty20 Visual Systems, which he sold to Radiant Systems. He went on to become the CEO of Progressive Software before founding XPIENT in 2004. XPIENT was sold to Heartland Payments Systems in 2015, and he was tapped to become the President of Heartland Commerce, later renamed Xenial Inc., a major player in restaurant and retail management technology. Today, he consults with leading restaurant brands on strategy and technology.