Restaurant-Tech Troubles Could Continue in 2024

and pay for their food in advance. So for me, it was a fifteen and a half year journey there that I would break up into three chapters. This first chapter is what I would label your kind of product market fit, trying to find that, and it was a seven year chapter in which it took to get to one million dollars in arr and. So we were based in New York City at that time, you know, one of the earliest restaurant tech but just tech companies in

that ecosystem. And really during that seven year period, Olo was predominantly this twelve person company of people in their twenties who have now become friends of mine, and we were just simply ahead of its time, right, you know,

they say you're twenty for learning. And we lost one hundred more times than we won in that era, but we held on to this Winston Churchill quote which was never ever ever give up, and ultimately we found this fast moving water in a customer out of Texas that at that point in time helped us take this B two C business into a B to B two C business and we got our first major win with five Guys burgers and fries that helped us get that elusive

product market fit that every startup, every technology company hopes for, and that unlocked the second chapter, the rocket Ship years a million to forty five million an arr and it was a six year period in which we were doubling

the company every year. We had just hired our first leadership team, including my mentor and current business partner, Marty Hantfeld, this head of sales, and during that period of time really Olo became the gold standard in enterprise e commerce ordering and really introduced new modules that were groundbreaking for the industry around third party delivery, a product called Dispatch, a product called Rails, and that really helped propel our

lead forward past dozens of omline or green competitors in that era, and we largely focused on what I call the mighty middle of the market, right, so not the SMB's mom and pops and not the big guys like McDonald's, but rather fifty locations to three thousand locations, and we

worked exclusively with restaurant brand HQs. So I spent most of those years on an airplane accruing all the status points and going to hundreds of restaurant brand HQUS and it unlocked the final chapter, Chapter three, an era of which we took the company from a private offering to

a public offering. And this was you know, January twenty twenty, I got the Jersey call to lead the enterprise sales team, and so I was leading that team but also selling and we all know what happened in March of that year. Olo went from must have tech to mission critical tech. And you know, still remembering this earnings call from Wyman Roberts over at Brinker talking about seventy percent of transactions coming through the OLO platform. That is what we were

seeing across the board for our customers. And so it was a difficult time, you know, a busy time, and I felt like I took a breadth in December of twenty twenty, looked up at the scoreboard. There were fourteen thousand new locations we added, and we doubled the company from forty five to ninety eight million in arr and it was really that which allowed us to take the company public that March of twenty twenty one. So, you know, a fifteen and a half year adventure, right the American

startup dream. You know, over the last really decade, there's only been a few restaurant tech companies that have gone public. Think about your toast, your DoorDash, your square, your uber and Olo and Olo was the only one that did it as an enterprise focus B to B two C company. So I operated in that role for fifteen months. We acquired two companies, we beefed up the team, and you know,

when it's time, it's time. I exited the company in August of twenty two as we were approaching about two hundred million ERA R and lots of stats that we could be proud about there, but seventy one percent of the enterprise market became customers. But the stat I'm proud of us about was this ninety nine percent retention rate of our customers. And it was really that retention rate that allowed us to build the relationship capital to do what we're doing today with eight five day partners.

of themes and pitches for must have or mission critical solutions to really solve the problems that our friends the brands were anxious to address. So really to help our own restaurant brand friends and technology companies, we formed eight five A partners this year January to really invest in one to three must have technology solutions, but also to advise the next generation of restaurant technology winners that were focused on that mid market and enterprise that we had

focused on. But you know, like most startups, not everything has gone according to plan on the investment side. You know, this side of the business has been challenging, no doubt. It's not due to a lack of interest, but rather due to the current state of the markets and valuations. Right, it's a tough moment for a new investment platform to put on the training wheels and try to figure out what the right entry point and valuation is.

we're responsible for closing more enterprise software deals than anyone in this industry over the past decade, right, So that's what we bring and so in a nutshell, A five eight helps launch and scale mid market and enterprise sales,

marketing and customer success programs for restaurant tech companies. And so we're sitting here now at the end of December, we've helped close to a dozen restaurant technology companies on their playbooks for enterprise and mid market, and we're excited to double down on this industry that we love and help this next generation. So we'll bring on new resources, new customers going into twenty twenty four, and yeah, we've never been more fired up.

that ultimately we're hearing themes for. And so backing up, you know, we've created an advisory board of roughly thirty operators that represent forty thousand locations, right, So we have that benefit to hear firsthand from those operators what they're working on, what problems they're having, who they're having the problems with, what solutions they're looking for, and we act as a trusted back channel to those brand and resource So we take those themes ultimately and try to map

those two solutions in our advisory practice. So to answer your question, I think we're hearing a lot of themes this go around largely to do with the back of the house than the front of the house. And so we've mapped ourselves to close again a dozen technology platforms that are addressing those problems.

third party delivery reconciliation. Right, So this was a problem that we heard over and over while at OLO, which was we now are omni channel businesses that accept orders from first party transactions, but now third party transactions for both catering for now takeout for delivery, and all of these different parties pay us on different increments, and our settlements aren't adding up to what our accounting teams say should or shouldn't be in there, right and so interesting

that's such a pain point, and again we saw it, didn't address it during those years. But now we've seen half a dozen let's call it best of breed solutions pop up in that market, and so we've backed one called loop AI in our practice, which we believe has the best product but is attacking that head on as let's call it a delivery intelligence tool of sorts to capture offline customers. Right, so stores being offline when they shouldn't,

stores to recapture chargeback data, marketplace facilitator taxes. And so that's just an example overwhelmingly that we're hearing from that advisory board.

an issue happened. Right, So I didn't realize AI meant to glorified security guards, but that's what it meant. And that specific.

zurp right, the zero interest era. So restaurant technology companies could raise capital at rich valuations from the venture capital community, they could hire staff by the dozens, and they could just burn through the cash in the bank, knowing that there was more at the end of that. And so

again I remember seeing some of these pitch decks. Right, we worked with Burger King, we worked with KFC, We're in deep discussions with Chick fil A, when in reality it was random franchisees of those chains and they had one conversation with the innovation department at Chick fil A. So, you know, fast forward to today, you know, it's an incredibly difficult time to raise capital. Your companies have been

forced to do more with less. This past year has been plagued with reductions and forces in the headlines from the large enterprise companies. Valuations have come back to earth. In many cases, it's half or less of what the last valuation that was previously assigned to them, and growth has frankly stalled right from the past year, and in some cases, by the way, it's negative because of churn

with their customer base. So ultimately, at the end of the day, restaurant tech companies are dealing with a buying freeze from the operators on all nice to have tech that the operators instituted in twenty twenty three. And so these restaurant tech companies that are nice to have are running out of cash and they're running out of time, and so this go around, there's not endless capital that's going to be supplied to them when they run out of cash. So it reminds me of the two thousand

and nine to twenty twelve timeframe. Going back in restaurant tech, there were companies like Exit forty one that's going to be a throwback to some of your audience, but it was an online ordering company, a competitor of Oolo's at the time. They raised over fifty million dollars in that

era and it just evaporated overnight. And so, you know, I think about the Brita Rosenheim Wheel right this like twenty twenty three restaurant Tech Ecosystem wheel that she put out, and there's over two hundred and fifty restaurant tech companies.

increasing quarter over quarter over the last four quarters. And so we expect in twenty twenty four for there to be a record number of restaurant technology companies that'll shut their doors for good. And I think in parallel, the next twelve months should actually prove super interesting from an M and A and consolidation perspective. You know, starting with the publicly traded restaurant tech companies, these companies spent the last year getting fit and now they're seeing their valuations

rise just a little bit. Those companies DoorDash, for example, they've got four plus billion dollars sitting in the bank toast a billion dollars sitting on the bank. And we know companies like par have been known to be acquisitive over the last three to four years. So from my perspective, it's a great time for these operating platforms to put some of that cash and some of that equity to work.

There's going to be companies that are available at a fraction of their value and really could help them do more with their existing customer base and push their lead further. And I think in the same vein there's going to be many private companies that realize that M and A is going to be the only option for them. Right. That should also make for some interesting deals. But think about as anario, Right, there's two competitors in the same space.

They're both not getting meaningful traction. They could join forces and attack an operating platform together and they probably be better off than worse. Right, So it's an area that we're watching closely and looking to contribute in for twenty twenty four.

dollars per month per service fatigue. There's finger pointing fatigue amongst all these different providers, and in many cases, with the solutions they're purchasing, the operators they're only using a sliver of the services, they're over paying for them, and there's a steep learning curve to both getting them up and running from a deployment perspective and maintaining them. So, you know, at the same time, I think about from

an operator perspective. Operators these days could barely open up their emails without literally getting dozens of new emails from vendors every single day trying to sell them something. You know, they try and find solace and go to LinkedIn and connect with their peers, and they're greeted by a bunch of people in an ever escalating social media contest. Who could yell louder and they go to a restaurant conference and get accosted by half a dozen sales guys that

are selling them some AI solution. So I think restaur operators are fed up, you know. So here's the big problem for restaurant tech companies. You know, Ultimately, they're banging their heads against the wall because they're not selling anything, right, and they believe the solution is to send more emails. And these same companies show up to that restaurant conference praying for a different outcome, but they show up with

little to no preparation. They're staring at operator badges, and they're just hanging out in the lobby bar with all the other restaurant tech people that are not selling anything. So it's just not working. And so this is part of the work that we're doing in this go to market advisory and marketing and brand practice here at eight five eight, you know, we've entered a new market and a new era of go to market. It's all about if at least you're serious about mid market and enterprise.

That's my qualifier. Focus segmentation and creative messaging, your quality over quantity, that's what's going to win and restaurantech tech companies that want to win in this market need to align themselves, in our view, with influencers and advisors that can help them understand the accounts and really create these multi threaded game plans on their ideal customer profile accounts.

So that's what we're doing here at eight five eight, and we feel like we're we're seeing that trend overwhelmingly very interesting.

in one versus best of breed. I think about my first decade in the industry, going back to the two thousand and seven you know, kind of those few years, companies like NCR Micros. You know, they were the one boat to choke operating platforms that ruled the industry, and as they signed up to play a bigger role, this is when the first generation of POS companies really started to tumble, right. The contracts became too big, the products that they released to compete with the best of REED

solutions didn't keep up with the times. And it's like the dreaded TV VCR combo of the nineties, right, you know, when the VCR stops working, you hate the whole device.

And so, you know, fast forward to today. I think we're amidst an economic slowdown akin to two thousand and eight to twenty ten, and there's a new wave of operating platforms out there, companies like par toast Olo, Door Dash, and everyone of those companies is in a digital arms race and trying to do more with their existing customers. So it's a very tense time in the world of

restaurant tech. It's what we refer to as frenemy behavior technology companies that are actually true competitors but have to partner in many of the same accounts, so it's going to lead to a lot of deception and confusion, frankly amongst the operators who are hearing mixed messages from various parties.

So with all this front of meb behavior that's happening in the background using a single provider, But at the same time, those same operators want the cost efficiencies that come with bundled solutions and don't want to have to manage all these different relationships and dashboards and partnerships. So I think the best of breeding solutions, no doubt, they have a shot, but they're up against a wall that's

compared to three to five years ago. So there's an argument that the pendulum has already swung to the operating platforms because of that advantage on distribution. They've got large balance sheets, they've got large R and D development teams, and again they've got the existing customer relationships that the

best of breed companies just don't have. So our prediction here is the cycle continues, and operators are going to choose to do more business with fewer providers if and when they choose to open their wallets.

to date spent fifty million dollars on that built. So backing up, you know, OLO helped Wingstop really become a digital ordering juggernaut over the past decade. When they came to Olo, they were at seven and a half percent of sales, about forty million dollars of sales annually, and up until this announcement, they've gotten to sixty six percent of sales, which is two billion dollars annually coming through

that platform. So it was no doubt a success. And OLO came out and into that system at a time when their previous digital ordering platform it crashed on Super Bowl Sunday. Imagine that to twenty thirteen, probably the worst day in the brand's history totally right, like no, imagine how many parties got ruined that day. And you know they came to Olo for reliability, for stability, and for innovation, and that's exactly what was delivered. I think it was

a true partnership. Somewhere along the way, though, Wingstop believed that it was such an important channel to them to outsource that they could do a better job than Olo to really digitize the remaining third of the customer base that was still analog. So I think time will tell if that was a good move. I'm grateful for the bonds that were forged between the companies, and I wish

the companies handled it differently from a breakup perspective. But you know, in my opinion, the new generation of digital leaders are Panera, Chipotle, Sweet Green Shakeshack, and Wingstop, and up until now, only two of them have successfully built their own platforms, while the others have outsourced that to best of breed providers. And you know, I'll kind of use Dominoes right now as a punching bag. People talk about them being a leader, but I don't know if

you've used the Dominoes app recently. You know, if you haven't take a look at it. It sucks. Frankly, it feels like it was last updated in twenty sixteen, and they just announced this month this massive investment that they're

making and a partnership with Microsoft to improve things. But it just goes to show you how tough it is right for restaurant restaurant companies to keep up with tech, even for the you know, I guess appointed technology company Dominoes, and so there's just way more examples of failed programs there, and there are successful ones appointed Jack in the Box,

Papa Murphy, Sweet Green, Brinker, Cheesecake Factory. These were all customers that we had during OLO that had tried to and in some cases did build their own platform and then came to a SaaS platform because it just wasn't working out. So I think, you know, for the rest of the industry that's minority digital, the idea of building

your own digital platform is just crazy. You know, OLO, for example, spends ninety million dollars a year on R and D. Now that's hundreds of engineers, product managers, customer success managers. So it's just tough to recreate. But there is a sliver of brands I think those brands that are majority digital that absolutely should keep an eye on what Wingstop is doing. And it's no doubt easier to build than buy than it was a decade ago. So there are a whole host of things that those companies

are going to have to consider. But right now, again, I think this build versus buy dynamic really applies to let's call it five to ten restaurant brands. So the bottom line for most operators, there's just so many must have low hanging fruit opportunities around labor, employer retention inventory. Again, aroun themes in the back of the house that build your own is just not a serious consideration.