Editor’s note: Bryan Menell is a technology entrepreneur and investor who has spoken with hundreds of tech startup CEO’s about their mobile restaurant apps.
This story is repeated hundreds of times across the country, and it goes a little bit like this. A group of tech-savvy people go out to eat at a restaurant and wonder why modern mobile technology has completely bypassed the industry.
“Why can’t I push a button on my phone to re-order a beer,” they commonly ask? “I wish we could just split the tab using a simple app on our phone, and just walk out like Uber” others will say. Then they begin to tackle this seemingly wide-open business opportunity, which is how they find me.
Let me save you a lot of time and money with a crash course. There are a host of good reasons why apps like this aren’t common today. To begin with, restaurant people are not necessarily technology people. In general, they have a passion for hospitality, and enjoy serving people great food. When you show up to pitch your tech idea to a restaurateur while she is preparing for dinner service, you might lose a finger.
Point of Sale
The road to any mobile tech solution requires integration with the point-of-sale (POS) system in the restaurant. Many misguided companies believe they are going to approach market-leading POS companies such as MICROS (now Oracle) and Aloha (now NCR), convincing them about how great their new app is, and that they will in turn sell it to thousands of their restaurant customers.
The reality is that these companies make no money off your fantastic app and have no incentive to share the APIs for their systems with you. The opposite is actually the case. Third-party applications are a leading cause of tech-support incidents for POS companies, because the restaurants don’t call app makers when the system goes down; they call the POS company. Mobile app companies like yours are a cost center to them.
If you get past all this and reach the point where you’re ready to install your integration at the restaurant location, you have a whole new batch of challenges that I will spare you in this post. There are a few major categories of mobile apps in the marketplace today, and each have their own challenges.
Aspiring tech entrepreneurs hear tales of companies like Seamless/GrubHub commanding a 20 percent service charge on each order placed, and see easy money. The new incumbents are sporting $99 fixed-price offerings to lure away restaurants from those leaders.
But it’s not always about price. Companies like Seamless are building a brand and have commanded a coveted spot on consumers’ mobile phones. That is not simple to displace. Combined, those two companies pre-IPO raised around $135 million and invested 10 years of time to get to where they are today. If you’re miraculously successful at doing that, there are patent holders in this area that vigorously defend their intellectual property.
You would be hard-pressed to find a restaurant owner or general manager who consider mobile payments necessary for their restaurants. Everybody has a debit card, and it takes 0.0154 seconds to swipe. It has a user interface that everyone understands, and it’s fast and simple. The only thing about credit cards that restaurants don’t like is the fees.
If you’re passing card data to a POS system to settle the tab, then you’re also dealing with PCI compliance issues, which are expensive. It’s rare to find a restaurant owner who will pay you anything for your mobile payment app. Starbucks probably has the most successful mobile payment app in the world, but when I ask people why they use it, they say it’s for the loyalty points. This area is also well-covered by existing patents.
This seems to be the industry’s low-hanging fruit, yet it is incredibly hard to be successful. I personally try every mobile loyalty app that I can, and the only value above the classic punched card is that I don’t have to carry the card. Restaurants that use the current apps still don’t know me from the next guy. Not only do the apps not communicate anything about me to the restaurants, they clearly know nothing about me because I get email offers from them about underarm laser hair removal.
Social and Sharing
This category just hasn’t taken off, probably because I can already share great dining experiences on Facebook. No need for a speciality app there. There is also no value to the restaurant, so the category has no business model. Foodspotting grabbed the one possible exit in this space back in 2013.
Even employees of OpenTable will probably admit that their technology is a bit antiquated. After all, they have been in business for over 10 years. But who cares? They own the mental shelf space in my brain for the mobile app that guarantees me a table at a specific time.
Anything in this category also has to deal with significant operational issues at the restaurant. Your business is also relying on cooperation from the host at the stand: a low-pay, high-turnover position. Sales costs per unit are high, and the prices that customers are willing to pay monthly are low. In addition, the leading waitlist app NoshList is already free.
In the larger restaurant markets in our country, such as New York City and San Francisco, management is bombarded with sales calls and pitches on the next great mobile tech thing. They are numb from all the inbound phone calls. I have seen technologies that can guarantee at least $500 in monthly cost savings through better analytics, and restaurants still aren’t interested because savings aren’t sexy.
What Can Win?
It is very difficult to start with nothing and be successful in the space. Many startups suffer from having a two-sided business model where they must sell restaurants on their product, as well as get consumers to adopt the mobile application.
One avenue of success would be to already have one side of the equation in hand: either a vast number of consumer eyeballs or tens of thousands of existing merchant relationships. Outside of that, you need a dramatically unique approach that speaks to all these industry challenges.