A recent article in TechCrunch characterized nascent upstarts in the restaurant industry as wide-eyed idealists with little reality of the harsh, high-touch operating environment in which they operate. Having worked in the tech, food and health worlds for most of my career, I believe the article misrepresented the significant progress being made across the industry. On almost every front within hospitality — be it point of sale, loyalty, delivery or sourcing — change is in the air.
Point of Sale Systems Are Shifting Rapidly
For all the talk of the Aloha and MICROS point of sale (POS) systems dominanting in restaurants, a bevy of newcomers have been making inroads. Square, with its slick reader and now retail POS terminal, carries the most gravitas among the mobile POS companies for good reason: it inks deals with large retailers: Starbucks in 2012, then Whole Foods, Uniqlo and Godiva in 2014. Granted, none of these establishments switched over an entire store to Square, but these relationships suggest large retailers will embrace new technology.
Square isn’t alone in this space, either. Longtime ecommerce site Shopify launched its own POS system in 2013, bridging together digital and in-store selling in ways old-line providers can’t match. Even venerable POS provider NCR has dipped its toes into the market. Adil Consulting, a merchant POS consultancy, found 52% of small merchants now use a mobile POS for the majority of their payment processing, a huge change from even a couple of years prior.
Mobile POS upstarts are also eyeing the market leaders with more sophisticated products. POS startup Revel (which recently raised a $100 million Series C round) and ShopKeep aim at the heart of Aloha and MICROS by combining deep business analytics with mobile-based front-of-the-house systems. Alex Konrad of Forbes reported Revel’s growth rate at 250 percent year-over-year in February 2014.
If you want a historical parallel for the mobile POS market, consider the arrival of Japanese cars into America back in the 1970s. Toyota and Honda targeted the low end of the market, but within a generation, they delivered Lexus and Acura into the U.S. market, upending the staid American luxury brands like Cadillac and Lincoln. Substitute MICROS and Aloha for Cadillac and Lincoln and you can get an idea of what’s coming for the biggest POS names.
Mobile Payments Are Coming to Restaurants
For high-end retail, which acts as a harbinger of things to come, mobile payments have already arrived. Starbucks, an early mover in this space, reported 14 percent of its U.S. transactions were completed using its mobile app in 2014. But it’s not just the big players; even small merchants that represent the long tail of the industry are adopting new technology.
I spoke at length with Andrew Cove, co-founder of the Cover for this article. Long considered one of those ‘Why hasn’t anyone done this already?’ mobile opportunities, Cover brings mobile payments and check splitting into the high-end restaurant market. Built around creating a seamless payment transaction for users — think Uber, Cove said — Cover also delivers flat-fee transactions and 24-hour payment disbursement to restaurants. Cove said the product has already reached over 150 restaurants in NYC, San Francisco and Salt Lake City.
And let’s not forget what Apple Pay may do in this area. Payment industry guru Mike Dudas calculated almost 1 percent of Whole Foods transactions are happening with Apple Pay. Sure, that’s a tiny part of the retailer’s overall sales, but, if true, it represents phenomenal growth of a new technology no one had even heard of six months ago.
A Food Service Sourcing Revolution in the Making
Long dominated by Sysco and US Food, even the purveyor system — with its 10 mile wide moat to market entry — is at the dawn of a new age. Another innovative startup, Sourcery, allows chefs to manage disparate food suppliers from a central dashboard, streamlining payments and invoicing.
Ashwin Mudaliar, head of business development at Sourcery, spoke to me about Sourcery’s operations. A molecular biologist with a passion for food system reform, Mudaliar describes Sourcery as a commerce platform for the modern commercial kitchen. Restaurants bring their purveyor network into Sourcery’s orbit and they weave their technology across each restaurant’s web of suppliers.
The result of reducing friction for food sourcing may ripple through the supply chain, a long-term goal highlighted by Mudaliar. It encourages more restaurants to source widely, pulling restaurants away from the broadliner model embodied by Sysco. While it’s very early, technology like Sourcery has the potential to increase the diversity of local food options available at every restaurant.
Delivery and the Broader Food Industry VC Presence
GrubHub and Seamless dominate the restaurant delivery market, but that doesn’t mean innovation is out of reach here, either. Instacart, the grocery delivery service launched only back in 2012, is reportedly raising $100 million at a heady $2 billion valuation. Other upstarts like the more local-flavored grocery delivery services (Good Eggs on the West Coast and Relay Foods in the Mid-Atlantic) raised $21 million and $8.25 million in their last funding rounds, respectively.
There’s also a host of tangentially related food-tech startups that align spiritually with the restaurant industry and the broader food movement. VC funding in the food vertical has been on a steadily increasing trajectory for at least the last five years, touching all corners of the industry.
The DC-based organic salad chain SweetGreen raised $22 million in 2014 to promote expansion. West coast competitor Lyfe Kitchen boosted its reserves by at least $21 million in 2014, according to an SEC filing. Revolution Foods, the firm trying to remake school lunches, raised $30 million in 2014. And Hampton Creek, the food company replacing animal products with unique plant-based substitutes, managed to get its Just Mayo product into over 20,000 stores in just the last 12 months, according to Danielle Gould’s FoodTechConnect.
Solutions to the uniquely complex problems facing the restaurant and food industries will require still more innovation than what has been discussed here. Discovery, nutrition information, loyalty, distribution and food waste represent just a few of the frontiers that await intrepid entrepreneurs. But no matter what dimension of this industry you look at, it’s hard not to see the seeds of change blowing in this venture capital-fueled wind.Featured Image: Vector Goddess/Shutterstock (IMAGE HAS BEEN MODIFIED)