ResTech Platforms Go Public Amid Rapidly Changing Market
Even as the restaurant industry remains volatile, with the vaccine’s effect on consumers’ dining habits yet to be seen, ResTech software providers are going public. Toast, which provides restaurants with cloud-based management and point-of-sale (POS) software, is considering conducting an initial public offering (IPO) this year, and it could value the company at as much as $20 billion, The Wall Street Journal (WSJ) reported on Sunday (Feb. 21). Meanwhile, lesser-known but more profitable software-as-a-service (SaaS) platform Olo filed for a $100 million IPO with the Security and Exchange Commission (SEC) on Friday (Feb. 19), per Nasdaq’s report.
Goldman Sachs and J.P. Morgan Chase have been hired by Toast to underwrite a traditional IPO if Toast holds one, WSJ reported, noting that Toast is also weighing such options as merging with a special purpose acquisition company (SPAC) — also known as a blank-check company — to go public or sell. Reports in November put the value of Toast at about $8 billion.
Meanwhile, Olo, which provides restaurants with ordering and delivery software, has been considering going public for over a year now, since January 2020. However, the company was facing a very different industry in pre-pandemic 2020 than it does today. In the SEC filing, Olo identifies the unique market opportunity, naming the “complex challenges and … significant economic pressure” restaurants face as a reason they may be more inclined than usual to “adopt cost-effective digital solutions.” Additionally, the company cites the restaurant industry’s decades-long growth and consumers’ rising expectations for convenience as drivers for digital engagement on the business and consumer side, adding that the industry “continues to be one of the most underpenetrated in terms of on-demand commerce.”
Olo also includes the mid-pandemic off-premises boom and the growth in digital ordering as factors contributing to the company’s market opportunity. In fact, as PYMNTS researchers noted in this month’s Order to Eat report, created in partnership with Paytronix, that 40 percent of restaurant executives believe digital technologies will help their businesses expand, and about half of the survey respondents adopted digital tools to grow their revenues while keeping customers and staff safe.
The software company also noted that “understanding and owning the consumer relationship is vital to restaurants, as it allows them to better analyze interactions, customize offerings and maximize the long-term value of their consumers. However, restaurants risk losing direct consumer relationships if they are heavily reliant on aggregators.” In the same vein, December’s PYMNTS/Paytronix Delivering on Restaurant Rewards report found that four in 10 consumers are encouraged to spend more on dining when restaurants offer loyalty and rewards programs, and that seven in 10 users of quick-service restaurant (QSR) loyalty programs prefer to access rewards directly through the restaurant’s mobile apps.
However, the filing states, several factors “hinder restaurants’ digital transformation.” These include a lack of cross-industry software standardization, many restaurants’ continued reliance on outdated technologies, the complexity of restaurants’ ever-changing menus, the large number of order channels and the complexity of restaurants’ operations. Additionally, Olo lists the threats it faces, which largely pertain to mid- and post-COVID industry unpredictability in an already highly competitive industry.
Additionally, Olo states that “security breaches, denial of service attacks, or other hacking and phishing attacks on our systems or the systems with which our platform integrates could harm our reputation or subject us to significant liability and adversely affect our business and financial results.” In PYMNTS’ December Mobile Order-Ahead Tracker, made in partnership with fraud protection platform Kount, researchers identified several types of fraud to which the restaurant industry is most vulnerable right now, including chargeback fraud and “pizza plug” scams.
Olo also noted that “our rapid growth may not be sustainable, and depends on our ability to attract new customers, retain revenue from existing customers and increase sales to both new and existing customers … if we are unable to retain or increase revenue from existing customers, even if such losses are offset by an increase in new customers or an increase in other revenues, our operating results could be adversely impacted.” Restaurants’ needs, and the software solutions they adopt to meet those needs, will depend hugely on consumers’ behavior in the post-pandemic world. Industry players can make educated guesses about those behaviors, but only time will tell.