- European Restaurant Tech
Talking about business and economy, the hospitality sector will definitely be among the most highly affected ones by the COVID-19 epidemic. The employees’ headcount in restaurants will probably be cut in half and even when the crisis ends, the customers might still have already created new habits to live more locally — therefore, extending the lowered demand for hospitality services for another year or maybe even more. Nevertheless, the situation will at some point return (at least close) to normal and the fundamentals of business will then again be as relevant as they have been over the regular times. Assuming that innovation has already become one of the fundamental business aspects also in the restaurant industry, it would still be of high relevance for people related to this sector to understand where that innovation is heading toward.
The coming years to bring a significant level of innovation to the restaurant industry
With the pace of technological change, one might have to take a moment before certainly rejecting a claim that: the next five years will be more disruptive to restaurant and foodservice operators than the last 50. Numbers also confirm fast changes — the venture capital investments in restaurant technology have grown by 136% (so 2.36x) from $0.8 billion in 2018 to $1.9 billion in 2019 (1). Quickly emerging trends in restaurant technology do also make a fairly significant case for such an argument. As we can observe, the undeniably most highly converting sales channel is the word of mouth. Guest experience is, therefore, something with very strong leverage to impact this channel. Some companies have already successfully undertaken initiatives to improve their businesses with that in mind. As someone noticed — Starbucks’ tech initiatives aren’t specifically aimed at driving sales. The company is leveraging technology to better serve customers. It seems to be the right approach. Domino is another example of a company for which innovation and the ensuing boost in customer experience have allowed for an incredibly positive turnaround and great success later on.
What are, therefore, the noteworthy trends?
Which technology solutions would carry the industry and the businesses where the customers would like to see it? I work as an analyst at Innovation Nest, a VC firm for European early-stage companies that create software for businesses. Observing the development of the industry, emerging solutions across Europe and looking into available research, there surface several trends that seem to be of relevance to the industry over the coming years. The ordering below will aim to put first the most prevailing, present or strongest ones.
(1) Restaurant delivery
Any venture capital investor or — any average person — is no stranger to restaurant delivery being a vast trend over the last few years. From a numbers perspective, only the German Delivery Hero, British Deliveroo and Spanish Glovo together have raised over €3 billion over the last few years to grow their food delivery networks across the globe. Globally, food delivery represents close to 6% of restaurant sales, and it’s a trend that’s not slowing down. There’s been more money raised in the last two years for food delivery companies than the last 17 years of restaurant IPOs combined (1). The growth of delivery technology companies was to exceed four times the growth of publicly-traded restaurants in 2019, which confirms in which direction the industry is heading. As an additional benchmark for some of what will be happening with restaurant delivery shortly, the history of travel and hotel aggregators can also serve very well.
(2) ‘back-of-house goes digital’
With total funding of €20 million and €58 million respectively, British Rekki and German Choco have been at the forefront to digitalize the back-office (or maybe actually back — kitchen) operations of restaurants. There have been, however, many other solutions emerging in this space, such as Italy’s Soul Kitchen, France’s FoodMeUp or Israeli MarketMan, just to mention a few. Some of these teams focus more on the right recipe and ingredients management which in turn allows for a great boost to the visibility and profitability transparency of different meals and the restaurant’s operations overall. Some of these firms are on the other hand more about product sourcing and creating a platform for restaurateurs to communicate efficiently with the producers, perhaps sliding slightly more towards a marketplace than a B2B SaaS solution. All in all these solutions allow monitoring costs of food, inventory and procurement, store recipes and ingredients in the cloud, digitize orders and workflows. That sounds fairly helpful.
(3) Mobile Order (and Pay)
Contrary to what one might infer from general knowledge and experience, the claim that “the more personal contact, the better” — might be getting less and less accurate in more and more cases. Godfather Vito Corleone hand-picking tomatoes from his befriended greengrocer around the corner — might not gonna happen anymore. Our preferences transition towards more automation and efficiency. If we can order a coffee with one click on our smartphone which already predicted what type and size of coffee we would like, many of us would go with that instead of the coffee discussion with the person behind the counter who might be a very positive person, but might also have gotten off on the wrong foot that day — so why risk? Mobile ‘order-and-pay’ has been gaining strong momentum recently. Once, it meets the new customer-experience expectations of ours (and especially of the younger generation). Secondly, it adds value to the efficiency of the restaurants, at the same time bringing the costs down — self-service orders tend to have higher margins.
“More than 70 per cent of food waste occurs before it even gets to a customer’s plate, and around 40 per cent of that waste comes from restaurants. About 1.3 billion tons of food is wasted each year around the world.” (1). Food waste and sustainability have over the last 1–2 years already become an issue tangible enough for the businesses to create a real link between sustainability and their P&L. Real money has started flowing to sustainability. Sustainability also became one of the key criteria for asset managers and other investors when thinking about their portfolios. Again — once it can make the businesses more efficient, secondly it is greatly aligned with customers’ expectations — therefore shall make a good case for many businesses in the restaurant industry.
Peoples’ struggle to limit their attention to the most important things and cut out the noise — is a tale as old as time. Probably though today it is of significant importance given the boundless amount of information that floods us daily in multiple forms. With the struggle to regain at least a portion of our attention and concentration, personalisation which is limiting the number of choices might come handy. It doesn’t, of course, mean we will not go for more and more services to fill the gap instead, but still, it’s worth trying and seems to be valuable at a first glance at least. People like getting personalised offers instead of a laundry list of available restaurants, meals, bars — with the current abundance of things, it is simply too much. With that, menus will shrink and simplify. On the business side, technologies allowing for personalisation, such as mobile ordering menus, allow restaurants to transition more towards a more data-oriented operating model which seems to be an irreversible direction for any type of business nowadays.
(6) Voice ordering
If we claim that guest experience is one of the key themes in restaurant technology, voice ordering will be one of the crucial ways to implement it. There is a strong conviction amongst investors and people from the space of technology that voice would be the interface of the future. We could mention Domino as a forerunner in this category. Their “Easy Order” technology integrated with Amazon Echo allows you to order your pizza with a few words spoken and have the order at your doorstep shortly. Sounds simple, yet it is not exactly. Domino is amongst one of the very few restaurants that managed to implement it right. Numerous attempts have dramatically failed discouraging many existing customers of the restaurants that tried to implement the voice ordering technology. There is a divergence in restaurant brands’ abilities to execute these programs. It is simple but very hard to do right, and therefore there exists a space to fill this gap for some technology companies. Domino’s stock has beaten the return of Amazon 3x between 2010 and 2017 (and by even a bigger margin the other top tech companies such as Google, Apple). So giving a thought or two to the technology stack of yours might not be such a bad idea.
Some other trends not entirely linked with technology, but worth mentioning
- The trend of “lifestyle brands” — “People buy brands that reflect how they see themselves.” Marketing for demographics has been recently giving way to the one focused on psychographics — which entertains the idea that a shared set of beliefs strongly resonates with a consumer.
- Ghost restaurants (ghost kitchens) are seeing strong growth prospects as they allow the food delivery companies to be more efficient, increase quality and reduce costs.
- Self-Service kiosks will be more and more present — they simply improve both the efficiency of ordering and guest experience at once.
- Micro chains seem to be a growing category with more and more people interested in this type of food and experience.
- Labor, sustainability and transparency becoming more and more important for efficient management.
- Platform vs. point solutions — observing the emerging companies, it seems more and more have a value proposition covering at least a few aspects of the restaurant management tech, such as providing a point of sales together with inventory management and table reservations.
2. Categories of restaurant tech
This article was created to gather together some observations I made while researching the European restaurant technology landscape. The focus of my research was on fairly new companies in this space to try to distinguish which trends are already realizing in the form of growing businesses. I looked at restaurant technology companies that raised certain funding over the last five years. The search was limited to firms creating software for business in a SaaS model. It was also narrowed down to companies with total funding of below €100m. One of the relevant questions was what would be a good taxonomy or categorization when thinking about a restaurant technology company. Going through some researches and articles, my favourite was one proposed by BCG which distinguished categories based on the purchasing journey:
1. Demand Generation
- Social Media
- Reviews and recommendations
- Online menus
- POS systems
3. Food Preparation
- Inventory Management
- Training and process management
4. Food Delivery
- Delivery Service
- Fleet Management
- Carryout notification
- Reviews and recommendations
- Food blogs
- Social media
To each of these categories, it would be fairly easy to attach many tech companies when thinking globally. However focusing on a fairly narrow set of emerging European B2B SaaS companies, I decided to go with a simpler taxonomy and I put the 52 firms that I classified in the following nine categories:
- Inventory management
- Channel managers (for delivery)
- Platform solutions
- Online Ordering
- Marketing, reservations management
- Guest experience
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You can find the landscape above also:
3. European Restaurant Tech
* Delivery: Excluding top 5 firms with total funding of €3805M
* POS: Excluding Wynd with total funding of €111M
* Payments: Excluding firms with total funding of €470m (Adyen, iZettle)
(4) research with Dealroom, Crunchbase, own research