Disruption – Online Ordering

The retail restaurant industry already is an area of fierce competition. Just think of all the restaurants in your community vying for your attention and business. And this is also an industry with slim margins and a high mortality rate – even after a couple years’ away from Chicago, many of the local restaurants we used to patronize have turned over in one form or another.

Since I’ve lived in a “big city” environment for decades, I am used to just walking over to a nearby restaurant to eat or potentially pick up a delivery. However, that isn’t an option for everyone, and digital delivery through various methods is now an important differentiator between chains and individual firms.

The NYT had an article titled “App Takes Orders for Mom-and-Pop Pizzerias” about a company called Slice that offers a tool for small, individually owned pizza restaurants to offer sophisticated ordering capabilities in multiple methods in order for them to compete with chains like Dominos which run a significant portion of their business through online ordering. Small chains typically cannot build their own specific tools and will need to purchase these capabilities as a service.

Slice sends customers’ online orders to the restaurants through their preferred method — email, fax or phone. Restaurants deliver the meals with their own couriers. For each order processed, Slice receives a $1.95 commission, or around 6 to 7 percent of order totals on average, Mr. Sela said. In contrast, GrubHub charges up to 18 percent of the order to process online sales for its clients.

In a business with small margins, giving up 18% or even 6-7% of revenues off the top line seems to be a very significant cost, but at least it allows these restaurants to “even the playing field” with larger chains.

I recently ordered from a local Thai restaurant for pick up and then had their own App for iOS which I downloaded. I liked this option a lot because it leveraged Apple Pay which is the safest way to do online commerce (because you don’t end up giving your actual credit card number – Google Pay likely provides the same benefits) and it was very easy to use. I noticed that the app was powered by “ChowNow” and I checked out their site.

ChowNow offers subscription pricing at a much lower price-point than even 6-7% for a company with even modest online orders. They charge per month or annual with a relatively small setup fee, per their web site. Each restaurant can do their own online approach and integrate in the technology, whether it is through Facebook or an app or some other method.

From my experience, it isn’t the particular value of ChowNow that is interesting, it is the relentless downward pressure of price competition in Technology that captivates me. With the rise of SaaS tools consumable around the world, the cost of these sorts of services (which do differentiate a bit from one another, but in the end become a commodity) is driven down to marginal cost (approaching zero) over time. At some point this may be only a couple percentage points of revenues, similar to the cost of a credit card terminal.

I remember when websites that we would consider bare-bones today cost millions to setup; today you can emulate that functionality for almost nothing. Unlike other areas of the economy, the cost pressure on technology services is relentless and continually evolving, with few barriers of competition. Watching something as simple as online ordering and marketing can be a lesson in the power of unbridled capitalism – the power to deliver better and more capable services at a lower and lower cost each year.

Cross Posted at LITGM