Tech – Page 29 – Chicago Boyz

Disruption – Online Ordering

June 24, 2018 by Carl from Chicago

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.

An Interesting and Timely IPO

June 22, 2018 by David Foster

I’ve been aware for some time of a company called Avalara, which is in the cloud-based tax-compliance business. In the US, Avalara keeps track of the vast array of sales tax rates, which are imposed not only at the state level but often also at municipal and county levels. Avalara integrates with a number of electronic commerce platforms, which can pass destination address info to the system and thereby obtain the appropriate tax rate in real time and include it in the end customer’s charges at checkout.

The company did its Initial Public Offering on June 13, and AVLR quickly jumped from its IPO price of $24 to about $45 , putting its market capitalization at about $2.9 billion. Yesterday, the Supreme Court issued a decision that has great implications for Avalara’s business…as well as for the businesses of hundreds of thousands if not millions of on-line retailers and the consumers who buy from them–and as of this moment AVLR is trading at $52.16, with a market cap of $3.32 billion.

What the Court apparently ruled is that states can impose sales taxes on on-line transactions (and, I would presume, classical mail-order transactions as well) even when the seller does not have a physical “nexus” (such as a warehouse, and office or a factory) in that state. (And you can be sure that most of them will take advantage of this opportunity.) This is really “just” a cost problem for very large on-line merchants such as Amazon, but the compliance issues for smaller businesses are going to be considerable. Avalara seems well-positioned to help with this problem, but the ruling is still going to be far more burdensome to the smaller on-line merchants than to the large ones.

See discussion of the sales tax issue at the Instapundit post.

Regarding Avlara, I have not analyzed this company as a potential investment and am not giving an opinion on it for that purpose either pro or con, certainly not giving investment advice here.