Disruption – Online Ordering

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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.

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An Interesting and Timely IPO

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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.

Draining the Swamp

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Romney’s greatest charm was his history of taking a chainsaw to businesses and setting them on their feet. Those virtues are not always apparent in a campaign nor necessarily popular. Mick Mulvaney, backed by a businessman who was appalled at the waste in government (as almost all sentient beings are but someone that has planned large projects more clearly), is doing what I for one voted for Romney to do.

Simplifying permits, narrowing focus clears the brush, then we can build. The enlarging of bureaucracies encourage flakey, dishonest, bullshit laws that we don’t follow – that was Obama’s plan and we see it at its worst in the immigration fiasco, it works well to produce fear, malaise, and arbitry enforcement. The Home Land secretary put it best when she asked Congress if they had thought about the road they were going down in criticizing her for enforcing the laws they had made. Extraneous laws & large bureaucracies stunt growth, use up energy and frustrate. The result is malaise and a nation with less and less “trust”.
[Note: rewritten – parts unconnected – the commenters connected them but I realize it was rude of me. Great link! I added a second)

Continuing Derangement

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By the Mystic Marbles of Matagorda, I thought that last week’s bout of Trump derangement was the far frozen limit, but here it is only Wednesday and the establishment media is already running around in hair-on-fire fits of hysteria, the distributed radical insurgency known as Antifa has declared bloody war on the employees of the US Immigrations and Customs Enforcement, a writer employed by the New Yorker magazine as a fact-checker has singlehandedly undermined the intellectual coinage working for that magazine, having been a Fulbright scholar and a graduate of Harvard … and after a nearly fifty year hiatus from public consciousness, Peter Fonda has hove once again into sight. Like a groundhog, only hairier and on a longer rotation.

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