Restaurant Software Deep Dive – History & Market Dynamics
We at Bowery Capital released the 2016 edition of Opportunities In Vertical Software in November, which laid out our point of view on ten specific verticals and the potential for various software solutions to dominate each of these ten verticals in the coming years. For ten weeks, we are releasing content focused around the impact of software on these ten industries. We covered the Insurance vertical last week. For our third week, we feature the Restaurant vertical. Our first post discusses restaurant software and in particular the market history and dynamics of software on the vertical.
History of Restaurant Industry Software
The dawn of restaurant software can be dated back to the 1980’s, when the founder of ViewTouch developed the first POS graphical interface. This new advancement in order processing technology allowed for streamlined order fulfillment and payment processing, changing the way the industry operated. In the modern day, companies like NCR and Micros Systems dominate the POS landscape with new entrants like Revel and Square challenging them with continued innovations. The technology has transitioned from simple order processing to completely automating the dining experience. Self-serve kiosks take the place of waiters, and mobile payments platforms replace cashiers. All of this is powered by modern POS providers. Beyond the doors of the restaurant, sites like Open Table now enable remote reservations which allows cutting down in-store wait time during peak hours. Replacing prior technologies like pager systems and call lists alleviated the pain of delayed seating. Delivery sites such as GrubHub, Seamless, and PostMates give restaurants access to an immediate online presence and empower a previously impotent delivery service, leading to incremental revenue. The internet and social media have also spawned review sites like Yelp, Google Reviews, and Trip Advisor, which can heavily impact the reputation of restaurants. For the restaurant back office, there are inventory management tools and employee scheduling solutions that allow restaurant managers to keep track of the efficacy of their staff, while maintaining their location logistics from a cloud platform. There seems to be no limit to the advancement and application of technology in the culinary world. A restaurant cannot afford to ignore any of these innovations as they are rapidly sculpting the industry landscape, each with their own specific value.
Market Dynamics Of Restaurant Industry Software
Opportunities in the restaurant software space are heating up across all verticals. Most players in the space tend to focus on optimizing a specific point solution while some established scale players provide solutions across different consumer-facing sub-markets. (e.g.: Open Table in marketing, reservations, CRM and diner analytics.) $403MM was poured into restaurant software startups as of Q3 2016. While lower than the $533MM total investment in 2015, the current run rate should result in ~$600MM total invested in 2016. Restaurant owners generally view the primary risk of new technological adoption to be the complication of the customer’s experience. For this reason, proven ROI and user friendly interfaces will be key for the adoption of any nascent innovation. Business models across different verticals range from subscription based management platforms, to partnership fee models. All things considered, this market is hungry for disruption and is quick to adopt any technology that could be perceived to offer a competitive advantage. Restaurant operators are starting to embrace various consumer-facing and behind-the-counter technologies, and as the benefits continue to grow. We will see more and more innovative solution providers participating in this growing ecosystem.
Make sure to check out the 2016 edition of Opportunities In Vertical Software for the full report and we will be back tomorrow with some more information on the Restaurant industry and the software that powers it.