Since 2014, The Bowery Capital team has published their perspectives on software verticalization in a piece titled “Opportunities In Vertical Software.” We recently released the 5th edition and are highlighting some of the verticals covered in the report. In this post we will be looking at the second vertical in the report, Restaurant & Travel.
QR codes in restaurants have become a symbol of post pandemic dining. As travel picks up (both corporate and personal), guests are returning to hotels far different from the ones they left at the start of the pandemic. The world of restaurants and travel is a very different one than it was in 2019, and technology plays a large role in shaping the new experience.
The pandemic greatly changed travel and hospitality and we are only now starting to see these industries march back to pre-pandemic levels (which could take until 2024). The TSA checkpoint travel numbers are a strong illustration for both the lows and the return of travel. Take the first of this month, November 1. If you look at the number of travelers across the last four years, in 2019 there were 2,005,101 travelers on that day day. In 2020, that dropped to 575,829 (29% of what it was the year prior). The number of travelers on the 1st of November this year was 1,966,658 (98% of 2019 count).
Staffing demands across the industry have forced companies to look at software solutions. As of October 2022, there were 250,000 fewer workers in the hotel industry than in 2019. Airlines have voiced concerns about furloughed employees not coming back to the industry at all.
Many of the new software across restaurants and travel can be grouped into three buckets - contactless experience, solving for lack of headcount, and operational efficiency.
Growth & Funding
Restaurants and hotels are seeking more automated solutions in an effort to both cut costs and boost productivity. The widespread adoption of point-of-sale solutions and CRM software has helped digitize the entire industry. As a direct result of the pandemic, contactless payment has seen rapid growth (estimated to reach $6 trillion by 2024).
Technology spend in the space continues to go up, growing from $10B in 2019 to almost $16B in 2021. The number of funding rounds nearly doubled from 2020 to 2021 (58 to 100+).
Cloud-based point-of-sale systems (POS) continue to be responsible for a large share of this segment’s growth. POS software are no longer exclusively collection platforms - they now feature applications such as ordering, billing, payment processing, and sales tracking.
Many of the technology solutions in the restaurant industry can be directly tied to the pandemic, whether solving for a contactless experience or improving efficiency and as a result, cost. More restaurants are utilizing AI chatbots that are able to suggest menu items, make reservations, collect feedback, and take orders without the cost of additional labor. Ghost kitchens and virtual restaurants are on the rise as more consumers opt to order in over eating out. More restaurants are adding loyalty programs to encourage repeat diners (whether online or in person). Inventory management software is solving a problem that costs the hospitality industry $100 billion every year, helping restaurant owners run their businesses more efficiently.
Historically, the hotel industry has been slow to adopt technology, often taking solutions successful in commercial real estate or homes and trying to fit those square pegs into a round hole. Perhaps more flexible than many would have predicted, the industry has been quick to move to new technologies that address the needs of the post-pandemic guest. Hotels are largely focused on improving the client experience through automation and digitization. Advancements in AI have enabled the automation of many service tasks, freeing up hotel staff for more value-add work. Brands have increased their spend on conversational AI to either assist or take over the booking and checkout process. Additionally, improvements in IoT devices and NLP have made many hotel features contactless, satisfying consumer demand for fewer human touch points. Apps, whether on personal phones or in-suite tablets, have become commonplace, complimenting phone lines for both service and dining requests. IoT technology has allowed guests to further customize their experience by automating room controls - temperature, lighting, etc.
Travel has seen innovation as well, not just with advancements to reduce contact points. Artificial intelligence in airlines is expected to reach $2.2 billion by 2025. While AI has mostly been deployed in the form of chatbots to help resolve queries, it is also being adopted to estimate the lifespan of airplane parts and improve efficiency. Airports are adopting facial recognition software (CLEAR now operates in 50+ airports). Robots are being used in airports, both at food kiosks and in janitorial roles.
Bowery Capital POV
In our report, restaurant & travel was one of two verticals to receive a high overall rating (the other being Transport & Logistics). The vertical earned this score due to incredibly strong market growth and investable opportunities. Just this week, there were multiple articles across news outlets mentioning the increase in adoption of robotic servers. Not only are robots interacting with customers, some restaurants are now using them behind the counter to help prepare food. The pandemic forced restaurants, hotels, and travel to rethink what points of contact are necessary and what can be automated (or cut out all together) and technology will play a big role in that going forward. Cryptocurrencies have the potential to reach scale in hospitality as more consumers are asking to pay in crypto. While the last two years have highlighted the growth of POS systems and other contactless measures, we see the potential for even further innovation to solve many of the remaining operational challenges in the space.