Trends in Digital Ordering Across First & Third Party Platforms

Chad Horn, Head of Strategic Partnerships, ItsaCheckmate speaks with George Mihalos, FinTech Analyst and Andrew Charles, Restaurants Analyst. ItsaCheckmate integrates delivery and online ordering channels into restaurant POS systems.

They discuss how restaurants are navigating decisions around creating a proprietary platform vs. using a third party platform, digital payment integration, third party delivery trends and restaurant delivery sales growth. Press play to learn more.

Transcript

Audio:                              Welcome to Cowen Insights, a space that brings leading thinkers together to share insights and ideas, shaping the world around us. Join us as we converse with the top minds who are influencing our global sectors.

George Mihalos:             Thanks everyone for tuning in. My name is George Mihalos. I’m the Fin Tech analyst here at Cowen, and I’m joined by my colleague, Andrew Charles, Cowen’s restaurants analyst. This podcast is released in tandem with our published cross-sector ahead of the curve report titled A Whole New Old World, focused on the impacts and the pace of digitization across select sectors, such as restaurants, grocery, and retail pharma.

                                         On that note, we’re really excited to be hosting Chad Horn. Chad is the director of channel partnerships, and It’s a Checkmate, a company that’s literally right in the middle of these digitization trends taking place in the restaurant industry. Chad firstly, thanks for being here. We really appreciate it. Before we get into the Q and A, why don’t you take a minute just to give everyone sort of a high level overview of It’s a Checkmate and the work that you guys are doing.

Chad Horn:                      Absolutely. Thank you, George. It’s a pleasure to be here with you and discussing these very important trends in the industry. Checkmate, and we have the privilege of helping restaurants solve one of their bigger operational challenges these days, and that is integrating their delivery and online ordering channels into their point of sale system. Everyone’s heard the challenges these days of manning a station of tablets to receive orders, and then you have to punch those into the system so that the kitchen gets those orders and then prep the meals for the guests. We automate that so that orders seamlessly go in, which will certainly result for a better experience for the staff, but also the guests.

                                         And then very big shift this year as well is the increased importance on the other side of the integration, which is taking point of sale menu changes and moving those to the delivery and ordering platforms. it seems like the average restaurant picked up an extra platform or two in the wake of the pandemic and that’s yet another menu online to manage. So we can automate that as well, so that they have more time for running their business.

George Mihalos:             I appreciate that overview. So with that, why don’t we just dive right into the Q and A and touch on some of these, these themes that you’re referencing. And clearly post COVID, restaurants have been accelerating their digital offerings, as you noted. One of the things that came up in our survey is that from a restaurant’s perspective, there’s a clear preference. And again, I’ll stress preference for first party solutions or for proprietary solutions where the restaurant is maintaining more of its brand and awareness. Solutions like an Olo or ChowNow, those types of applications. Just curious if you’re seeing more of a shift in your customer base toward first party over third party, or is the demand holding fairly steady across all these different platforms?

Chad Horn:                      You hit it with the word preference. It is absolutely a preference for these brands, especially the larger ones, to be using their own branded solution. But what we’re seeing and recognizing that there’s a bit of a selection bias that our customers are investing in integration technology, they’re flocking to both of these things. So many restaurants are getting into the to the space for the first time and so a lot of them are investing in branded ordering solutions, a lot of them are working with the delivery aggregators. And it’s tough to say that that preference is resulting in a shift away from delivery platforms, because we are seeing so many brands, large and small, start to work with those guys for the very first time.

George Mihalos:             That’s great color. Really appreciate that. Just kind of following up on that theme, obviously you guys have a fair amount of dealings with these point of sale platforms. You’re interacting with them daily and I’m just curious, what are you guys seeing in terms of how these point of sales are thinking about embracing again, outsourced first party solutions, again, sort of the ChowNows and Olos of the world, versus rolling out their own digital ordering platforms, which we’ve seen a lot of these point of sale companies do. Just curious if you’re, if you’re seeing a preference there, or are the point of sale companies pushing in one direction versus the other?

Chad Horn:                      Yeah. And there’s a lot to talk about here. So most point of sale platforms have developed, or certainly are developing if they haven’t yet, their own proprietary ordering platform. And at the same time, most of them do embrace one or more ordering platforms as well. The number one reason I see point of sale companies developing their own solution though, is to give their salespeople the ability to offer online ordering as part of the point of sale package. The reason for that is restaurants are very often price conscious and being able to help a prospect, as a salesperson, avoid a ballooning cumulative SAS fee, working with multiple vendors, help salespeople win more often. On the other hand, many restaurants do place a high premium on the quality of their ordering solution, especially these days, so much so that their requirements are such that very few of the point of sale native solutions can meet them.

                                         And for those cases, point of sale companies have alliances with ordering solutions that can offer the combinations of features that their prospects are asking for, because they’d much rather win a customer over without the online ordering piece, than not at all. And then there’s even a class of point of sale companies that are so highly prizing the revenues derived from payments, and they value that to the degree where they are willing to make that a requirement. So then there’s a class of point of sale companies that highly prize revenues derived from payments, and the value they place on that revenue causes them to place a priority on earning the online ordering systems as well. Such companies do not embrace other solutions without special contracts.

George Mihalos:             Okay, that’s helpful. We’re definitely hearing about those types of companies in the marketplace. So I appreciate that commentary. Chad, to the extent you can comment on it, are there one or two outsource solutions, first party and third party delivery that seem to be sort of outpacing their peers and just curious, any high level thoughts from your perspective, why that’s the case?

Chad Horn:                      Yeah, George, I can comment generally. There are clear market leaders in both categories and as far as why, the reasons for their dominance and their recent growth varies, but I would attribute those positions to a combination of sales and marketing, a lot of these companies, very large budgets to direct in that direction, execution, and more important now than ever, just their ability to scale operations, which is the single most important thing we’ve been focusing on.

George Mihalos:             Interesting note that that came out of the survey, it’s obviously clear that digital sales are up from 2019 to 2020. I don’t think that’s a surprise to anyone, but the majority of respondents also indicated that they still expect in 2021, despite a tougher comparison from 2020, they still expect in 2021, their percentage of sales sourced from e-comm and from digital channels to actually increase relative to 2020. And to me, that was a little bit surprising. I’m just curious, is that dovetailing with what you’re hearing or seeing from your restaurant customers?

Chad Horn:                      Overall, yes, especially among enterprise restaurants. Many of them, but not most, still feel they’re in their opening act in the area of digital ordering. Also a number of our clients took a look at the holes in their current ordering solutions over the last nine months. And instead of replacing their branded ordering solution, they added another one to address the unaddressed niche channel such as Google or Facebook Messenger, or they simply added more delivery platforms to increase volume. So the larger number of POS integrated platforms available as well, just make it easy to do that operationally.

George Mihalos:             And just one last one from my end, before I turn it over to Andrew, but obviously payment’s something that’s near and dear to my heart. One of the things, again, that really stood out from the survey is more and more restaurants, more and more point of sale operators, embracing alternative payments. And by that, I mean the digital wallets, the Paypals, the Venmos, the Apple Pays of the world. Is that something you are hearing and seeing more of both from the restaurants you’re servicing, and again, the point of sale platforms that are enabling a lot of these services?

Chad Horn:                      Yes, 100%. We’re hearing more restaurants mention a variety of digital payment technologies. We’re not in the payment stream ourselves, so we’re not being tapped to integrate these services directly, but we are sure our online ordering and POS partners are. We are even hearing plenty of talk of Bitcoin these days with our POS partners. So yes, that is absolutely the case.

George Mihalos:             Great, great. Appreciate that color. And with that, I’ll turn it over to Andrew to wrap up the conversation.

Andrew Charles:             George, thank you so much. And Chad, thanks so much as well for your time. Just given it’s Checkmate has obviously some terrific finger on the pulse around the third party delivery market. Just curious what you’re seeing in terms of recent third-party delivery trends. I mean, we definitely saw there was an acceleration in the industry after the initial pantry loading at the end of March, that obviously came in strong with an acceleration in third party delivery trends in April. How did that end the year? Typically, seasonally we see there’s a little bit of stronger sales for third-party delivery in the fourth quarter. And also curious, just into January as well, what you’re observing here.

Chad Horn:                      Yeah, Andrew, absolutely. So looking at our customer base while average same store delivery sales are up … Actually just the several, I’d say somewhere between five and seven percentage points in Q4. The number of customers that are newly signing up for delivery platforms that we have visibility into is just as high as it was the quarter before. And I find this very encouraging that despite the rapidly expanding options for consumers, for where they go for restaurant delivery, that restaurants are still able to grow their delivery sales. That’s what we’re seeing.

Andrew Charles:             So you’re seeing new consumers coming into the platform, similar what you saw in third quarter, but maybe just the usage of consumers within those platforms. Is that also increasing as well, besides new platforms growing?

Chad Horn:                      Yes. Overall, delivery sales are up in the fourth quarter 5 to 7%, from our view into the industry, which is over annualized is a pretty good continued growth in the industry. And at the same time, we’re seeing a ton of new entrance restaurant-wise into the space as well. So that increased competition hasn’t diminished in store sales. So we’re still seeing a considerable growth at all levels into the space.

Andrew Charles:             Great Chad, that’s helpful. And then, just curious, as you guys look out to 2021, what is Checkmate’s view just on the amount of restaurant delivery sales growth we can see versus 2020? You know, I recognize that in the first quarter, you’re going to see a relatively easy comparison, but as you think about 2020, maybe first half versus second half, how are you thinking about restaurant delivery sales? Do you think they can go up, down, sideways? What are your thoughts?

Chad Horn:                      Up, and way up, in fact. Again, so many restaurants are still at the beginning of executing their digital strategies. And on top of that, 2021 we’ll see a slew of new delivery-only virtual brands, some of which will be very big. You couple that with the increased investments, delivery and ordering platforms are making easier consumer experience, that just makes that the preferred channel for so many Americans. It’s hard to see 2021 not continuing the growth that was started last year.

Andrew Charles:             That’s helpful. And just my last question. From restaurant’s perspective, perhaps the best output of digital ordering is the data that they are able to collect associated with that. And so I’m curious what you guys are seeing around how you think restaurant companies that have seen the boost in digital ordering in 2020, will use that associated data to make more actionable decision-making in 2021 to help drive sales growth in one-to-one marketing.

Chad Horn:                      I don’t know how transformational 2021 will be in this regard. Gross sales numbers will still likely do the majority of the heavy lifting when it comes to data that is actioned, which always hides important details. However, many of our POS partners are making it easier for restaurants to find actionable insights in their digital sales data, as a result of more customers segmenting their different digital channels in the point of sale. So it’s likely you’ll see more than a small minority of restaurants figuring out important things that they wouldn’t have before, such as their average beverage sale on DoorDash is 20% higher than ChowNow. And then also being able to figure out why and to fix it.

Andrew Charles:             Chad, that’s super helpful and informative. Thank you. George. Let me pass it back to you.

George Mihalos:             I think we’ve reached the end of our conversation here. Again, just want to thank Chad Horn from It’s a Checkmate a lot, really appreciate all those real world perspectives and thank you everyone for tuning in, and don’t forget to check out the report.

Audio:                              Thanks for joining us. Stay tuned for the next episode of Cowen insights.

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