Olo and Toast Share Opposing Reads of Our Industry’s Near-Term Future (Inflation)
For those of you who love the hospitality industry as much as we do, the recent performance of Toast and Olo represents an interesting view into the future of our industry. With recession knocking on our door and inflation as a persistent squatter, the food service industry is rewarding solutions that help operators address labor shortages and streamline operations as our complex market becomes even more challenging.
Both Toast and Olo went public in 2021, and their share prices have walked a similar path until recently. Over the last month, we have seen Toast's share price (NYSE: TOST) skyrocket 42%, while Olo (NYSE: OLO) took a brutal nose dive, with a 22.3% decrease.
During their recent earnings call, extremely interesting opposing views of the restaurant industry were shared. While Toast assured investors the restaurant industry is incredibly resilient in the face of inflation and an increasingly likely recession, Olo pointed to the same macro conditions to explain their lower forecast and creases in most of its critical KPIs (average revenue per user, or ARPU, and churn).
Before we dive into our own perspective of the industry and these two companies, we should disclose the nature of our “front row” seats. Today, BlueCart has 103,000+ restaurants; two of our services – BinWise and Revolution Ordering–integrate with the points of sales (POSs) of these restaurants, and Revolution Ordering is in direct competition with Olo. We process over $400M per year in B2B and B2C sales through our platform.
Over the last two years, since BlueCart acquired BinWise, the number of requests from restaurants asking us to change their POS integration into Toast has increased. In 2019, 5.8% of our restaurants used Toast’s POS, and today 21.1% use Toast’s POS. We rarely see a restaurant or restaurant group switching to a different POS provider.
We also just acquired Revolution Ordering, a platform that streamlines consumer marketplace orders directly into the POS of the restaurant. Like Olo, most of our clients are large enterprise accounts (Jason’s Deli, Golden Corral, Long John Silver’s), and Toast has just 5% of the market share within our clients. We also see how companies such as TouchBistro, who once looked like a major force to reckon with, are now barely present in our market segment.
Toast’s earnings call was full of optimism as they see how their solution continues to accelerate and eat up market shares from the legacy POSs. Furthermore, their solution aims to make restaurants more efficient in light of the labor shortage. We now see restaurants operating entirely with food runners and without waiters using Toast’s system.
Olo's earnings call painted a picture in stark contrast to Toast’s. They recently endured a 30%+ share price drop. Much of their performance was justified by pointing at the recession or inflation, but we do not see a similar trend in our Revolution Ordering platform. Our platform continues to grow consistently by offering additional services aimed at making restaurants more efficient operators, such as inventory management solutions, invoice payments, and menu costing.
At scale, a large enterprise account will develop a homegrown Olo-like solution or do direct integration with delivery services. Front-of-house (FOH) orders must communicate with back-of-house (BOH) inventory and procurement to address food waste and make our industry more resilient. Olo is pretty much a standalone platform that has no impact on BOH efficiencies.
As a result, restaurant chains such as Subway are leaving their platform. Others, such as Denny’s are actively seeking alternatives in the market. Additionally, Olo will soon face major headwinds from its patent exposure.
As they mentioned in their S1 (here), “We may be subject to claims by third parties of intellectual property infringement.” That is indeed the case. BlueCart now owns nine issued patents, including US Patent 11,049,084, Issued: June 29, 2021; which strengthens our portfolio and addresses lessons learned from past enforcement and will now allow us to enforce them again. Several of our patents, including this one, focus on the transfer of orders to the restaurant POS.
Finally, on the topic of inflation, given BlueCart’s scale, we recently participated in a ReFED webinar on the impact of inflation on food waste. As a result, we pulled data from our restaurants and mapped it against CPI data (Inflation in the Hospitality Industry). Our data seems to indicate that up to this point, wholesale food suppliers may have absorbed price increases and have not yet passed on these increases to our restaurants.
Tech solutions that drive efficiencies to address ongoing labor shortages and sociocultural fluctuations will continue to enjoy market gains. The labor shortage is the major challenge our industry faces today, so efficiency is a must.