Tech Check is a regular column on restaurant technology by Senior Editor Joe Guszkowski. It's also a newsletter.
Three of the industry’s biggest tech suppliers got smaller this week, bringing the pandemic-era tech boom to a painful close.
We are not surprised. Boom and bust is a tale as old as time, albeit one that we never seem to learn from. And yet this particularly loud crash should signal to the entire industry that more responsible growth is needed.
To recap:
Nextbite, a pioneer of virtual restaurant brands, split itself in two and sold both parts, less than a month after laying off a large portion of its staff.
Grubhub, the restaurant delivery app, laid off 400 people, citing high costs and the need for a new strategy.
And Olo, the ubiquitous online ordering provider, laid off 81 as it reorganizes its business.
All three companies have contributed to and benefited from restaurants’ digital revolution. When online ordering and delivery exploded early in the pandemic, so did they. Nextbite raised $120 million, Grubhub sold for $7.3 billion and Olo went public for about $450 million.
At the time, the online frontier seemed to stretch as far as the eye could see. Three years later, all three are scaling back, even as they insist that there is plenty of ground left to cover.
So what happened? To put it simply, growth led to funding, which led to even more growth. The companies hired and acquired and eventually began to outpace demand. Factor in inflation, rising interest rates and a possible recession, and the math just stopped working.
Nextbite, for instance, tripled its headcount in 2021, the year of its nine-digit fundraise. It has been through at least three rounds of layoffs since.
Olo bought a customer data company and launched a payments division. Both were opportunities to grow, but they also made the business more complicated and costly.
Grubhub has struggled compared to its delivery competitors, but is nonetheless doing more business now than it was in 2019. Its costs, however, have grown even faster.
All three are now paying the price in the form of layoffs and overhauls.
The same thing is happening at other tech companies. According to the site Layoffs.fyi, more than 200,000 tech workers have lost their jobs this year, including at giants like Google and Amazon.
In a January message announcing 12,000 layoffs, Google CEO Sundar Pichai summed it up nicely: “Over the past two years we’ve seen periods of dramatic growth,” he wrote. “To match and fuel that growth, we hired for a different economic reality than the one we face today.”
Google of all places should have seen this coming. Bubbles always burst, and it has been through a few. But dollar signs can have a way of blurring one's vision.
Fortunately for restaurant tech, this is far from the end of the story, as difficult as it must be for those companies and the employees who lost their jobs.
The thing is, I actually agree with Olo and Grubhub and Nextbite when they talk about the opportunity that lies ahead. Restaurants are in the early stages of their digital transformation. There is still a lot of innovation and growth to be done.
But to get there, restaurants will need partners they can depend on to at the very least still be around in a few years. And as we’ve learned this week, growth at all costs is not a shortcut to longevity.