Why investors are pouring billions into restaurant technology

• Facebook
• Twitter
• LinkedIn

How hot is restaurant technology right now?

Well, in the first half of 2021, one provider (Olo) has gone public with a $450 million IPO, and another (Toast) is said to be planning one.

Eye-catching names like Mark Cuban, The Jonas Brothers and Ron Shaich are investing in the space.

And, in total, more than $3 billion has flowed into restaurant tech companies, from both private equity and acquisitions, since January. 

That is according to a Restaurant Business analysis of the most notable deals this year. At least 50 tech companies that revolve solely or partially around restaurants have gotten funding or been gobbled up by bigger providers, in deals ranging from Uber Eats’ $1 billion acquisition of alcohol delivery service Drizly down to Cartwheel’s $1 million seed round, led by Portillo’s. 

That’s a pace of about two funding infusions or acquisitions per week, in an industry that has long been known as a technological laggard.

“I’ve talked to investors that have said they’ve deployed more capital in the last 12 months than in any other previous 12-month time span,” said Greg Weisstein, founder and CEO of Promenade, which raised $11 million in February for its ecommerce platforms focused on pizza restaurants, liquor stores and flower shops. 

Restaurant technology funding, 2021

There are multiple forces driving this surge of activity. Delivery companies that saw sales soar during the pandemic are now consolidating as they shift their focus to profitability. Legacy tech providers are acquiring smaller companies to broaden their services. But the biggest factor is that the entire industry has awakened to the fact that technology is a necessity, an epiphany brought about by one big event: the coronavirus pandemic. 

“Before COVID, our No. 1 competitor was inertia,” said Brendan Sweeney, CEO and co-founder of Popmenu, an ecommerce platform that raised $65 million this month. Before the pandemic, he said, a majority of Popmenu’s prospective clients that chose not to sign on said it was because things were already going well for them—they didn’t want to disrupt that by adding new technology. 

“COVID just ripped that band-aid off,” Sweeney said. “You actually have to use technology to survive now—right now.”

That urgency has expanded tech companies’ addressable market beyond just big chains to include small- and medium-sized businesses and even single-unit mom and pops. Investors’ increasing interest in the space is a reflection of that.

“There’s been a reluctance, I think, for tech to even invest in the restaurant space, because you already have such low profit margins,” said Lauren Silberman, restaurant analyst with Credit Suisse. “What you’re seeing is a change in the industry perspective of a necessity to invest in more technology across the industry, whether you’re small or large.” 

“I really think we’re in another wave of digitization in the restaurant space.” —Dan Wegiel, Onosys

Indeed, the most fertile area for growth in restaurant technology appears to be in the middle. Think chains with between 100 and 500 units that might be working with a patchwork of providers or homegrown technology and looking to streamline, said Dan Wegiel, a former EVP for Panera Bread who is now on the board of digital ordering company Onosys. 

In the U.S., there are about 150 restaurant brands accounting for more than 34,000 locations that fit that description, according to Technomic’s list of the top 500 highest-grossing restaurant chains.

“You had your first wave of some big movers, followed by some of the bigger tech platforms,” he said. “And now you still have a lot of restaurants out there who really have none of their own infrastructure.” At most, they might be working with a third-party aggregator like DoorDash or Uber Eats, an arrangement that comes with high fees and little control over customer data. 

Many of them likely came aboard out of necessity during the pandemic but are now re-evaluating their options, said Melissa Wilson, principal with Technomic.

“People are stepping back and looking at those integration opportunities” beyond the aggregators, she said.

What all of that has amounted to is a “generational replatforming of an entire industry” that is still in its early stages, said Sweeney of Popmenu. In looking at restaurants' tech stacks over the last six months, he said, the company discovered 15% to 20% of them don't even have a website, let alone online ordering.

“First-party tools, and especially for SMBs ... that wasn't there before, and now there's real enthusiasm for it,” he said.

“I really think we’re in another wave of digitization in the restaurant space,” Wegiel said.

At the crest of that wave are companies that focus on helping restaurants generate and process first-party online orders—broadly categorized here as ecommerce. They have been the biggest winners in terms of funding in 2021, receiving more than $1.2 billion so far, more than any other category, according to RB’s analysis. 

Slicing up the $3B restaurant tech pie

Olo, which focuses on large chains, led the way with its $450 million IPO in March. But others that are built for small chains and/or independents—SpotOn ($125 million), Popmenu ($65 million) and Slice ($40 million), for instance—have also seen a lot of action as operators (and investors) begin to see their value.

“A lot of these mom and pops were reluctant to engage with aggregator platforms,” Silberman of Credit Suisse said. “It makes more economical sense to engage with these [first-party] tech providers.”

She pointed to Slice, which offers technology for independent pizzerias, as one example of that.

“There’s more demand for a Slice,” she said.

Toast, founded in 2012, was the pioneer in providing first-party ordering and payment tools for smaller restaurants. And yet Sweeney said that almost all of the venture capitalists Popmenu talked to during its recent funding round told him they had passed on the chance to invest in Toast.

Now they’re saying: “‘OK, we believe now, and so who looks the most like Toast?’ ” he said.  

“The other piece which is interesting is just being able to generate synergies by combining platforms.” —Lauren Silberman, Credit Suisse

The other big winner has been delivery providers and companies that provide technology around the service. That group has been on the receiving end of more than $1 billion so far this year—and that’s not even counting robot delivery, drones or Just Eat Takeaway’s $7.3 billion acquisition of Grubhub. 

Most of that has come in the form of consolidation. Uber Eats bought Drizly for $1 billion to add to its growing suite of verticals; the small Waitr absorbed the even smaller Delivery Dudes for $23 million; and DoorDash bought salad-making robot company Chowbotics for an undisclosed sum. 

“The other piece which is interesting is just being able to generate synergies by combining platforms at this point,” said Silberman. She said the big delivery companies have likely peaked in terms of sales after a huge year in 2020, and are now focusing more on generating a profit by offering a variety of services beyond food delivery.

Robot delivery also saw a flurry of funding: Four different companies raised a total of more than $21 million, with Chipotle and Uber among the notable investors. But robots delivering food is a long way from going mainstream, Silberman said, despite recent tests from big chains like Domino’s and Chick-fil-A.

“I certainly think that these are futuristic. I don’t think it’s anything near-term,” she said. “I just don’t think that the tech is there or the regulations are there.”