Tech Check is a regular column on restaurant technology by Senior Editor Joe Guszkowski. It's also a newsletter.
As a restaurant, is it better to build your technology yourself or buy it from a vendor?
The long-running debate was reignited this week by Wingstop, which said it has spent the past three years developing a homegrown tech system called My Wingstop. The tech is designed to strengthen its $2 billion digital business and enable “hyper personalization” that will help it attract and retain customers and get them to visit more often.
In theory, those are two great reasons to build your own system, especially if you are a big, digital-first brand like Wingstop. But the decision also carries a lot of risks.
First and foremost, doing this kind of thing is expensive, often prohibitively so. To put that into perspective, here’s Noah Glass, CEO of Olo, the tech supplier Wingstop is spurning for its in-house system. Glass says it better than I could:
“Wingstop has communicated that they had spent $50 million already, and that's just a down payment on a homegrown software platform. Olo spends $90 million annually to maintain our platform and to innovate to meet the needs of our customers and their guests. Holding aside that ongoing expense, if you think about 600 brands each paying $50 million … that would be $30 billion. If you think about Olo revenue, that's under $300 million. So it's a 100:1 ratio.
“That is a case study in the economies of scale of a SaaS platform. That's not a belief. That's not even a judgment. That's just math.”
Wingstop said My Wingstop will be "cost neutral," with ongoing costs being paid by franchisees. "Ultimately, we think this is something that will just further enhance their unit economics over the long term," CEO Michael Skipworth told investors last week.
But there are other, more philosophical costs to behaving as both a restaurant company and a tech company. There’s a chance the tech takes focus off the food, or vice versa, and you end up neither a tech company or a restaurant but some godforsaken amalgamation like Jeff Goldbum’s character in “The Fly.”
So there’s a reason Olo and roughly a billion other restaurant tech vendors exist: Software is hard and often best left to the experts. As Glass pointed out, it’s rare for a restaurant to leave Olo. “Far more frequently, we see brands migrate from homegrown tech to Olo,” he said.
That’s worth underlining: The road to tech nirvana is littered with brands that tried to do it themselves and gave up.
Take Burger King, for instance. An investor letter published this week by hedge fund Greenhaven Road Capital tells the story of the burger chain’s decision to use PAR as its new POS supplier. (Greenhaven has a big position in PAR.)
Before it made the leap to PAR, Greenhaven writes, BK was intent on weaving together its own tech stack. It hired McDonald’s former CIO and more than 100 software engineers. Alas, “in the end, senior management did not think this was enough and decided to pivot,” the investor writes.
To repeat: An experienced CIO and hundreds of developers was not enough to support an in-house solution at Burger King, so it went looking for a third-party partner. That shows you what Wingstop is up against here.
I do not know how many engineers Wingstop has hired. I do know that its chief technology officer, Stacy Peterson, left last November to become CEO of Jeni’s Ice Cream, and that she has apparently not been replaced yet. So who is steering this massive IT undertaking for Wingstop? It’s a bit concerning.
All of that being said: I can understand why Wingstop is doing this. It has long said it wants to become a 100% digital brand, meaning every order comes through a digital channel. It’s already at nearly 67%. Digital is part of Wingstop’s DNA, so it makes total sense to want to own and differentiate that part of the business. Yes, it might cost more, but if it works, the results could more than make up for it.
“We think it’s something that’s going to be a step change or even an unlock as we continue to advance our digital transformation and expand our digital business,” Skipworth said.
It’s not the only company to hit on this idea, by the way. Yum Brands shares Wingstop’s 100% digital goal, and it has taken a somewhat similar approach to achieving it. Though it isn’t building its tech from whole cloth, it has been acquiring tech companies like Dragontail and Tictuk that give it a de facto homemade product. So despite the costs and the risks, tech-first chains see value in striking out on their own.
Here’s what I can’t quite figure out: Wingstop has been one of the industry’s most successful companies both during the pandemic and since. Last quarter, same-store sales rose an incredible 15.3%, almost entirely on traffic. As I mentioned, it is already well on its way to 100% digital transactions.
Its tech partners deserve at least some credit for this. Since launching Olo in 2020, Wingstop has been a digital juggernaut. Why fix what isn’t broken? I guess we’ll find out when My Wingstop debuts in April.