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A new report from Square says that the pandemic expedited the adoption of cashless transactions by an order of magnitude. According to Square’s data, the shift away from consumer cash usage over the past year would have taken nearly three years without the pandemic. In fact, the share of cashless food and beverage businesses on Square more than doubled.
There have been plenty of restaurant changes during Covid that have felt more temporary than permanent. A move to outdoor dining, the increased popularity of takeout, maks, sanitizing, and social distance. Others have felt like a fast shift into the future, and I’d consider digital ordering and payment among those expedited operational shifts.
Pulling data from merchants on its platform, Square has found that over the last year, cash transactions have declined over 8 percent. It’s a marked decrease on an otherwise relatively straight downward slope beginning in 2015. At that time, just over half of transactions were cash. Now that number is closer to 30 percent in the U.S. (This is across industries, not exclusive to restaurants or even food and beverage.)
In April 2020, the share of cashless businesses on Square spiked. This happened across industries, but also in restaurants, where about 20 percent of businesses went cashless. That since settled into a more consistent 10-15 percent of food and beverage businesses over the last year.
That’s a lot of granular data to describe an overall trend, but it’s an important one. Plenty of municipalities including my hometown of San Francisco have banned cashless businesses out of concerns about accessibility, though many do advertise a cashless preference, especially during the pandemic.
“Food and bev businesses were some of the most directly impacted by the pandemic and corresponding shelter in place mandates. For this reason these are the sectors where we have seen some of the most dramatic changes in business operation,” Square’s chief economist, Felipe Chacon, said in an email. “We can expect restaurants that have been able to keep their doors open over the past year — by introducing online ordering and cashless payment options — will, for the most part, continue relying on these options once they are able to reopen fully post-pandemic.”
Square started as a cashless business, providing a way for anyone to accept credit or debit payments (remember the dongles!?) A technology platform built on digital payments sharing data that it’s facilitating… a higher percentage of digital payments may not be a surprising report. What’s perhaps more interesting is the shifting consumer sentiment and wider adoption. “Following the surge of businesses that moved online in the first couple months of the pandemic, the trend towards digitization continues to this day, indicating that the changes made out of necessity have become the norm as businesses continue to respond to customer expectations. Further, these alternative payment options will continue to be integrated into dine-in operations as time goes on, from permanent QR code menus, to fully online dine-in experiences,” Chacon said, noting also that even as dine-in business returns, consumer payment habits have permanently shifted with fewer cash payments, even among in-person transactions.
There’s also a ton of room for potential growth as ordering, payments, and loyalty are technologically tied together. In a completely separate survey, digital guest experience platform Paytronix found that 45 percent of independent restaurant customers’ monthly food spend is on orders placed online. Plus, consumers who order online spend upwards of 50 percent more than those who order in person.
Go big in a bubble?
Instacart has been rumored to be considering an IPO this year. A new report last week says we might need to wait until the end of the year for the company’s public debut — that is, when pandemic conditions have waned. According to The Information, “the company… recently discussed waiting until the fourth quarter for its stock market debut, or at least several months after the vast majority of American adults are expected to have been vaccinated against the Covid-19 virus, said two people with knowledge of the situation.”
A few weeks ago, Instacart raised another $265 million at a $39 billion valuation.
For many (all?) restaurant tech companies, the last year has been an abnormal year of growth and, in some cases, partial profits. Not sure how many times I’ve typed the phrase “DoorDash’s lone profitable quarter,” but just under a year ago, DoorDash experienced its lone profitable quarter thanks to pandemic tailwinds. Its stock popped on offer to a valuation well over $70 billion, but has since settled around $40 billion.
Meanwhile, the restaurant tech story of last week was Olo, which shattered its own expectations raising $450 million in its initial public offering after turning a profit in 2020 and visions of continued growth ahead.
But it’s possible that Instacart — and others — have gotten Americans hooked on convenience. According to one analyst quoted in a recent Insider piece, Instacart’s popularity among Costco shoppers is one indication of the company’s future promise. (Over 20 percent of orders placed on Instacart were at Costco (!) last year, according to the piece.) There’s real growth potential for Instacart beyond grocery, they say, especially with stores who have not yet built out their own proprietary systems.
I’m not a banker, and I’ll admit that I sometimes still grapple with sky-high valuations of companies who have only proven a profitable business during extremely favorable conditions. (Really looking to Uber Eats’ promise of 2021 profitability here…) But given the sheer amount of activity in the space (see more below) it’s hard to imagine that these companies that profit from an obsession with convenience won’t continue to go big after the vaccine rollout. That said, waiting until the vaccine rollout to actually prove this to investors could be a good strategy to set the stage for long-term market dominance. It’s the “I told you so,” I think.
What else is happening?
So.. maybe ghost kitchens aren’t dumb? Or are they? Grubstreet takes a potentially more nuanced look at the ghost kitchen, which I’d argue is always what the “ghost kitchen” category meant but perhaps that’s why we so badly need definitions. (I tried some last week.)
It seems maybe the writer is backtracking on their previous “ghost kitchens are dumb” piece that I recently disagreed with by talking to Nimbus, a ghost kitchen operation in Manhattan. It’s a cool model and it’s one worth watching, but it’s also not that different from what exists elsewhere. Anecdotal, but I talked to one Chicago independent restaurant months ago that launched out of a CloudKitchens location that allowed for pickup just like a storefront would. There are businesses that exist for efficiency’s sake, there are some that exist to launch nationwide brands. Others help incubate small operators, but all of them exist, in some way, to make money and all of them, whether intentionally or not, have grown thanks to pandemic reality.
I think that’s the problem with writing off something as dumb or not dumb or the future or not-the-future — it’s nuanced and dependent on any number of frequently changing factors that include anything from local and national governmental regulation to changing consumer behavior to our addictions to our mobile phones. It’s also worth noting that ghost kitchens existed before the pandemic and were already growing fast; the reason they suddenly seem to pop up everywhere is that now we’re forced to pay attention.
Indian food delivery company Zomato is rumored to be planning an April IPO in Mumbai. Bloomberg reports the company could look to raise as much as $650 million. The company’s most recent valuation was around $5.4 billion.
Deliveroo’s upcoming London IPO could value the company as high as $12.2 billion. According to CNBC, “Deliveroo will still be the largest tech IPO in Europe so far this year and the largest in Britain for a decade.”
GoPuff raised $1.15 billion at a $8.9 billion valuation. Axios describes GoPuff as a “Philadelphia-based instant delivery platform for everyday items” and a cross between DoorDash and Amazon.
Fridge No More raised $15.4 million in Series A funding for 15-minute grocery delivery in New York City. The service currently operates in just three Brooklyn neighborhoods. The company says it plans to scale up operations in the city before expanding on the east coast.
And don’t forget about Toast! We haven’t heard too much from the point-of-sale, payment processing company that’s continued to grow, but there’s still the expectation that it’s looking to IPO this year. Could that be coming soon?