New! Buy a Slice with Slice

Part two of a special two-part Expedite today.

This is the second part of a special two-part edition of Expedite. ICYMI, more news and thoughts on what DoorDash is up to here.

Ilir Sela is CEO of Slice, a company (and app) that digitizes ordering at small to medium pizzerias. Since its inception a decade ago, Slice has honed in on the pizza industry, a niche market at first glance. But the domestic pizza industry is close to a $50 billion market, a significant portion of which comes from small and medium businesses. As part of a recent initiative, Slice gave 100 SMPBs [that’s small to medium pizza businesses] $15,000 each in technology, marketing, and branding support to help digitize. It’s a small investment in a huge market, but Sela said it’s helped some early recipients earn triple-digit growth in digital volume.

Now, Slice is changing its fee structure to encourage more buy-in. Here’s part of my recent conversation with Sela about the change and the industry at large. (Interview has been edited for length and clarity.)

Expedite: You’re introducing a big change to your fee structure. Can you explain what’s new?

Ilir Sela: We have a merchant-friendly best-in-class fee structure that is designed to be incredibly fair for the small business and allow them to participate in the upside of the digital economy. We’ve decided that for November 1 and beyond to eliminate even this fee — which is $2.25 per order for all orders below $10 [1]. Our goal is to digitally transform these small businesses and really get to the point where you see some of the big chains — like Domino’s, they’re at 75 percent of their volume is digital. In order for us to continue to incentivize small businesses to adopt technology, we want to find ways to continue to lower the cost of them participating in that solution.

Are restaurants currently passing these small order fees to customers? [2]

No, we have very clear data. In order to mitigate the cost of this low order fee a lot of our partners set up order minimums. Let’s call it order minimums of $10 or $15. What that did was box out consumers who are ordering for themselves. Let’s say someone is looking to place an order for $7 or $8 and they’re not able to do that through digital channels instead they’re having to pick up the phone and call.[3] That goes counter to what the small business really needs in order to become more efficient and more successful.

What's the average order size now?

We’re right around $34 per order and we’ve processed tens of millions of orders. The number continues to go up because of our product team’s effort creating upselling moments throughout the experience.

That’s where I was going. High average order size is a metric of success in the ordering and delivery industry right now [4]. Are you worried about average order size decreasing?

Nope, I’m not concerned at all. In fact, what we see is that reducing order minimums increases conversion [5] but the reality is that the consumer will still end up in the $30 range overall.[6] It’s more of a mental barrier than it is anything else. That’s not to say you won’t have more consumers ordering [at lower total prices] but the reality is an order minimum is also a detractor for those high average order values. [7]

So can you use Slice to order a Slice?

As of November 1st you’ll be able to! If you're able to order a cup of coffee using Starbucks mobile order [8] you should be able to order any item from a local small business in the same way.

What do you think about the state of third party delivery right now?

There’s a foundational difference between our business model and third party delivery. Our goal is to be the first-party solution for small business pizza restaurants nationwide and digitally transform these locations by offering an end-to-end platform. That doesn’t mean there’s no room for third party delivery in the space. What’s really important for small business owners to keep in mind is what is the real value that these platforms bring, but also where they can become really detrimental to the business. These aggregators are designed to generate new incremental demand, new customers for small business. They’re not designed to be used as first-party digital solutions. Where businesses get in trouble is where they leverage Grubhub or DoorDash to digitize their business. The reason that doesn’t work is because of the economics of those business models. DoorDash will charge 30 percent per order, for example, and the reason they’re charging that is because they’re providing new customers. And new customers, I would argue, are probably worth 30 percent an order. But not if that customer starts recognizing DoorDash as the primary channel for a small business. [9]

Well, third party channels market themselves in that manner to small businesses.

That’s the challenge. Their pitch to small businesses is: we’re going to bring you new customers. And then their pitch to consumers is: use our platform for all of your orders. And that’s where the friction exists — and it’s a little unfortunate— but our focus is solving these pain points for small businesses and that means that they don't necessarily need four others players to solve their digital challenges and opportunities.

[1] This fee is for the restaurant to pay.

[2] “Pass the fees to consumers” is a popular refrain right now.

[3] AHHHHHHHHHH not the phone!

[4] In calls with investors, executives at third party delivery companies have touted higher than previous order size increases during the pandemic. In a commission model, bigger baskets = a higher take rate.

[5] More people are doing it.

[6] So really it’s Slice for way more than ordering just a Slice.

[7] v interesting

[8] Aha, there it is. The massive success of Starbucks’ mobile ordering and app and rewards programs are held up as a gold standard in the industry. Starbucks has effectively normalized digital ordering for small purchases.

[9] See part one of today’s newsletter for all the ways DoorDash is encouraging consumers to recognize itself as a primary ordering channel for a small restaurant business.

Expedite is produced by Kristen Hawley in San Francisco. If you find this information valuable or even mildly entertaining please consider upgrading to a paid subscription to support my work.