Olo Wants to Help Restaurants Build a Digital Powerhouse

Olo believes there are distinct advantages to using its platform that operators can’t find anywhere else.

A robust database filled with customer information is the new currency of the restaurant industry, says Olo CEO Noah Glass. Proper use of data and recognition of high lifetime value guests is going to separate winners and losers in the post-pandemic future.

Wingstop, which has a longstanding mission of digitizing every transaction, understands that path as much as anyone. Three years ago, the fast casual decided to take ownership of this journey and spend $50 million to create a proprietary tech stack instead of continuing to use Olo’s services. CEO Michael Skipworth told investors in November the initiative serves two purposes—to protect the company’s $2 billion digital business and better leverage its database of 35 million users. Wingstop is now in a pilot phase in restaurants, with an anticipated launch in Q2 2024.

Glass says more digitization is the right strategy, but that the “homegrown tactic” of getting there is incorrect. He emphasizes that the $50 million price tag isn’t a one-time cost. A platform like this requires maintenance, or as Glass puts it, “You don’t just buy the car. You got to put gas in it.” If every one of Olo’s 600 restaurant brands were to spend $50 million, that would be $30 billion. Meanwhile, Olo’s revenue is under $300 million. This hypothetical demonstrates “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. No matter what the scale is, SaaS is a more efficient way of going about this than homegrown,” Glass told investors in November. For all of its food and beverage customers, the tech company spends $90 million every year as an ongoing investment to keep its platform reliable, secure, and fast.

“That is also an investment that we make in innovation to meet the needs of restaurant customers, restaurant guests,” Glass says. “So losing out on that and losing out on the 300 integrated technology partners that plug into our platform, I think is also something that speaks to why the platform not only makes economic sense but makes innovation sense for a brand. I think that really has been the main reason that Olo wanted to go public years ago and show restaurant brands that they can utilize our platform and the benefits of the economies of scale of a platform like ours and the innovation platform like ours as a mission-critical part of their business.”

Overall, the trend is for restaurants to do the opposite, meaning a move from proprietary to Olo. Glass says there have been 11 examples of that since the company went public in March 2021. Additionally, Olo posted a net revenue retention rate of 119 percent in Q3, which illustrates that brands are working with it more than they did in 2022. Glass says it’s worth noting that Wingstop decided to make this investment well before Olo filed an IPO. This was also before the company had its Engaged Product Suite, which assists chains with marketing personalization. Or its Borderless feature that allows customers to create one online ordering account and use it for any partnering restaurants that are using the component.

Reading through Wingstop’s comments on wanting to protect its digital business and thinking back three years ago to when Olo didn’t have as many capabilities, Glass doesn’t blame the fast casual for going this route. He acknowledges that Wingstop—doing a majority of sales through a digital platform—was justifiably fearful of whether Olo would stick around for the long term or if it would get acquired. Especially since there wasn’t as much transparency into Olo’s financial health. That’s why the IPO was such a significant turning point for the chain.

“We’ve got to become a public company. We’ve got to commit to being an open platform,” says Glass, recalling Olo’s mindset a few years ago. “We’ve got to show that we’re a profitable business with a strong balance sheet and we’re going to be here for the long term because the arguments on the other side—the economies of scale and the innovation that comes through a platform like ours—are so compelling if you can get over that concern. And three years ago that wasn’t the case.”

Although Wingstop has moved on, Olo is making connections elsewhere. In Q3, the company established a parent-level partnership with FAT Brands that includes Order and Pay suites and Borderless. Additionally, several chains in Olo’s emerging enterprise segment deployed four or more product modules, examples being GSR Brands, La Madeleine, Lou Malnati’s, and Margaritaville Restaurants.

Across the industry, Glass has seen consumers trade down for value-oriented concepts and move from expensive delivery channels to takeout. The counter to that is the growth of catering, where Olo is seeing roughly $350 in average order value. The executive says this bodes well for restaurants looking to establish direct relationships with customers. One of the company’s newest features is Catering+, which allows high-frequency consumers to place orders using a line of credit.

“I attribute [the growth of catering] to a lot of offices wanting to get their employees back in the office,” Glass says. “Food is a great way of doing that. I internally joke, food is the way to a man’s heart. Food is the way to an employee’s desk chair, apparently. It’s getting people back into the office, and these big orders are awesome in the environment where maybe the delivery business has maybe slowed a bit.”

Olo is also making headway with card-present processing. In Q3, the company began processing card-present transactions through a second kiosk partner. In the fourth quarter, it expects to have card-present live in all locations of an “emerging enterprise fast-casual brand.” Because non-digital transactions mix more than 80 percent, the brand foresees card-present to be an additional growth driver as chains cycle through existing multi-year legacy payment processing relationships.

During the third quarter, Olo’s revenue increased 22 percent year-over-year to $57.8 million. Roughly 78,000 locations were using its platform, up 1,000 compared to the year-ago period. Net loss was $11.8 million or $0.07 per share, versus a net loss of $14.6 million or $0.09 per share a year ago.

more

Leave a comment

Your email address will not be published. Required fields are marked *