Can restaurant payment startups survive the market slowdown and rise in food costs?
There is a popular chain of Italian restaurants in Europe that is owned and operated by a French company that kickstarted a revolution in how its customers order and pay for their meals while dining in. The Big Mamma restaurant group made use of the humble QR code to allow its customers to access the restaurant’s menu, and pay or split the bill directly at the table, using their own smartphones without the need for card machines – cutting back waiting times, resulting in quicker table turnover and higher tips for waiting staff.
The service proved so successful, the restaurant group spun it out as a startup called Sunday, selling the platform to restaurants across Europe, securing $124 million in investment within just five months of its launch. Sunday quickly expanded to seven markets in Europe and Canada, amassing thousands of clients and was set on a path to further global expansion. But the current global climate halted these plans and the company has pulled out of four markets, citing investor hesitancy as a cause for its downsizing.
Shortly after Sunday’s launch in April 2021, several startups in the UAE began to offer in-dining payment solutions. There are currently six main players in the space - Chatfood, Qlub, Timbl, Spades, Eat App and Opaala. The best funded among them is Qlub, which raised $17 million in a Seed round back in January this year.
“Sunday proved the concept, and solved the problem for restaurants of reducing table waiting times, the freedom for customers to leave whenever they want to, making the bill payment as seamless as possible,” says John Mady, managing director at Qlub. “Covid helped to accelerate this quite a lot. Three years ago there were no QR codes, but with contactless solutions, it became an acceptable norm, even in fine-dining restaurants.”
The pandemic altered consumer habits and expectations, particularly in the food and beverage (F&B) sector. The simplicity and ease of ordering food online and the speed with which it is delivered, highlighted to consumers the advantages of digitisation and the efficiencies it brings, something that many consumers now expect offline.
“You can chauffeur your food to your front door, why on earth do I have to wait for a waiter to get me the bill, a process that can take 20 minutes,” says Ed Tucker, co-founder of Timbl, which has been built as a Web3 platform, utilising data and digital tokens to offer market analysis and benchmarking to its clients.
As consumers have headed back to restaurants, there is a pressure on restaurant operators to offer more of an experience. UAE-based Chatfood, founded in 2018 by Benjamin Mouflard and Vinicius Rodrigues as a SaaS platform that enables consumers to order directly from a restaurant’s website or social media channels, added in-dining ordering and payments as an additional feature for its clients.
“Restaurants need to provide an upgraded experience for their customers, and that can only be omnichannel because it’s the same customer that sometimes orders for delivery and sometimes comes to the restaurant,” says Ben Mouflard. “They’re used to fast convenience, this is what they want when they come into the restaurant.”
ChatFood recently raised $3 million in a bridge round led by Antler to expand to Saudi Arabia and grow its QR ordering system which has been able to deliver 35 per cent higher average spend per customer, 3x more tips, and 25 per cent more labour efficiency. The company recently interviewed more than 1000 consumers who ordered or paid through its QR ordering system and 75 per cent said they preferred this method of payment, an amount that rises to 87 per cent for those aged 18-34.
“The new generation wants to be in control. They want convenience, speed and personalisation. When well-integrated within the restaurant operations, it drives big results. Thirty-four per cent of bills leads to reviews proving great insights for restaurants on what to improve,” says Mouflard.
Convenience or data?
According to Tucker, in-dining payment solutions result in higher table turnover and saves the restaurant six minutes per table. More than 75 per cent of all transactions include staff tips, but the true value of these solutions lies not in the convenience factor, but in the data they collect.
“What is the reason to do fast payments, is it just slightly quicker turnover or to increase tips? Anyone can do that, it’s not really a business. The opportunity is to capture that data and have it at your fingertips to make decisions,” he says.
We spent a lot of time in the F&B space in the region and one thing that kept coming up was that merchants do not know who their customers are, which means not having access to making good decisions. That was the inspiration for Timbl,” says Tucker. “We see it as an opportunity for merchants to provide a better customer experience and make changes to their business. This isn't about cutting costs, this is about making decisions that create a competitive advantage.”
Restaurants already have access to a lot of transaction data through their point of sale (POS) systems, but this lacks the individualisation that these apps can offer.
“Tying the transactions to individuals helps to map out who your audience is and what their consumption and visit patterns are like. The intelligence segmentation on this dataset will enable you to identify who your most loyal and valuable customer is,” says Tucker, who believes this can help restaurants identify similar, high-value customers.
Collating a customer’s orders, preferences and dining frequency can help to offer a more personalised approach according to Mouflard. In the future, menus will no longer be static, but can be adapted to each customer’s preferences or dietary requirements.
“In the future, you will have a personalised experience as a customer, everyone will have a different menu depending on what they like,” he says.
A crowded race
One of the biggest challenges facing these startups is the fragmented nature of the payment gateway and POS landscape in the region. Integrating their solutions to such a wide array of systems is costly and requires a strong tech team to build the product.
“The POS market is very fragmented, there are more than 100 POS systems,” says Mehdi Chraibi, co-founder of Spades. “We’re focused on integrating with the top 20 that appeals to 70 per cent of the dining market.”
With these six startups offering dine-in payments in the UAE alone, the space is already overcrowded. The need to diversify and offer services beyond payment has become apparent as each player attempts to differentiate itself. As Tucker argues, “fast payments is a feature, it’s not a company”, and now, the POS companies are also taking note of faster checkout at the table.
Timbl’s solution can accept crypto payments and is looking to use NFTs as a base for loyalty programmes on its platform, while Chatfood offers both online and offline solutions to its clients. Spades is offering different payment options, including buy now pay later, while Opaala is building bespoke, personalised menus alongside in-dining payment, while Eat App, which was founded back in 2015 as a restaurant reservation platform also offers an in-dining payment solution.
The need to differentiate and evolve will only become more entrenched for each company. Competing on price, particularly by offering lower transaction fees to restaurants will result in a race to the bottom that can only be funded by VC capital, which is becoming increasingly difficult to access across the world. Like Sunday, these startups require cash to expand and operate. Over the past few months, VC investment slowed down in Mena, reaching its lowest levels so far this year in July, with just $105 million invested in the region’s startups.
“Now that the dine-in business is back, the need to digitise operations from a [restaurant] owner's standpoint might seem less strong, leading to a longer sales cycle,” says Mouflard. “When it comes to bill payment, some owners are not willing to pay more than card machine fees on each transaction. With digital payment being more expensive than card machine payment, this has led some companies such as Sunday to subsidise digital payments, accepting to lose money on every transaction. In a more challenging market, slower growth and negative unit economics is making valuations and access to capital more challenging leading companies to revise their growth plans.”
Meanwhile, the rise in food costs and inflation will eventually dampen consumer desire to eat out, putting all the players at risk, but this will present an opportunity for foodtech companies according to Mouflard.
“With increasing food costs and always more shortage of staff, the tides will change again and the need to unlock efficiencies using digital tools will become more pressing again. The key here is to be able to add more value than just speeding up the bill payment,” he adds. “Companies that can offer a 360 solution to restaurants covering all touch points, from delivery ordering, to dine-in ordering or dine-in payment, reviews, insights and marketing are able to unlock significant efficiencies with up to 25 per cent reduction in costs. Hence, making it worthwhile to pay for their services while helping hospitality businesses to create fantastic experiences for their guests at every meal and enabling them to sell more.”