Podcast
Podcast
- 11 Nov 2020
- Managing the Future of Work
Is survival on the post-Covid menu for restaurants?
Joe Fuller: According to the Bureau of Labor Statistics, the hospitality industry lost nearly 4 million jobs between February and October 2020. Food service has been particularly hard-hit by the Covid-19 pandemic, with nearly 100,000 restaurants nationwide facing long-term or permanent closure. Many changes over the last few months are likely to persist long term. Off-premise dining now accounts for 70 percent of restaurant revenue, and contactless payment is widespread. How will technology and automation transform restaurant operations and the nature of work in the industry? Toast, a restaurant software company, uses cloud-based technology to streamline operations, increase efficiency, and upgrade business models. Welcome to the Managing the Future of Work podcast from Harvard Business School. I’m your host, Harvard Business School professor and visiting fellow at the American Enterprise Institute, Joe Fuller. I’m joined today by Chris Comparato, CEO of Toast. In the last five years, Toast has transformed itself from a company offering a payments platform to one providing an integrated set of services to help restaurants be more competitive and profitable. Chris and I will discuss the industry’s response to the Covid-19 pandemic, how technology can address the short-term challenges facing the sector and improve its economics in the long term, and how the adoption of technology will affect work requirements in the future. Chris, welcome to the Managing the Future of Work podcast. Chris
Comparato: It’s great to be here.
Fuller: Chris, not many of our listeners will know Toast’s business model. Many of them are only patrons of the companies you serve. Could you give us a little background on the company and its evolution?
Comparato: Sure. So Toast was actually founded back in 2012. I joined the company at the start of 2015. But the founders of Toast and I had actually met back in 2006 at a company called Endeca. Endeca was a retail e-commerce platform focused on search. Essentially, we’re a restaurant technology platform. Restaurants are filled with entrepreneurs, artists, chefs who are creating these amazing experiences that we all love and enjoy. But yet, on the business model front, it’s an extremely difficult industry: low margins, high employee turnover, failure rates. So at Toast, our mission is to really help transform this industry so that it thrives in the future through a cloud-technology platform.
Fuller: What sort of offers that our listeners would recognize do you provide to support restauranteurs in their meeting their goals?
Comparato: One example is, it’s a core point of sale [POS] within the platform. So the core point of sale really enables the restaurant to drive commerce and to drive how orders come into the restaurant and go out of the restaurant and how people have this amazing hospitality experience. We also have tentacles into guest engagement. On-premise could be ordering within the restaurant and having a delightful dine-in experience; off-premise could be the ease in which guests place online orders or in which guests place orders through other third-party marketplaces to get orders into the restaurant. We also effect change on the employee front. So the employee experience is critical to the cloud platform and employee engagement—so not just clock in and clock out and schedule management for the employee, but also integrating their payroll into the platform so that employees have this seamless experience when it comes to how they work and how they get paid. So really, across the different stakeholders, we effect change to the positive. Even for the owner-operator, the simple task of having access to real-time information to see how their restaurant is doing. Maybe they want to change the menu. Maybe they want to change a price. Maybe they want to look at their supply and inventory levels.
Fuller: So you’re really affecting the front of the house, the operating side, in terms of sourcing food, inventory situations, food prep, the employee experience, the guest experience. It’s really kind of an integrated package.
Comparato: In many ways, we call it the concept of “new hospitality.” And new hospitality is all about technology, enabling these better guest experiences and these better employee experiences. Covid aside, the industry has been known for lower profit margins, people passionate about the work that they do. And how can we help this industry transform so that they’re driving better profit margins and better experiences to all of the key stakeholders in that environment?
Fuller: Well, certainly before Covid, the industry had a reputation for being pretty hard economically—a lot of churn in independent restaurants, and difficulty in people building a sustainable business model to match their creative capacity and their ability to put forward innovative formats for customers to enjoy. Now, Chris, we’ve all been both seeing in our lives, our day-to-day lives, and reading about the types of impact Covid has had on the restaurant industry, what has happened, and what have you done to respond, help your customers survive in this very challenging setting?
Comparato: Really when March hit, we saw restaurant volumes fall off the table, and we all had to adjust to this. So the restaurant community, itself, had to adapt. And we had to take a step back and say, “How do we lean in and help out as much as possible?” So, of course, ourselves, when your customer base is impacted by a crisis, you have to do as much scenario planning as possible. So we did our own set of scenario plans. But at the community level, we really thought about, how do we use our role to become advocates to help out the community? And we did that on a couple of fronts. Number one, we immediately published a website called Rally for Restaurants, and we pushed all of our data to that website so that, across the restaurant communities in the U.S., people could understand what type of impact was happening. So you could look at different markets, you could look at the percentage of Gross Merchandising Value [GMV] dropping. You could look at the percentage of off-premise dining versus on-premise dining. And that really became a tool that created awareness for different restaurant markets to see the impact that Covid was having. The second thing we did is, we started to lean into our position to be advocates for the community. And whether that means trying to help restaurants getting access to Paycheck Protection Programs [PPP] or whether it means driving more online ordering and gift cards into restaurants due to off-premise dining, but we tried to use our role as an advocate to push mechanisms that helped restaurants sort of navigate the early phase of Covid. The third thing that we started to do was really push as much product as possible that was digitally oriented to get more orders in the door to the average restaurant. So we launched three or four products that we felt were going to be impactful to help restaurants drive more off-premise ordering—so getting as many restaurants as possible to use online ordering, getting as many restaurants as possible to integrate with third-party delivery, getting as many restaurants as possible to think about the health and safety of how consumers in the future are going to have a payment experience for an on-premise dining experience. So we really pushed as much as possible the product roadmap to help restaurants navigate the new normal. And that was certainly very important for us to drive as much community advocacy as possible, offering credits and free software where possible to help restaurants navigate the financial situations that they were in.
Fuller: So as someone who has a very, very broad view of the sector in the United States, given that you are serving all sorts of different restaurants and are seeing differences regionally and in formats, how do you think this is all going to play out? We certainly read in the papers that they’re going to be continuing high rates of closure and dislocation in the sector. Are you bearish, bullish? What should we be looking for as key indicators of how the sector is faring?
Comparato: I would say, realistically, we’re braced for continued choppy waters ahead. Right now, for the restaurants that are running our platform, we see their business about 25 percent to 30 percent down year-over-year. So, certainly, that has an impact. We see about north of 50 percent of our restaurants doing north of 50 percent of their typical year-over-year GMV. But what it’s showing is that the restaurants that are operating are being incredibly resilient to, number one, drive top-line revenue into the restaurant, and then, number two, drive as much efficiency as possible on the bottom line. Last week, I was on a phone call with a restaurant in San Francisco who’s doing year-over-year similar top line, because he’s driven off-premise ordering really, really well. So take out curbside pickup and delivery, he’s really pushed the envelope on top line. But then he’s cut his costs 50 percent by leveraging tools and technologies that optimize his labor and his payroll. And what’s interesting about that is, he’s actually doing better in 2020 than he was in 2019. But that’s a very rare story. Restaurants in the northern states are trying to optimize their operations so that they could do as much off-premise dining as possible, and really increase that revenue through off-premise dining, while controlling their costs on the bottom line. Restaurants in the southern states will start to open up and perhaps open up their patio, open up their dining capacity so that they can maximize the on-premise dining and get more revenue in the door through on-premise dining. We’re hoping that these two different dimensions of north and south balance each other out. But in general, I think most restaurants are preparing for the winter months. The other thing that we’re doing is shouting from the mountain tops that Congress should pass a stimulus package that helps independent restaurants across the country have more access to stimulus to help them navigate the cost structures that they’re dealing with. We tend to be optimistic that restaurants are going to be incredibly creative to weather the storm and get through the winter and then come out on the other end, thriving. At the end of the day, we look forward to a time where restaurants are going to be thriving again, and we’re all back in restaurants having amazing experiences. I do think the off-premise component will continue, and that will be a little bit of a new normal that we see post-Covid.
Fuller: Chris, obviously at our Project on Managing the Future of Work at Harvard Business School, we’re really interested in the implications of change on both levels of employment and skills requirements. It sounds like you’re anticipating in the future the sector is going to be less manpower intensive, in part empowered by the types of technologies that Toast offers.
Comparato: I think we’re going to see stakeholders across the restaurant hopefully have more time available to do what they love because the operation within the restaurant is that much more efficient. So maybe doing what they love is spending more time with customers, right? Maybe, instead of keying in orders and going back and forth to a centralized legacy POS terminal, they can actually go table to table and consult with guests and spend more time with guests to educate them on the menu and the likes and dislikes based on that guest profile. Think about the waitstaff, itself—bartenders and waitstaff. The ability to turn tables faster, and the ability to share and split tips, and the ability to gain more revenue and gain more pay through the restaurant, itself, because that restaurant that’s running Toast is that much more efficient than the restaurant next door. The ability to spend time having data insights that help you drive your business more effectively. So when you think about analytics and reporting and understanding the health of your restaurant, do you have data insights that allow you to run a better restaurant than you’ve run in the past? So we think about what the platform can do to generate change for the positive. I will say that two out of three “Toasters” that work at Toast have been in the restaurant or come out of the restaurant industry. And for us, we feel that’s an important dimension of our culture, because our employees know for certain what some of these pain points are. And how can we drive innovation and solutions that really help these restaurant employees navigate the future? If you think about the employee experience and managing your schedule and your time and your labor, for years restaurants were having to export that data, clean it up, and then issue it to payroll. Where can we drive insights that make that experience a lot more seamless and allow the restaurant manager to save hours on a weekly basis, so that that process just happens, and it’s a natural story between schedule, labor management, and payroll?
Fuller: Chris, one of the things we’re interested in is how the evolution of processes in a company and the adoption of technologies changes skills requirements for both management and frontline workers. Are the adoptions of these technologies by restaurants going to require everyone from waitstaff to managers to have a different set of skills?
Comparato: I think there’s a set of skills that will be important, really, around the analytical capability of understanding data and understanding how data can then help you adapt to the environment that you’re operating within. So think about waitstaff. Technology could enable waitstaff to be more productive and turn more tables. Would there be notifications coming into waitstaff that allow the waitstaff to know what tables are ready to leave the restaurant and pay, or what tables are ready for their next course to fire, or ready to understand the guest that’s checking in and has a reservation, what are their likes and dislikes? So I think there’s going to be a level of information awareness that is made available to the average employee. And the skill set would be, “How do I make sure that I’m receiving this information in a simple and intuitive way, and I can actually do my job better, and I can actually enjoy my job better?” And I think that’s an interesting space to be operating within, where you’re not overwhelming a restaurant employee with data or information, but you’re making it simple and intuitive, to where they can do their job more effectively and benefit from doing that.
Fuller: So, Chris, many restaurants are facing at least cloudy skies over the choppy waters you were describing in terms of their financial viability in the short and intermediate term. What role does Toast play in terms of providing financial support or services to restaurants? And how do you see the industry evolving in the long term? If you were to paint a picture post-Covid—or at least back when there can be more service, as we traditionally think of it in restaurants—where do you think this crisis will cause the industry to end up?
Comparato: Ever since our early days, Toast as part of the platform processed all the payments that are flowing through the restaurant, itself. So that has been a critical piece of functionality since the early days. So a 100 percent of the restaurants that run Toast, we handle all of their payments volume. What that does for the restaurant is, it allows the restaurant to make one phone call, should they have questions about either software or finances. And that puts us in a strong position to provide a great customer experience to the restaurant, itself. I’d say it also allows us to innovate on top of those products. So a good example is, as we see the data that the merchant has control over and the data on their business, two years ago we decided to leverage that data to offer the restaurant another ability to seek capital or lending, since we have access to data that allows us to tell whether it would be an interesting restaurant to underwrite or an interesting restaurant to provide capital to. We launched Toast Capital as a way to, again, allow that restaurant to thrive and take out short-term lending that allows them to enhance their operation. The restaurant may want to winterize a patio, or they may want to rebuild their bar, or they may want to rebuild components of their kitchen. So we give them an easy way to seek capital and then pay off that loan through the payment stream over six to nine months. So that’s a compelling product for restaurants. And as we come out of Covid, that’s going to be an important piece to help the restaurant get back on their feet and invest back in the business. But if you start to think about the financial evolution of the restaurant itself, what are other means in which you can help that restaurant thrive? So a good example is, even in the payroll space, thinking about the ability to not just issue payroll on a weekly or bi-weekly basis, but think about the future of same-day pay. Maybe the employee is leaving the restaurant and chooses to receive their pay quickly versus waiting for the paycheck. Also think about the merchants, themselves, and how the merchant pays their bills, looking at future ways in which the merchant has an ease in which they pay their bills and pay their suppliers. So we’re looking at all aspects of how the restaurant operates. And how can we help the restaurant owner-operator optimize their finances so that they’re in a strong position to run their business? So there’s a few ideas that we are looking at in the future that would cover a wider picture of financial services to help that small business be successful. On the top-line front, how do we drive more revenue into the restaurant so that they have more top-line revenue? So think about the different ways in which restaurants receive orders. They receive orders through takeout, they receive orders through third-party delivery, they receive orders through online ordering, they receive orders within the restaurant, itself. So how can the merchant control that order flow and make sure that they can optimize those order flows based on the bandwidth of the kitchen and the restaurant, itself? How do they conduct email marketing? Can they campaign to their favorite customers and communicate with their favorite customers to come back into the restaurant at particular times and have a great experience? So everything in and around marketing in campaigns to their customer base and how they manage their CRM data. Think about the efficiency within the restaurant, itself. We launched two months ago the ability for guests to come into a restaurant, scan a QR code, access the menu, open up a tab, order off the menu, split a check, and exit the restaurant. That experience is healthy, it’s safe, it’s interactive. And I think that’s one component that will be part of the landscape of what will continue post-Covid. But can you offer this interactive guest experience, but then also allow the restaurant to be more efficient as guests pay and exit the restaurant? So I think there are many areas in the long term where this concept of new hospitality will really start to stick, and restaurants will really look to technology to adapt their guest experiences, but also adapt their employee experiences around these technologies. You can imagine with an order-and-pay-at-the-table experience, the waitstaff doesn’t have to go back and forth on that final payment and checkout, and really act as more of an adviser to the guests within the restaurant.
Fuller: So, Chris, let me put you on the spot. Let’s do a little bit of “a day in the life.” So five years from now, if I’m walking into a fine dining establishment that I like to frequent, walk me through the experience. How is it going to be different than the experience of eight, 10 years ago?
Comparato: So you may have received a notification or a nudge that your favorite meal or your favorite table or your favorite wine was being profiled. I’d say the second thing is, you come into the restaurant, and maybe the restaurant has a new level of hospitality experience that allows you to feel welcomed and feel like the restaurant actually knows you. And perhaps the waitstaff has access to information on a Toast Go device, which is our mobile device, that tells the waitstaff that, “Hey, Joe likes a fine red wine, and maybe he likes a particular special that’s on the menu tonight.” And the waitstaff is going to consult you on some of the choices that are in front of you. As you have your meal, perhaps your meal is so well timed that you feel like there’s a certain flow to how food is being delivered, and it’s uninterrupted, and it doesn’t feel like it’s ever on your mind, but it’s natural. And you’ve got this sort of beautiful meal experience with your guests, where perhaps you’re either adding to the order or receiving courses in a way that feels very natural. And then lastly, as you leave the restaurant, perhaps it’s this seamless experience, where the check is already taken care of, it has already been split two ways, and the payment has been made without you having to get out your credit card and go back and forth with the waitstaff on your payment. And perhaps as you leave the restaurant, you’re nudged with perhaps a promotion or a campaign to come again, or to provide a survey and feedback on your experience. Perhaps it’s feedback on the particular person that served you. And there’s a level of a feedback loop that’s interactive that allows the restaurant to really understand what was the guest experience like for Joe. Likewise, the employee also has a similar experience. And I’d argue the employee has this wonderful experience, where perhaps they’re on an employee app, the employee app tells them what their shift looks like, their employee app tells them what’s the volume going to look like? Who else is working with them? Could they trade their shift? Could they work extra hours if they wanted to earn a few more bucks? Maybe the employee has a wonderful experience within the restaurant, providing hospitality or cooking or bartending. Maybe the employee leaves the restaurant and is able to access their pay, is able to access their benefits. When you think of insurance and benefits, maybe the employee looks at working at this restaurant as really a great job and not something that’s temporary or part time, but it’s something that they meaningfully want to lean into, and they have a fantastic experience. And maybe the turnover for that restaurant is not 73 percent, but maybe the turnover for that restaurant is 25 percent, and that employee has been working at that restaurant for over 10 years. So we can go through these different stakeholders, but I think we view a future where in five years, not only are we having these fantastic food experiences and hospitality experiences, but the stakeholders within the ecosystem love it and can thrive in a future. And pieces of our technology enable that opportunity.
Fuller: Well, Chris, that’s a very exciting vision of how hospitality will work in the future. And I’m sure we all are hoping that not only that that will come about as you described it, but that our ability to go back to our favorite restaurants and explore new ones will be restored in the not-too-distant future, so we can enjoy a little bit more of life as we knew it and like to enjoy it and can support our local establishments.
Comparato: Yeah, I think that’s what drives us. And we’re excited about that. Like I said earlier, I recognize that we’re still in the midst of the Covid pandemic, but I am pretty confident that, over time, we’re going to be back in restaurants, enjoying our favorite meals. Maybe we’ll be doing it a little bit more takeout and off-premise, but we’re still going to be enjoying great meals from great entrepreneurs, great chefs. And the industry is going to bounce back once we get through some of the times ahead. And that’s what excites us. And that’s what drives us to build the products that we’re building and be part of this ecosystem to help the community really prepare for the future.
Fuller: Chris Comparato, CEO of Toast, thanks so much for joining us on the Managing the Future of Work podcast.
Comparato: Thanks, Joe. It was fun.
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