As restaurants struggle amid COVID-19 pandemic, TouchBistro hurries launch of online ordering tool

TouchBistro CEO Alex Barrotti.
TouchBistro CEO Alex Barrotti. TouchBistro

At the Canoe & Paddle, a 120-seat English-style pub in Lakefield, Ont., daily sales have dropped 90 per cent because of the COVID-19 pandemic. The family-run operation has laid off 18 of its 26 staff. To try to keep some business coming in, it’s started delivering alcohol and produce, and is launching a frozen-meal service.

The pub’s struggles are typical of those the hospitality sector has faced as social-distancing measures force them to close, which could affect the companies that provide point-of-sale technology. The Canoe & Paddle is one of the more than 25,000 clients of Toronto-based TouchBistro. In response to its customers’ struggles, the firm has hurried the development of a full online ordering system, launching today, for clients who can’t seat diners anymore. It’s also frozen hiring and reduced spending in a bid to weather the storm. “Do I think everybody in the [restaurant POS] space will survive? Absolutely not,” said CEO Alex Barrotti. But he and the firm’s largest venture investors believe it’s better placed than some of its major competitors.

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Talking Point

Point-of-sale technology company TouchBistro has sped up the launch of its online ordering and gift card features in response to demand from its restaurant customers, which have closed their dining rooms due to the COVID-19 pandemic. The firm has frozen hiring and is reducing spending, but CEO Alex Barrotti and some of the Toronto-based firm’s biggest investors told The Logic it has a healthy balance sheet, and they think it’s better placed than its competitors to survive the downturn.

The software-based POS market for restaurants is fragmented, with “half a dozen other players just in North America and many more globally,” said Richard Nathan, managing director of Toronto-based Kensington Capital Partners, a longtime TouchBistro investor who’s confident about the company’s survival. “A lot of them probably won’t come out the other side, or they’ll be much weaker and [look] to consolidate into other players.” 

“TouchBistro has always chosen to grow responsibly and avoided going down the ‘growth at all costs’ route,” said Damien Steel, managing partner and head of OMERS Ventures. “As such, they have a healthy balance sheet today and for now, costs are manageable.” He believes the company’s new products will help both TouchBistro and its restaurant customers survive the crisis.

TouchBistro’s core product is POS iPad software, which starts at $69 monthly for a single tablet. Barroti said the company has fielded and granted “a few” requests from clients asking to skip licence fees for a month, or to reduce their bills because they’re using fewer terminals. “Our customers have been severely impacted because they have been forced to close … for sit-down, dine-in service,” he said, which accounts for 60 per cent of the company’s restaurant clients. 

The new online ordering tool will let restaurants offer takeout or their own delivery service either directly through their websites or through TouchBistro’s reservation platform. The feature will be free for restaurants to use for a year. While the company’s software already lets restaurants take orders through delivery apps like Uber Eats and DoorDash, Barrotti said clients “don’t want to pay these ridiculous commissions,” saying that the fees—as much as 30 per cent—are particularly hard for restaurants to stomach when volumes are low. (Delivery platforms like Uber Eats have so far focused more on offering discounts to people ordering food; some, like DoorDash, have given the restaurants themselves partial relief.)

TouchBistro clients are now also able to issue gift cards. “It’s essentially a form of a micro-loan or a mini IOU to customers down the road,” said Barrotti. Restaurants will be able to use the module free for three months.

The company acquired the direct online ordering and reservation features in a May 2019 deal for Bookenda, Reso and the assets of YP Dine. “It’s not like we built this from scratch,” Barrotti said. But TouchBistro has now linked the different systems, so orders automatically flow from a restaurant’s or its own website to the POS terminal. “There’s no need to rekey, and there’s no errors,” he said. 

The company has been considering a full online ordering system for years, but Barrotti said it adjusted the product roadmap in response to the outbreak, allowing it to set up the feature in just three weeks. Other functionality is still coming, but will be delayed. A built-in staff-scheduling feature “has taken a backseat right now because most of our restaurants … have had to unfortunately lay off their staff,” he said; the company currently partners with Saskatoon-based 7shifts for staff-management functionality.

While TouchBistro’s new online ordering system doesn’t yet allow restaurants to accept payment on their websites, it is a “fantastic idea,” the Canoe & Paddle’s general manager Jake Exton told The Logic over the weekend, while building the pub’s website. “In [restaurants], there’s a very thin profit margin,” he said. Exton also said many restaurants are deterred from existing payment-provider-run gift-card programs by per-unit fees. “To pay $1 upwards for a piece of plastic with some ink on it is quite ridiculous.”

While transaction volume through TouchBistro’s systems is down due to the outbreak, “it’s not catastrophic,” said Barrotti, noting that while some companies make most of their money by taking a cut of each bill, TouchBistro’s comes mostly from software licences, a model he said “is holding strong.” 

The company declined to provide The Logic recent financial information or projections of the effect of COVID-19 on its business. In September 2019, it said it was on track for nearly $50 million in revenue that year, and was growing by $1 million annualized every month.  

The same month, it announced a $158-million Series E at a reported $500-million valuation. OMERS Growth Equity led the round, which also included financial institutions like Barclays, RBC, BMO and JPMorgan Chase. “We have a lot of money in the bank, thank God, from the raise that we did,” said Barrotti. 

TouchBistro—whose early-stage funders included Relay Ventures, also an investor in The Logic—is adjusting spending in response to the outbreak. The firm currently has 550 employees, and while there have been no staff cuts, “we have frozen hiring … for the next three months, just to see how this all shakes out,” Barrotti said, adding he’s temporarily stopped taking a salary. The company is also reducing expenses—some of which have already been halted by social-distancing measures—like travel, office snack days and company-provided lunches.

TouchBistro’s main competitor in the restaurant-software POS space is Boston-based Toast, which raised US$400 million in February at a near-doubled US$5-billion valuation. Like TouchBistro, it has paused hiring, reduced spending, waived some merchant fees and launched digital ordering and gift cards.  

But Toast has a staff of more than 2,500, according to LinkedIn data. “Their burn is four times my burn,” said Barrotti. “We believe we are leaner, more efficient with our capital.” He also said Toast has spent aggressively on customer acquisition, and its development and inventory costs are higher because it offers its own hardware, including terminals, card readers and printers, while TouchBistro uses off-the-shelf equipment. “We use Apple for our R&D [and] our manufacturing,” said Barrotti. (Toast did not respond to The Logic’s request for comment before deadline.)

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Last year, Barrotti said he wanted to take TouchBistro public in early 2021. The outbreak will “push our timeline back” if it lasts longer than three months, he told The Logic

“I don’t think anyone is going to be doing any kind of public offerings for quite a long time, [no] matter what industry you’re in,” Nathan said, attributing that to the volatility and steep declines in public equity markets generally, rather than companies’ specific situations. While it’s difficult to forecast how long COVID-19 will impact TouchBistro, “I don’t really worry about a long-term impairment in the valuation and exit,” Nathan said.