The restaurant industry ‘has been underserved by cutting-edge technology,’ says Toast CEO
Toast CEO Chris Comparato joins Yahoo Finance Live to discuss the restaurant industry’s recovery, digital transformation and the outlook for Toast.
JULIE HYMAN: Restaurants are back, at least those that have survived the pandemic. A new survey from restaurant technology platform Toast shows that gross merchandise volume at its customers increased nearly 6% in the last quarter compared to the fourth quarter of 2019. And Toast CEO Chris Comparato is now joining us .
And, Chris, obviously it’s been hard work for the restaurant industry, so it’s encouraging to see those kinds of numbers. And I wonder for those who have succeeded and are now returning to those levels, was it luck that brought them through? Was he able to get some of this government assistance? What went well for restaurant industry survivors?
CHRIS COMPARATO: Yeah, so, first of all, Julie, thanks for having me. It is a pleasure to be here today. When you zoom out, this is an industry that has gone through a digital transformation over the last 10 years, and certainly the last two years have been incredibly challenging. But it really is an industry that has been underserved by advanced technology.
And then, if you zoom in on the last two years, restaurants have gone through different phases. They went from a crisis to a survival phase, then to a recovery phase, then to a prosperity phase. And what we’re showing in our report today is that restaurants that use our Toast technology platform, which is an end-to-end platform, almost like the restaurant operating system, those restaurants are starting to thrive, so they are starting to arrive in 2022 in a very strong position.
And if I look at the last two years, some of the things they’ve done well is they’ve adapted incredibly well. First, they were able to optimize their income and generate more revenue channels in their kitchen. And it’s about sales, and it’s about comparable store sales. And if you look at these restaurants, they’re doing 6% better than they were in the fourth quarter of 2019.
The second thing these restaurants do incredibly well is they streamline their operations. Right now it’s all about doing more with less given the challenges of labor, given inflation, and these restaurants have really adapted their methodologies within their four walls to operate much more efficiently. And then number three, they focus on food cost optimization, and that includes their menus, what’s profitable on their menus, what are the food costs, and the inventory management behind their menus.
But when you put those three things together, it’s made it possible for restaurants running Toast to navigate the pandemic very well and, in fact, be ready for what I call a new era of hospitality. So as 2022 evolves, we’re all going back to restaurants, and I think some of those restaurants are well prepared for the consumer demand ahead of us.
BRIAN SOZZI: Chris, we’ve spoken to many people in the restaurant industry, and I will say for the team that we were blown away by what they said about the price increases they take to compensate for inflation . Chipotle is starting to price in line with the CPI. It’s almost 10%. The cost of a McDonald’s Big Mac up to a high single digit percentage. How long could the recovery continue in the restaurant sector if they set prices at these levels?
CHRIS COMPARATO: That’s an excellent question. And, look, I mean, we’re advocating that restaurants adjust their menus, adjust their prices. We believe consumer demand is high, so we believe consumers can absorb some of these price increases.
But that being said, I think it’s more important to make sure that restaurants open up more revenue channels, so hunting places, for example, is critically important. If you look at how takeout and delivery has thrived over the past two years, it’s here to stay, and it’s about 20% of total restaurant volume. We therefore believe that this trend will continue.
We also believe that the trend of turning tables faster through mobile ordering and ordering and paying at the table from the consumer’s device is a trend that will last and continue. So we actually think that, prices aside, restaurants can do a better job of generating revenue.
JULIE HYMAN: Let’s talk about the guys who generate revenue for a moment or maybe more to the point of what the market is focusing on driving, profitability. I know you’re in an investing phase, and that kind of phase you’re in is something the stock was punished for when you reported earnings last week. When do you kind of think… how long do you think the investment phase is going to last? When do you expect to reach some sort of profitability phase for the business?
CHRIS COMPARATO: Yeah, that’s a great question. I mean, if you zoom out again, it’s an industry that’s in the early stages of digital transformation. So for us today, we only represent 7% of the total addressable market. So 860,000 locations across the United States, we’re only in 7% of those locations, and then 22 million locations internationally. So I think we’re at the beginning of our growth cycle as a company, and that’s why we have this growth mindset, because there’s a lot to do to make sure we can go through not only tens of thousands of restaurants on the platform but hundreds of thousands of restaurants on the platform.
That being said, we understand market dynamics. We know the sentiment of investors. Profitability is always a priority for us as a management team and as a board, and I think that will come with time. So investors should expect us to move towards profitability over time, but we’re not going to fire the Toast engine towards profitability immediately when we know there’s so much growth to come. And the number one goal is to gain market share and then continue to grow this platform to serve restaurants of all types.
BRIAN SOZZI: One thing we’ve heard a lot about from restaurants too, Chris, is the labor shortage. He keeps on. In what creative ways are the companies you work with trying to overcome these challenges?
CHRIS COMPARATO: Yeah, that’s a great question. So it’s about doing more with less. So when we look at servers in restaurants, how do we enable them to handle and produce more orders, ensure the kitchen is highly productive, and do it with fewer staff? One of the statistics we released today is that if you look at a typical Toast restaurant for a typical employee hour, the typical Toast restaurant employee produces 4.5% more orders per hour than in 2020. So we like this stat because it shows that order transactions are being produced at a higher rate per employee per hour.
So the ways restaurants accomplish this are two-fold. First, they allow consumers to do more with their personal device. Thus, technologies, like our solution around ordering and paying at the table, allow customers to control their order, keep the tab open, occupy the kitchen, and then have a pleasant customer experience.
Second, we’re arming servers with the Toast Go device, which allows them to turn tables faster and handle more tables, so we’re seeing examples of restaurants fulfilling more orders with fewer staff. And then in the kitchen, when we automate the kitchen with kitchen display systems, the kitchen becomes more productive because it can take it to the next level without handling paper and printers. So this whole operation is really a methodology. We call it the stages of service methodology. And when restaurants adopt this methodology, we find that their staff are highly productive, resulting in customers having a great experience as well.
JULIE HYMAN: Chris, thanks for being here this morning. Chris Comparato is CEO of Toast. Appreciate your time.