Restaurant Technology: A Guide to Understanding and Navigating the Market
Nadav Solomon, Co-Founder and President of Tabit Restaurant Technologies, discusses current market conditions, restaurant industry predictions, and front-of-house technology best practices.
- In the next couple of years, people will move to full mobile cloud solutions.
- Restaurant operators should be open-minded and invest in technology that they trust.
- It's beneficial for businesses to ask questions and to listen.
TranscriptNadav Solomon: Be free. The market is innovative. Everything is changed now. You can make much more money for taking best-of-breed solutions.
Matt Levin: Inspirational stories, actionable business tips, and real-world strategies. Join us as today's guest shows how you can make your business more resilient in an unpredictable world.
Hi everyone. I'm Matt Levin and you're listening to The Resilient Restaurant podcast. I am joined by Nadav Solomon, co-founder and president of Tabit Restaurant Technologies, a cloud-based point-of-sale and tableside-ordering system. In this episode, we discuss the history of Tabit, current market conditions, restaurant industry predictions, front-of-house technology best practices, and building tech systems.
Nadav, thank you for joining us today.
Nadav Solomon: Thank you, Matt. It's a pleasure being here.
Matt Levin: Can you give us just a quick background on yourself and the company that you helped co-found, Tabit?
Nadav Solomon: I'm a former lieutenant commander in the Israeli Navy, was in charge, in my last job, of all command-and-control systems for the Navy.
And when you look at it, or when I try to explain it to my friends from the academy, I tell them we do command-and-control system for restaurants. So that's easy. Then I studied biotechnology and food engineering, in the Technion, I worked for Ernst & Young for a little bit, a couple of years, and founded my first company called NextFerm, where we did biotechnology engineering, mostly for the yeast fermentation industry. Raised a nice amount of money, brought in some management teams, and they took the company public in January. So we're very happy and proud of this project.
In 2014, I had the opportunity to meet my co-founder, Barry Shaked. Barry, in his previous life, 1982, this was a year after I was born, he formed Retalix. Ran it for 28 years. Retalix, back in the day, was the largest POS company in the world. They served grocery and retail industries. He ran the company for 28 years, took it public in Tel Aviv, dual listing in NASDAQ. Two years later, he left 2009, and then the company sold to NCR. I believe it's still there. I believe they are still the leading POS solution for those industries. So 2014, we co-founded Tabit. The rest is history.
Pulse of the Market
Matt Levin: Before we dive into some specifics, can you just give us a general sense of the pulse of the market? What are you hearing from your customers? Are they optimistic? Are they feeling stressed? Where are they thinking about the future of their business? And I think with a particular point of view on full service, which is where you specialize.
Nadav Solomon: So there is a stress in the market. The stress comes mainly from two major areas. One is the labor and the second one is food cost. Food cost is easy to understand, inflation rates. I just heard in news this morning today is, I think, the highest inflation rate measured since 1990. The second one is the labor, as I mentioned, COVID affected people. People got used to sitting back at home, get their paycheck. They didn't want to get back to human interaction so quickly.
We changed some of the industry trends, but those are the constraints on the operators. As a matter of fact, it sounds a little bit odd, but I believe for the technology players, I think that COVID was a good thing.
For years, we've been trying to educate the market about going mobile, cloud, contactless. And we've done that successfully in Israel. When we started here in the US market, so three years ago, people say, "Nah, I'm not going to pay by QR code. I'm not going to use mobile. I don't need the cloud. I have my point of sale."
There was a lot of arguments in the market, which direction should it take, through a technology perspective and then COVID hit. And I see my mom walking to a restaurant, pulling out her phone, taking QR codes and payments and Apple Pay.
So yeah, the world has changed. I think the stress on labor is also important in the front of house operation, because now you want to run the same floor service with 20, 30% servers. How can you do that? You can only bridge the gap with technology.
Matt Levin: So is your hypothesis that we are going to see significant, widespread adoption of continued contactless — like front-of-house QR codes at tables, types of mobile tableside payment solutions. Do you think that's going to be the future standard and it accelerated much quicker than it would be, or do you think it's going to go back to the same rate of growth?
Nadav Solomon: The recent National Restaurant Association survey, they just posted it a couple of months ago — I don't want to say it's post-COVID because we're still in the COVID times, right? But it's maybe some indications about what's going to happen in the future.
So they ask many restaurant customers, what do they think is going to happen? And most of the people say, I think it was like 64%, "We want to have it all back. We want human interaction to the extreme, we're missing the human interaction. We're missing the full-service restaurant, the good old times, diners."
And I think what COVID did, in that perspective, it let us open our minds and be more open for innovation. I think there is a thin line between full-service, high-capacity operations, through contactless and human interaction. And those technology companies would be able to walk between those raindrops and draw the line between human interaction and the actual operational efficiencies needed in the business. Those companies will win.
But definitely the human factor here, of customers walking into a restaurant, they just want to have nice dinner and lunch and get served, is still going to be there. And it's interesting to see what's going to happen in the next year or so.
Matt Levin: If you were to be like, "Okay, I'm telling you, based on the way we think technology is going, what we see best practices, what we see best operations, 18, 24 months from now, or even now, in a shifting-out-of-COVID world. These are the pieces of the technology puzzle in the front of house, typically around mobility and the way you should operate." Is there like a best practice, best-in-class system that you advise people to take on?
Nadav Solomon: Yeah, I think eventually people will move to a full mobile cloud solution, as long as it's not too full-service restaurant. With a fast casual, or a quick service it's going to be a hybrid solution, you're going to have a queue bursting with mobile but you also going to have the customer's phones and self-ordering kiosks, right, and over-the-counter stands, stationary.
But you want to get the customers comfortable. You want them to be able to place order whenever they want. As long as they sit in on your customer journey, and you can track your data because it's a data play here. Definitely, I think that people will go more tech when it comes to how do they perform and monitor their front-of-house operations.
COVID put some financial stress on people and so now they're more mindful of numbers. So you see a lot of restaurants thinking about how they can reduce, instead of 15 servers to run the floor, with 10, eight servers? How can they cut down the times on a table, turnover times, maybe operation times?
So you can only achieve these goals with technology. So I definitely see people going more mobile because mobile can enable them. Once you go mobile, so it's like asking what are Tabit's competitors? So we can always say different POS brands, but our main competitor is pen and paper.
If we can win those sorts of restaurants, holding our pads and doing A to Z, everything in the operations, not just payment, everything on the pad, and then we pull out the data and then eventually what's going to happen is we unlock a huge value that was never revealed before. Fraud detection, ad sales, competition, you name it. Those are going to be the bridges between the current financial stress to making a profitable business in the restaurant industry.
Monitoring Tech Trends
Matt Levin: Pulling out a little bit, not just that front-of-house technology experience and thinking a little bit about what's going on in technology market. So if I'm a restaurant operator, and I am reading the news in QSR or FSR magazines or I'm reading any sort of general business press, I'm reading about a bunch of things that have happened.
Toast just had a massive IPO, acquired a company, xtraCHEF. There are big funding rounds for other point-of-sale systems. There's been consolidation, acquisition. Obviously, Lightspeed has made a significant number of acquisitions of other point-of-sale players over the last year and a half or so. So you have this market that was fragmented a lot of ways, these technology players blooming, and over the last six, seven, eight years now reconsolidating in some sense.
If I'm a restaurant operator, what should I make of this? What does this mean for me? Is this a good thing? Is this a bad thing? Am I indifferent? Does it change how I should think about technology investments?
Nadav Solomon: Yes. I think that, first it's a very good question, I'll tell you this. I've never heard this question from that perspective, of the restaurant operator thinking about acquisitions in the market and his future with the company.
In Tabit for example, most of the customers we have don't have long-term commitment to the product. I think same as MarketMan. If they decide at a certain point that they want to shut off their service, perfect. Why do we do that? Because we need to prove ourselves on a daily basis, right? Because we're product players.
I think what a restaurant operator should take from all the acquisition that's going on now in the market, is to be open-minded, to not stick with someone on a three-, five-year commitment because they're doing a premium service, for example, okay?
Be free. The market is innovative. Everything has changed now. You can make much more money taking best-of-breed solutions and most of the things are now working on the same APIs. So it's easy to do that. And I think that the bundlization process in the market, the aggregation process between payment players and product players is not that solid and good for the sole restaurant operator, because now everyone's trying to bundle everything, to give them loans, to get better stickiness because of loans and payment services, instead of getting better stickiness and lifetime value based on product.
So I think people are now more aware of things, which I think is good, and they need to ask themselves questions: how can I make more money?
Mindful Tech Adoption Practices
Matt Levin: There's typically lots of options, right? But do you think that there's risk in this consolidation in that there are these, whether it's new payment service or other things, are changing that relationship? Do you think that there's going to be restaurant operators who are going to start to get more unfavorable deals or they're going to get sneaky things inserted or somewhere that they need to be watching out for?
Nadav Solomon: 100%. That's what happening in the market. There is a great paper I read, it's called Reforming Retail, written by Jordan Thaeler. Take a look at it, or your audience. I really encourage people to read Jordan's stuff.
Definitely, of course, that's how they make their money. So payment people or companies make money by taking a piece of the action from payment. They will try to have a bait — a free POS, free hardware, whatever — but the majority of their business is payment.
Now think about their interest in the business. Is their interest to increase the bottom line of that restaurant by 20%? I don't know about that. They just want to get more customers and stick their flags in more accounts in order to get more traction, more businesses, bigger piece of the action.
So I think each restaurant operator should ask himself, how do I, myself, make more money? Taking care of my business and not taking care of the payment people because they're not really my partner, they're only taking a 3% or 4% chunk from the business. It's not their best interest to take care of my business. I'm the restaurant operator.
It's a problem. Why? Because most of the restaurant operators going into this business, they like to cook, or they like to host people, or they are real estate investors, and they have some money. So they invest in a restaurant to be restaurant owners and we love them all and we respect them all, but we do not expect them to be IT professors or VPIT of a Fortune 500 company.
They need to run their own business. It's not their job to take care of technology, but they need to make sure that other people are not using this, because they don't know the statements, because they don't know the technology, meaning the restaurant operator should take care of best-of-breed products and negotiate the best terms you can with the banks. It's two different businesses.
Matt Levin: How prepared do you think most operators are for a world where you're making best-of-breed technology decisions and you're making financial-optimization-type decisions around your payments or your payment processing or watching out for other types of monetization tactics? Do you think that most people are in a pretty good spot? Do you think most people are behind the ball?
Nadav Solomon: Unfortunately, I think that most people are not in a very good spot. I think that people need to ask questions. It's good for them, it's good for the business to ask questions.
Listen, the end of the day, we are the POS people. We're like bankers, we manage their money, right? It should not be a quick decision of, "Oh, I saw something really cool on Instagram, I'm going to download it and run my business." You build the whole business in order to get the money.
And it's not that hard because at the end of the day, it's negotiation. As you negotiate mortgage, as you negotiate your credit card rates, so you should negotiate your processing fees in a restaurant, that's it. Most importantly, be free. Leave this channel open where you can everyday renegotiate the stuff with other banks. So don't tie yourself into one solution, whether it's payment, whether it's whatever other software. Be able to maneuver when needed.
Growing Business IT Solutions
Matt Levin: In terms of in-house technology skill and capability, do you think that people are going to have to accelerate either their hiring or the types of consultants they work with? Is there an acceleration coming out of this and COVID? Do you think that people are going to have to really step it up? Do you think it's a natural course of business? I'm curious to hear your perspective on that.
Nadav Solomon: Based on the National Restaurant Association analysis, a restaurant operator should invest between 4 to 6% of his revenues in IT. And this number will increase and increase and increase as we move ahead post-COVID, because more techniques are needed to assist on bridging the gap between labor shortage and inflation rates.
So you need to invest more. Now, if I were to run a restaurant, I would take, I don't know, a small piece of it, give it either to consultant, or if I have more than one restaurant, I'm probably going to hire someone to work for me, in order to consolidate this IT.
But one thing that's important to understand here: what I see in the market in the next couple of years is a huge marriage between marketing budgets and IT budgets. So you and I know, we have a couple hundred mutual customers if I recall, they have different departments. IT, those are the guys with the cables, right, the Wi-Fi, the POS guys, and printers. And I have my marketing team. Maybe these guys are fixing their computers.
But at the end of the day, it's the same world. So if you need to allocate some more resources, think about your marketing budget. How can instead of handing over your brand power to different aggregators, when it comes to customer acquisition, maybe connect your IT solutions into your Facebook, Instagram, and Google?
Okay. There are companies that can do that. Tabit is one of them, but not only us. Many companies can do that for you. But try to be more open-minded for IT.
Matt Levin: If you were to think about the technology market broadly, how would you guide an operator to think about where they should invest, how to think about different systems? Is it just purely a functional, should I go, "Okay. I need a labor solution. I need inventory management. I need AP automation. I need point of sale. I need some sort of table touch mobility solution. And then I need online ordering. Is it functional or is there another way to think about it?
Nadav Solomon: There are many ways to skin this corn. I like that catch phrase, the corn. Why? Because it really depends on what restaurant you are. If you were always just a full-service restaurant, definitely post-COVID you need to get more revenue channels, the online ordering.
Now yes, you can start working with aggregators. They're not necessarily villains, but just be sure that you don't rely your business on them. And then also open up your Google, Facebook, Instagram channels to get more business from there. If you are only online ordering business, think about some delivery. Think about some fast casual. If you are over the counter, we see a lot of marriage between quick service and casual dining.
Well we would like to go to fast casual. Why? Because you do the quick service but you have couple of tables, you already got the customer in your store. Get a pad, go there, place the second order. This is easy money.
So I think people, back to that point of the previous discussion, just need to be open-minded. The world has changed. All of us had a huge experience. People don't know how to react and they need to make sure they have just the infrastructure in place to do that. Definitely this infrastructure starts from POS, procurement, the basic stuff. You need to have a website, you need to have Facebook and Instagram pages. That's it.
Once you have these things in place, yeah, you can leave the POS to online ordering, fine. Your vendor is connected to your purchasing system, so fine. Perfect. You can run the business. Then the second stage will be increasing top-line revenues and that's like heavy marketing investment, that will be done only after you have all the infrastructure in place.
Habits to Adopt or Change
Matt Levin: What do you think that most operators aren't doing that they should be doing?
Nadav Solomon: I think looking at the numbers. We go and meet so many operators these days, especially post-COVID, and a lot of people do not understand their financial situation as they should have been post-COVID. And I think payment is just one thing for us. It's very easy to check the payment processing aspect because we converted, sometimes with companies like the ones that just went public. So be mindful of your numbers if you want to survive.
Matt Levin: And the reverse of that question, what do you think most operators are doing or commonly doing that they should stop doing?
Nadav Solomon: Freebies. The world is moving from a collect and redeem type of thing to surprise and delight. That's the future of restaurants, the way I see it. So, yeah, okay. I got my punch card. I'll get my second 10x coffee, fine. Or where can I get and experience new things?
I think what COVID put on us is a huge stress about, "Where's my future? What am I going to do? I want to experience more stuff," right? So same as in the food industry. So you see a lot of people searching for new restaurant exploration mode. I think restaurant tourists would embrace it, and not necessarily giving things for free, but just taking the same budget and elevating the current experience.
Matt Levin: What would be your advice to an operator who says, "Look, I'm going to pick one project, it's not something that's going to take me months. It's going to take me a couple of weeks. It could be an investment. It could be a business practice change. It could be an experiment. Something that will have the likeliest highest impact on my ability to grow."
What would that thing be? What would you recommend people do?
Nadav Solomon: These days? I think cut the cost. I think that's the most important thing when you serve thousands of restaurant tourists. We see very clearly who made it through the crisis and who's going to make it even if another crisis comes. Okay, cut down the cost. Most of the operators, we love them, they have great food and they know what they're good at, but most of them has to focus on costs, payment, labor, food costs. Those are the three, I would say, diseases in restaurants these days.
Matt Levin: Nadav, thank you so much for joining us today. This was great. Tons of insight and I really appreciate you taking the time.
Nadav Solomon: Thank you, Matt, and good luck.
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This podcast was produced and edited by MarketMan. Music by Joseph McDade.