Toast's first acquisition aims at providing more services through restaurant POS
A stronger U.S. economy paved the way for Toast and other companies like it, such as Bolt and Due, to find their own niche against PayPal, Stripe and Square when it came to serving small restaurants or coffee shops with point-of-sale hardware and software.
In a move that indicates Boston-based Toast has strengthened its brand with midsize to small restaurants, the company this week revealed its first acquisition in StratEx, a provider of human resources and payroll software tools for restaurants.
The acquisition signals that companies competing against powerful payment facilitators like Square, Stripe and others have to offer services beyond a flat-rate transaction fee and bundled pricing for hardware, said Richard Crone, chief executive of San Carlos, Calif.-based payments consulting firm Crone Consulting LLC.
Because of the competitive nature of transaction pricing, with most of the companies offering similar flat-rate fees (at 2.75% or less per card transaction), it has become difficult for restaurants "to justify a blended rate unless they are getting other services on top of that," Crone said.
That's essentially how Square has tried to deflect the revenue losses of its payment processing model. Over the years, it has created and deployed numerous other services from business management tools, to money transfer apps, hardware upgrades and loans through the POS.
"A primary interface for a small restaurant is the point of sale, but it really is their point of service," Crone added. "A company like Toast puts the same pads at their POS in front of their chef, and the service people, as that tablet becomes the primary means for managing your business."
For Toast clients, the addition of StratEx services will help streamline payment to employees and also automate employee onboarding and tracking of employee applications.
"We had some technology in place on the employee side, with the POS being where you clock in and clock out, but it kind of stopped on the water's edge," said Tim Barash, chief financial officer and chief business officer at Toast. "We found that StratX had a really robust set of tools and had a lot of positive feedback when using them through a partnership."
It helps streamline payroll payments in many ways, Barash added. "We now have all of the data on employees in one place, including overtime and tips, and a way to actualize that data without downloading a spreadsheet and working with numbers manually, which could possibly lead to errors."
Toast views the acquisition as "a definite milestone for us," Barash said. "But we think about it as solving customer problems, and it is very clear that the labor market has become much more complicated."
Over the past four years, the company has drawn the interest of investors to the tune of nearly a half million dollars. Toast has generally viewed investments as the way to provide more tools for restaurant owners through the POS, particularly for offers or loyalty programs for customers, or for business management tools.
Toast does not reveal its number of customers, though Barash said it was currently in the "tens of thousands of restaurants across the U.S."
The competition among providers for small restaurant POS business will remain fierce for years to come, Crone said.
"It's very hard to obtain sustainable market share, one competitive replacement at a time, because the barriers to exit for a retailer to switch providers are high," he added. "When you look at an acquisition in this space, they are essentially buying market share and you have to be in double digits to survive per segment."
As much as anything, companies in this space are leading the way as examples of payment facilitators, as opposed to traditional independent sales organization models, Crone said. "They are earning the premium they charge as a payment facilitator by adding these services, and it is well worth it."