One of Orange County’s better funded startups feels the pains of an industry in crisis.
Restaurant management software firm Restaurant365 LLC, which has raised a collective $127.5 million in funding since its founding in 2011, was poised for another year of high double-digit growth in 2020.
Then the coronavirus pandemic hit, and its customers saw an average drop in business of 75%.
Now the firm is scaling down and making cuts of its own. It anticipates a “pause on growth” as restaurants enter survival mode amid stay-at-home regulations across the country.
Restaurants use the company’s accounting software to improve efficiencies in backroom operations, labor management, sales forecasting and more.
With growth prospects on hold, and a recent cut affecting nearly half the company’s worker base, Restaurant365 turned its attention to providing educational materials, free professional consulting services and flexible payment terms to its customers.
It’s also looking at a novel way to save the industry it serves.
Chief Executive Tony Smith said he’s working on a federal proposal, offering the company’s technology services to the government to create a software application that would help track and manage relief efforts to restaurateurs and restaurant workers.
“We have so much visibility into restaurants’ [finances] so there may be a way we can help the government manage funds, especially because it’s such a broad, sporadic industry,” Smith said.
A time frame for getting that project up and running hasn’t been disclosed.
Since the Business Journal spoke with Smith, the government passed a $2.2 trillion relief plan, which includes more than $360 billion in loans and grants to small businesses, including provisions specific to the restaurant industry.
Booming Biz
Restaurant365 bills itself as the only all-in-one platform for restaurant accounting and operations. It claims that customers save between 2-4% on goods and 1-3% on labor with its platform, amounts that can be make-or-break for an industry known for its often razor-thin margins.
Its customers range from independent restaurants and groups to franchisee groups and include Blaze Pizza, Texas de Brazil, Wolfgang Puck Fine Dining Group and more.
The 9-year-old company closed an $88 million minority investment last June—the fourth-largest capital raise in OC last year—led by Silicon Valley’s Iconiq Capital. That followed two prior rounds totaling $39.5 million; additional investors include Bessemer Venture Partners and Tiger Global Management.
“When we raised funds last year, our minds were fully on growth. For four years in a row, we’ve grown 80 to 100% every single year,” Smith said.
Since then, the company has added 84 restaurant customers in Orange County and soared well past 10,000 locations served, though less than 20,000, said Smith.
The Business Journal estimated the company’s revenue in the $30 million range; company officials declined to provide a figure.
Restaurant365 charges between $129 and $429 per location per month, with additional add-on fees, and additional options for customized plans.
The company also added a new stream of revenue by building its partner program with accounting and consulting groups that serve restaurants.
Smith estimated the company has nearly 100 partners, ranging from small shops to large groups representing 1,500 restaurants.
It was “a fantastic journey, even into February,” Smith said. Then, “all of a sudden, everyone’s mind had shifted.”
COVID-19 Disruption
About four weeks ago, Smith started noticing declining sales numbers among the company’s restaurant customers. Steep declines.
“Catering-heavy customers were the first to start to feel it,” Smith said.
“A world-renowned customer said a giant order for a big event in Vegas got canceled, and it hurt their business.”
Like in Las Vegas, dozens of meetings and conferences in Orange County have been canceled or postponed since then (see story, page 4). Restaurants statewide have been forced to move to delivery or takeout-only models; see page 18 for more.
“Since then, delivery has been so huge. It’s on everyone’s mind,” added Smith.
Delivery and takeout are among the few options for local restaurants hoping to sustain fixed costs and make it through the downturn.
Break-Even Analysis
To help restaurants manage the crisis, the company has published a webinar on delivery considerations and added a break-even point calculator to its offerings, to help businesses determine whether to open or shut their doors.
The company has also provided guidance on how restaurants and employees can benefit from payroll protection and tax deferment measures, which are part of the Coronavirus Aid, Relief, and Economic Security Act.
Prior to March and the onset of the downturn, the company was “really focused on creating accurate predictions for specific forecasting and labor management” so that restaurateurs can tell “what they might earn next Tuesday, and how much they should order, and when they should order it,” Smith said.
Restaurant365 is now offering the add-on module, called Smart Labor, for free to clients.
Biz Adjustment
As restaurants look to forecast their sales during the pandemic, Restaurant365 has taken its own steps to survive the downturn.
Smith said the company anticipates a growth pause as restaurants are forced to shut their doors, and will postpone another funding round until a later time, when venture capitalists are more interested in discussions.
The company also cut controllable costs and lowered the salaries of its executive team, before laying off “a large chunk” of its employees on March 23. The cuts approached half of Restaurant365’s base of workers; along with Irvine it has significant operations in Austin, Texas.
The company had 400 employees; it now has over 200, officials said.
“For such a high-growth company, we’re staffed to sustain customers coming on … but when you’re in a spot where fewer customers are joining, and personally, I feel it is inappropriate to go after growth … it’s a tough spot,” said Smith.
As far as business operations, everyone is working remotely and the team is working on efforts to encourage innovation, which is less fluid in a remote environment, said Smith.
Beginning Again
Smith and his co-founders John Moody and Morgan Harris weren’t familiar with the restaurant industry when they started Restaurant365. They were focused on creating software to “solve problems,” and decided rather than continuing to tackle various industries, they wanted to “go vertical.”
It took more than a year to find the right industry, according to Smith. When the team started to talk to restaurateurs and heard things like “this would be the holy grail,” they knew they found the right industry.
The team spent time observing restaurant operations after hours, counting people’s inventory for free, assessing pain points in the industry, and working of software features to solve such problems.
Nearly a decade later, Smith is hopeful that the industry will bounce back quickly from the pandemic.
“One thing that’s been cool is seeing customers doing creative things. It shows the industry really is full of resourceful, hardworking individuals,” Smith said.
He noted local restaurants including Costa Mesa’s Vitaly and Malarky’s Irish Pub offering toilet paper with orders, uncooked ingredients for consumers and free nightly to-go meals for family members affected by workers’ low pay.
Others like Lazy Dog Restaurant & Bar in Costa Mesa are selling perishable goods, pantry staples and discounted gift cards; Santa Ana’s Blinking Owl Distillery decided to use their alcohol supply to manufacture hand sanitizer.
“That gives me confidence that as this thing ends, we really are going to come out of this strong,” he added.
Ten years ago, consumer spending at grocery stores was roughly 13% higher than cumulative restaurant sales. Five years ago, both industries had roughly the same about of sales at $50 billion. Since then, consumers have spent more money on restaurants than in grocery stores, a first for the industry.
That’s clearly not the case now. But a return will come, Smith said.
He said, “No one can say right now when it ends, but when it does end, and it will, people will flood back to restaurants, sit together in offices again, and business will grow and hire again.”
For tips on restaurants getting through the COVID-19 crisis, visit Restaurant365’s Resource Center at www.restaurant365.com/
resources/covid19.
