- Olo is poised to be a leader in the online food delivery market which is expected to reach $470 billion by 2025.
- Unlike third-party delivery companies, Olo turned a profit in 2020.
- Olo plans to step up growth by pursuing well capitalized top restaurant brands.
- Visit the Business section of Insider for more stories.
Editor’s note: This piece was originally published on February 22, 2021.
Two years before the iPhone was released, Noah Glass saw the potential for diners to use the phone to streamline dinner orders and for restaurants to take control of their digital destiny. Fast forward more than a decade, Glass is ready to invite Wall Street to invest in that same dream.
Glass’ company, Olo, filed its IPO paperwork on Friday, February 19th.
Olo, founded in 2005, can best be described as a digital ordering and delivery enabling platform for restaurants. It’s integral to over 400 different restaurant chains and how they get customers their food. But for those not in the restaurant biz, the name probably isn’t familiar.
The names of Olo’s clients, though, certainly are: Wingstop, Shake Shack, Applebee’s, Cheesecake Factory, Chili’s, Five Guys Burgers & Fries, and Sweetgreen, among others. By the company’s own estimates, Olo is the platform of choice for 50% of all publicly traded restaurant brands.
When these brands come out with a new tech-focused feature like curbside delivery or a partnership with Uber Eats, it’s Olo running the engine behind the scenes. Olo solves a major pain point for restaurant operators looking to streamline disparate tech parts restaurants deal with — third-party delivery, point-of-sale systems, and a multitude of software and hardware. If you’ve ever seen a restaurant staff operating 10 different vendor tablets to get through a shift, you know what Olo is trying to solve for. (He refers to those device-laden restaurants as being in “tablet hell.”)
But before there were tablets there was text messaging, which was the first ordering service Olo offered to diners and restaurants back when the company launched in 2005. Glass was early to work with fast-casual brands like Sweetgreen, which has been lauded for its tech-forward approach. As diners shifted to more off-premise ordering, Olo helped restaurants adapt.
“With Olo, restaurants know their consumers better and can more effectively meet their needs while maximizing on-demand commerce results,” the company stated in the regulatory filing.
Before the pandemic made delivery a part of every restaurant’s daily routine, the company was rumored to be looking for a $1 billion valuation, according to Bloomberg.
With restaurants and diners now even more in need of Olo’s services, the company is bullish on its future. The New York-based company plays both sides, as it marries restaurants with suitable technology partners from POS systems to loyalty programs in an increasingly complex vendor market. Its platform averages about 1.8 million orders a day.
Olo projects its “addressable market opportunity is $7 billion” as the pandemic fueled the acceleration of new kinds of contactless digital ordering for both dine-in and takeout customers, according to Friday’s regulatory filing.
“Driven by the COVID-19 pandemic, digital platforms are enabling many more restaurant transactions, including on-premise solutions such as table-top dining through the use of QR codes and kiosk ordering,” Olo states in its S-1 filing. “While this is one of many potential opportunities, we believe that we can fulfill these transactions as we introduce new solutions to enable these services. By providing more products and services to our customers, we believe we can increase our fees per transaction, which could expand our total addressable market further to $15 billion.”
The company outlined its immediate growth strategies:
Pursuit of top brands: Olo currently works with 400 brands across 64,000 restaurant locations. The company has “historically pursued and will continue to target the most well-capitalized, fastest growing restaurant brands in the industry,” according to the regulatory filing.
Upsell its three products: The company sells restaurants three main services, or modules: Ordering, Dispatch and Rails. Ordering involves direct-to-consumer ordering channels for brands. Dispatch enables restaurants to accommodate delivery orders through their own branded channels, saving them some of the costly delivery marketplace fees that can run as high as 30% per order. Rails integrates orders from multiple aggregators like Grubhub into a restaurant’s POS system, thereby avoiding what Olo founder Glass calls “tablet hell.”
Getting Olo customers to use all three modules will be a key growth strategy. As of December 31, 2019, 44% of Olo’s customers used all three of its modules. That number grew to 71% in 2020.
“We believe that we are well-positioned to upsell our remaining customers, as our modules provide significant value, are simple to add, operate seamlessly together, and improve restaurant brands’ on-demand commerce capabilities and consumer experience,” Olo said in its filing.
Increase direct ordering through restaurants: Olo plans to work with its restaurant clients to help drive orders through their own channels. Revenues through direct channels are higher compared to third-party delivery orders, where profits are eaten away by commission fees.
Develop new products: The company wants to expand its product line when it comes to payments, on-premise dining, and data analytics.
Going beyond restaurants: “We currently work with a number of grocery chains and convenience stores who use our software to help their consumers order ready-to-eat meals, and we may expand our efforts in these or other verticals in the future,” according to the filing.
For the year ended December 31, 2020, Olo generated revenue of $98.4 million, up from $50.6 million in 2019.
After experiencing two consecutive years of losses, Olo swung to a profit in 2020. The company recorded net income of $3 million, compared to a loss of $8.2 million in 2019. That profit swing is noteworthy given that third-party delivery companies, who also provide off-premise ordering solutions for restaurants, have yet to become profitable.
In DoorDash’s first earnings call on Thursday, the leading third-party delivery operator posted a net loss of $312 million in the fourth quarter of 2020, compared to a loss of $134 million in the same period last year.
The pandemic highlighted the importance of having a robust digital business and it opened the door for online ordering players to promote their services. But Olo isn’t the only platform in the industry. It faces dozens of online ordering solutions such as Lunchbox and Toast that are competing for a restaurant’s online ordering businesses. According to the Wall Street Journal, Toast is also planning an initial public offering.