If you haven’t read it yet, I highly recommend picking up a copy of Geoffrey Moore’s Crossing the Chasm. In the book, Geoffrey chronicles the needed grit to move a new product from fringe adoption to mainstream acceptance. The gap between the early adopters and mainstream majority is referred to as “the chasm” – hence the book’s title. Below is a graphic that shows exactly where this chasm fits in the adoption curve.
Everett Rogers, a professor of communication, quantifies what percent of the market falls into the disparate adoption segments. I can save you a lot of time and share a graphic that summarizes Everett’s research.
This means that innovators must reach a critical ~16% (though 15% is close enough) market penetration before their solutions become mainstream. This is how entirely new categories are created: once 15% of the market has a solution, inertia takes over and the new product is recognized as “real”.
That’s great to know, but why is it important?
Because brick and mortar is so fragmented, it’s nearly impossible for any one solution to reach that critical 15% number. And as a result, things that would be obvious for success in other industries – like knowing your COGS – are still viewed as fanciful in brick and mortar.
It’s estimated that 80% of merchants have a point of sale (POS), though we won’t know if this is true for many years as POS companies do not disclose such numbers, and merchant churn is so high that it’s hard to keep tabs with non-cloud systems (i.e. systems that ping merchants to let you know if they’re still in business). That said, it took more than a decade for POS to be accepted as “real”.
Let’s contrast this with other solutions in brick and mortar to demonstrate how hard it is to reach 15% market penetration.
There are a handful of providers that offer back office inventory solutions. First are the usual, legacy suspects: Avero, Compeat, Crunchtime, Ctuit, HotSchedules and others. Then there are the startups: BlueCart, Orderly, PlateIQ, and probably several more. Together, these solutions would be lucky to hit 10% of the US restaurant market. Accordingly, 80% of restaurants just don’t think tracking inventory and COGS is important.
Same could be said with labor analytics and business intelligence. The legacy back office providers have some version of labor management, though the data science behind it is pretty weak. In the business intelligence department, many providers offer reporting, but with the exception of Mirus there are few true business intelligence tools for restaurants. Accordingly, restaurants don’t think managing labor is important.
Marketing and loyalty solutions are likewise fractured. There are your run-of-the-mill punch card loyalty providers and more detailed loyalty data marketing providers like Bridg, Fishbowl, Zipscene and others. Collectively the loyalty data companies don’t have more than 10% market share either. Even LevelUp, a loyalty app which has raised north of $80MM, is in 14,000 restaurants, or 2% of the market.
15% of the US restaurant market would be nearly 100,000 merchants. There’s no POS company that has 100,000 US restaurant customers, and we’ve agreed that POS is considered a legitimate solution.
The only restaurant solution that has cracked 15% of its segment is OpenTable, a $2B company that’s now part of Priceline. It boasts 40,000 restaurants globally and was able to acquire 15% of reservation-taking restaurants through early growth and acquisitions. Today, OpenTable is a necessity for fine dining establishments, even if it is vastly over-priced.
At the end of the day these are the stochastics that prove why useful solutions are still unadopted in brick and mortar. As long as the market remains fragmented, that chasm will exist.