The New Four Horsemen of Hospitality POS


There’s no shortage of bad data out there claiming that NCR Aloha and Micros together represent 50% of the US restaurant market. We can tell you that’s simply not the case: the market is much more fragmented than that. Considering there are 620,000 US restaurants, people would have you believe that Micros and NCR can claim 310,000 locations.

Not even close.

Of the 620,000 locations, about a quarter of them haven’t traditionally used a POS. Small, family-owned merchants are happy with cash registers that help them avoid IRS scrutiny. Now, some of these merchants have started picking up cheaper cloud POS solutions offered by their payments providers, but not all of them.

Therefore the market remains considerably fractured despite the reported success of cloud POS companies. However, most of the action we’re intently following is taking place upstream, where larger merchants are using legacy POS systems.

In the past two years there have been some aggressive acquisitions made by payments companies. Heartland swallowed 4 legacy restaurant POS systems in 2015 and Harbortouch is just coming off acquisitions of three legacy hospitality POS systems under its newly minted Lighthouse Network (Harbortouch is technically a separate POS asset in the Lighthouse portfolio). With all this consolidation we expect the POS market to finally start finding its legs, and that’s a good thing.

There are now four horsemen in the US hospitality POS market as we see it:

  • Heartland: 100,000 US restaurants
  • Lighthouse Network: 110,000 US restaurants
  • Micros*: ~75,000 US restaurants
  • NCR: 75,000 US restaurants

When you add up the figures above, these four horsemen now control nearly 50% of the obtainable US restaurant market. Why is this important?

For starters, POS companies have traditionally had very few discretionary dollars for R&D and product improvements. A look at the tools that many POS companies have produced over the years is a dead give away: non-core efforts suffered greatly and even took away from the quality of the core POS offering. Post consolidation, there are scales of economy that can be capitalized upon. If a software improvement costs $200,000, it’s no longer 50% of the profit for a POS company; instead, it might only be 0.1% of a payment company’s income statement.

By the nature of being small and low margin, high caliber talent was difficult to attract to legacy POS companies. Many legacy POS companies thus suffered under incompetent management who couldn’t even bother to improve themselves nor reinvest in their business. Larger companies demand more financial responsibility and thus more brain power (and professional decorum at a minimum). Business decisions now improve which yield better outcomes for the channel and customers.

We’ve talked about the law of diffusion of innovation at length. The theorem holds that it takes adoption of 15% of the market before an innovation goes mainstream. In the fractured days of POS, this too often meant literal decades. To reach 15% market penetration, innovators would need to talk with an inordinately large number of POS systems, many of which were run by people who had immense difficulty understanding basic business tenets.

Consolidation means the larger POS companies can start pushing innovation down to their merchants in non-trivial numbers, ushering innovation in much shorter periods of time.

What we expect to see is a sort of aligning of the stars, where the confluence of cloud, data and marketshare ushers in big change to the US restaurant industry: change the industry proved it could not execute itself over four decades. We hope retail will follow suit, but have still not gotten a great handle on POS changes happening in that vertical (if anyone can share some insights, shoot us a message).

Then again, all of this could be thrown out the window if the four horsemen double down on payments to sacrifice long term, exponentially-higher value for a short term pickup. That’s the double-edged sword: if the market leaders don’t care to pursue innovation, then the market status quo will stagnate. Who knows where the wheel stops spinning, but we’re far more optimistic in rational behavior now than we ever were before.

*Micros has undoubtedly lost a large portion of its merchants. While not direct data, this anecdote should give us some directional indication. ByPass Mobile and Appetize, two cloud POS systems in the concessions/stadium business, have clawed over 20,000 accounts away from Micros; we’ve heard Micros hasn’t won a deal in those verticals in over two years. And given Oracle’s continual support snafus and shedding of the dealer channel it seems reasonable to us that Micros has lost 10%-20% of its overall accounts, particularly concentrated in the mid-market where their resellers operated.

  • Chuck Ellis

    As always, excellent analysis Jordan. By your numbers (which I believe are pretty spot-on, though a goodly portion of Heartland’s POS installations are schools of all types, they dominate that channel), there are at least some 170K commercial restaurants that use some sort of POS that are the longtail of the POS market. How many additional POS companies would you guess occupy that segment?

    • Jordan Thaeler

      Well, Bob Frazier thinks it’s 200+. I tend to agree.