We’ve posited that enterprise retailers hold onto their legacy POS systems for a long time. Too long, we’d argue. In some cases this can be 10, 15, or more years. This might not be an issue if the POS company is refreshing hardware and investing R&D in innovation, but it’s a big problem if you’re holding on to a system that’s doing nothing but dragging you down.
The human psyche is very bad at calculating the risks and losses associated with inaction (termed the biases of omission), and POS is definitely one scenario where we can watch the phenomenon have material, negative consequences on the retailer. Most retailers, unfortunately, aren’t even aware their POS is an anchor because they don’t do any self-education.
But we digress.
Omission bias aside, it can be said that a merchant’s idiosyncrasies are responsible for their POS dilemma; merchants are so myopically focused on nickels and dimes – because brick and mortar has not been a high margin industry for merchants in recent memory – that they often miss the forest from the trees. By that we mean that they’re so worried about splashing for new hardware, or paying recurring fees for software, that they miss the real opportunity in choosing the right POS partner.
Look no further than the redacted email correspondence we’ve received between a cloud POS company and an enterprise quick service restauranteur (QSR). This QSR brand has about 800 locations, which will be important for our following math.
Here’s the text that you need to care about:
The current total cost of ownership for our average [POS] systems today that includes support, hardware, software, and maintenance is 42-80k in hardware over 7 years + $808,500 for the maintenance & support. Today it’s 900k over total estimated 7 year life span that we aim for
QSR brand
Let’s break this down.
$900,000 over 7 years is $129,000 in yearly allocated spend for POS.
Across 800 sites, that’s $161.25 per store, per year.
On a monthly basis that’s $13.44 per month.
This brand averages 3 terminals per store, so that’s $4.48 per terminal per month. No, that’s not just for software: that’s for software, hardware, maintenance, and support.
So what innovator can possibly justify the risk and time of building performant software when you’re looking at this sort of financial outcome? It’s not as if this enterprise sale happens quickly and there are so many deals to chase you lose count…
The markets are very aware of this behavior, and it has resulted in two outcomes.
First, investors tell promising startups to focus on any other industry instead of brick and mortar merchants. This stems the flow of innovation and leaves brick and mortar ripe for the overtaking by third parties – think Amazon in retail, and what we expect to happen to restaurants with online ordering/delivery parties starting their own ghost kitchens.
Second, many of the parties that do stick around and sell products to brick and mortar merchants find deceptive – and borderline malicious – ways to get their nut, especially if they’ve taken investor money. Look no further than the “free POS” gimmick tied to credit card processing, where the POS company offers “free POS” and makes the money in the processing. Merchants don’t know how to read processing statements (made intentionally nebulous by the payments ecosystem who makes money in ambiguity since they can’t actually provide any real value ) and that’s how merchants can pay nearly $60,000 for a POS system that should have cost less than a quarter of that amount.
So when merchants are getting reamed on processing and can’t move POS systems, or if Uber Eats is taking all a merchant’s customers and starting competing food establishments, the merchant needs to look at themselves in the mirror first. Merchants, you are opening your front doors to miscreants and charlatans by being undereducated and lazy. You don’t deserve all the blame, but you’re implicitly complicit in your own fate.
This email correspondence from a QSR “executive” just proves the point.
There is no denying restauranteurs, particularly QSR restauranteurs are cheap. However my bet in this case it that what you have is a sales rep that has done a poor job of building and justifying pricing. If in fact the legacy POS is being subsidized by credit card fees then that should have been presented in the comparison. If on the other hand what you have is a restauranteur that currently owns and operates thier own software then there are untold number of costs that have not been figured into this comparison. The real problem here is POS sales reps and their companies are not prepared to do the work needed to build a reasonable value case.
I know the answer in this case and it was the fault of the customer. That said, there are plenty of POS companies who have similar stories from the field.
The problem I have with “fault of the customer” is that it is the sales rep/company’s task to properly present the product and value case. Successful reps and companies learn how to overcome these issues and don’t reach an impasse that is the “fault of the customer”. That said, there are certainly times that you walk away from a deal, but you do it without submitting a pricing proposal that elicits such as response.
Ghost kitchens will fix all the problems merchants have by replacing them with smarter operators. The market always wins in the long run.
Ghost kitchens have the potential to to have a huge impact on the food delivery side of the business. Not only for stand alone resturants but for hotels as well. That may well winnow out some low quality operators. However, the real problem remains that the technology vendors are simply not producing and or properly positioning products that add value to the customers business. The simple fact is the customers will buy products that add value to thier business.