Here’s a little known secret: Square is the largest POS company in the restaurant industry.
What?!
Yea, Square and Clover count hundreds of thousands of restaurant customers between them, but they were born serving the SMB of the SMB.
The hot dog stand.
The Indian-Korean fusion food truck.
You get the idea.
Clover launched a more mature product called Clover Dining, and it’s done decently well upmarket, but its distribution (and support) through a reseller channel of payments bros has undeniably capped its potential.
Square, on the other hand, is completely verticalized.
They control pricing. Service. Data.
The whole experience.
Cons? It’s a capital intensive business to run.
Pros? Bro, you control the whole experience.
This has allowed Square to be thoughtful about product: they’ve had time to watch the market and be patient. While Toast was openly bragging about tripling payments margins on their customers during a pandemic, Square didn’t have to publicly deal with that nonsense.
Square was already a financial juggernaut, worth 6x what Toast is worth.
They’ve been around longer than Toast and are their own bank, allowing them to get really competitive on payment rates.
And unbeknownst to most, Square has had a restaurant-specific team – Square for Restaurants – in place for nearly five years. They’ve spent those five years honing product for upmarket full service restaurants and high volume quick service restaurants.
The culmination of these efforts is a public launch of Square for Restaurants with, for the first time, specific upmarket features.
“Our previous system was ancient and not user friendly,” said Vice President of Operations at Parry Restaurant Group, JoJo Soprano. “Adding a menu item, making a price adjustment, or updating an employee record required a system reset, which could take 15 minutes — frustrating staff and delaying orders.”
Square quickly adapted to our needs. If we have an issue or need new features, their team is on top of it. The future looks great. We will continue to grow together with Square.
JoJo Soprano
JoJo estimates that Square is directly responsible for $1M in new catering business, a 25% increase in takeout business, and saving 10 minutes onboarding each new hire.
But Square isn’t just winning business off legacy POS systems leveraging indolent resellers. Take a merchant who left Toast for Square.
“There are a few reasons why I enjoy using Square over Toast. One would be the freedom of hardware to run Square. With Toast, you have proprietary hardware that needs upgrading just as the warranty expires,” said Zachary Bramblett, owner of Roux Canton.
Another reason Zachary mentioned is the availability of the service department. While anecdotal, we understand that Toast cut a lot of support staff during COVID and has seemingly failed to restaff appropriately. The number one gripe we hear from Toast users (after payments rates) is support related.
You could say the major reason I switched to Square from Toast is flexibility. From credit card processing, to hardware, to terms of service, Square gives me the ability to pick what is best for my restaurant as I see fit.
Zachary Bramblett
Square directly sells and supports their merchant accounts. As is en vogue, much of the support is done remotely, with critical issues being contracted to boots on the ground.
They’ve not used a reseller model, though as they flirt with larger merchants they’re exploring what revenue shares might look like for partners that bring them into deals; the sales motion for larger accounts are just different than Adwords campaigns for SMBs.
Unlike POS competitors NCR and Toast, Square has made it incredibly simple to integrate third party solutions. Square isn’t demanding 30% of revenues, nor calling existing third party partners to retrade agreements and ask for overall percentages of their total revenues even if Square didn’t refer the customer.
However, Square does have a lot of product verticalization happening, and that will be an impediment to > 20-location merchants that often need more flexibility than a single provider can offer. In this regard Square offers excellent APIs that are incredibly well supported and open.
Still, Square acquired GoParrot to verticalize more of the marketing stack (native app building), so one should question how preferences for certain product categories will be handled. It would be pretty much impossible to be worse than NCR or Toast, but it’s definitely worth questioning.
Square has an interesting take on the whole “free POS” model that has taken the industry over the past half decade.
Square contracts are month-to-month. If you don’t like the product, the support, the cost, etc., you can leave. Implicitly this means Square has to answer the phone. They can’t just increase rates or provide a terrible experience: they must continue to deliver what they sold.
Given the lack of teeth of a Square contract you’d expect them not to offer free hardware, right? How else would they recoup those hardware costs if a merchant leaves?
Well, many restaurants have reported that Square is offering free hardware. It seems like there may be a size requirement, but Square was mum on the specifics.
However, we know that Square takes a longer view of merchant LTV and can therefore justify free hardware since their churn is so low. Nothing in life is free, of course, and Square is unequivocally being paid for that hardware from either software or payment revenues over time, but if the rates are fair and competitive, this could be a hell of a deal.
We ran some numbers in the below table to demonstrate how the math could stack up:
Toast has had a fast start as they beat the payment bros at Shift4 and Heartland, total incompetence at NCR, and slow moving Oracle, but as we enter the second inning things are going to get more entertaining for upmarket restaurants.
SpotOn is spending $70M a year on R&D and going after larger merchants with their Appetize acquisition. Revel continues to gain ground, Northstar is winning name brand accounts, and PAR is supposed to release a table service version of Brink.
Selling to restaurants has never been easy (or remotely profitable), and it gets even worse as you move upmarket and can’t gouge merchants on payment rates.
That Square has not only not given up but basically been tripling down in secret – and is gunning for a segment of the market Toast has thoroughly dominated over the past 3 years – is great for the industry as it expands choice and provides more competition, which should in theory decrease costs.
Can Square crack the go to market and balance the first party versus third party product creep of enterprise? If they can, they will be a hell of a competitor.
Add comment