We hit on this in a previous article but wanted to lay it out in more detail just to drive home how ridiculously hard it is to serve the restaurant industry.
Founders can get enthralled with the idea of serving the restaurant or retail industries because it’s massive and the industry has enormous problems.
But this is irrelevant.
You cannot sell value to something that cannot comprehend what you’re talking about.
It’s like selling the fountain of youth to a worm.
Yes, retail is a massive industry responsible for $6T in US sales.
Yes, by and large the industry operates as it did in the 1200’s and there’s a ton of ROI just sitting there.
But you cannot generate the ROI if the customer is not smart enough to understand it.
It’s why the only retail vendors to make acceptable levels of investors returns steal from retailers (e.g. payments processing or renting the retailer’s customers back to them).
They TAKE the value from the retailer because the retailer is too irrational to pay fairly for value, even if they understood what the value was to begin with.
Here’s a list of healthcare unicorns from an online list. Of these 105, 27 are international.
We also cross referenced a list of unicorns provided by CB Insights, which shows 92 US healthcare unicorns.
Perhaps we should average it out and call it 85 US healthcare unicorns.
Americans spend over $4T on healthcare annually – about 4x what the US restaurant market sees in revenues.
Want to count the US restaurant tech unicorns?
- Toast
- Grubhub
- OpenTable
- Restaurant365
- Spoton
There are some others that can be added but require asterisks because they serve other industries or are not purely restaurant vendors:
- Square (serves other industries)
- UberEats (serves other industries)
- DoorDash (serves other industries)
- Oracle/Micros (serves other industries)
- NCR Voyix (serves other industries)
- PAR (has other lines of business)
It’s worth noting that the list doesn’t have some obvious healthcare unicorns – Flat Iron Health, Roche (who acquired Flat Iron), – nor any of the healthcare systems (HCA, Methodist, et al.) or drug companies (Pfizer, Eli Lilly).
We actually think this list is massively under-represented if you want a true apples-to-apples comparison. For example, NCR and Oracle are legacy companies, as is OpenTable; nobody thought of these companies when the word unicorn was applied.
So if we want to look at all companies with > $1B market cap irrespective of date of formation, we really need a better list.
We dug a bit more and found a list of the largest 1,000 PUBLIC US healthcare companies by market cap.
This list says there are 288 US healthcare companies that are worth $1B or more.
Even if we include the ~10 restaurant vendors we thought of, the US healthcare market has 29x more “unicorns” despite only being 4x as large as the US restaurant industry.
And there are likely many more private health tech unicorn companies, meaning we would reasonably speculate there are 50x as many unicorns in health tech than restaurant tech.
For those who care about math, conservative analysis means if you sell to restaurants you are 7.25x dumber than someone who is going to sell to healthcare, because your odds of being commercially successful are that much lower using the 29x baseline.
Talk about charity.
And you know what?
That’s what investors think, too.
It’s why smart investors don’t fund restaurant tech.
Until restaurant operators get some self-awareness, this is not going to change.
Restaurants out here spending 20 bps on technology and wondering why nobody likes them.
Healthcare spends 400 bps, or 20x as much by comparison, even though the average hospital’s operating margin is negative, with half of hospitals losing money.
But don’t tell that to restaurants: they need a reason to bleed their vendors to death.
For funsies, here are the operating margins of some public restaurant chains:
- Brinker: 5.5%
- Red Robin: 14.7%
- McDonalds: 33.7%
- YUM: 20%
- Dine Brands: 12.3%
Look at how healthy restaurant margins are, especially in a franchise model:
Kids: don’t sell to restaurants. Great way to ruin your life.
If this math can prevent even one founder from wasting precious time trying to help an industry that’s apathetic to essentially anything, it’s worth it.
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