Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

{audio:0:00:07} Christopher, can we step back to the 90s and lay out the context of the point of sale market?

{audio:0:00:33} In the 90s, there were still many restaurants that had no POS, who still took orders on a duplicate pad, ripped off one copy and stuck it on a rail in the kitchen. That was pretty common. Of course, there aren't very many internal controls when you do that. It was relatively easy to help people understand what the benefits of adopting sales would be, and even for those with POS, the systems they typically had were not easy to use. There was a lot of having to memorize a four or five-digit PLU number and ring it up on a mechanical cash register. The advent of touch screens and the ability to deploy a graphical user interface made the users' training pretty trivial compared to where it was in 1990, 1991 when there was no GUI, and they were using some electromechanical cash register.

{audio:0:02:34} What system did the customer need then, in the 90s, when you were building Twenty/20 Visual Systems?

{audio:0:02:42} There were only a few kitchen systems back then. A printer in the kitchen, or more than one printer in the kitchen, and some number of PCs and, back then, CRT monitors. That’s all they needed. There weren't a lot of integrated inventory systems; there weren't integrated kitchen systems. If people were really at the forefront of technology, they might use Excel to do a labor schedule. It was definitely the olden days, if you will.

{audio:0:03:53} How did the XPIENT solution evolve on the original Twenty/20?

{audio:0:04:00} We sold Twenty/20 in 1997 to Radiant Systems, which is now NCR, and I found this little company in Charlotte, NC that had a DOS product and the beginnings of a Windows product and they were bankrupt. So I took it over and took it through Chapter 11 bankruptcy proceeding and then founded XPIENT on the other end of that reorganization. XPIENT was very narrowly focused on quick service and fast-casual and the enterprise segment of that market; less than 200 stores, and we were not actively going after that business. We had a few customers that had less than that, but that was by circumstance. It wasn't part of the business that we were looking for.

{audio:0:05:34} And Heartland then took over XPIENT?

{audio:0:05:39} Yes; I sold it to Heartland in October of 2014. We came out of bankruptcy in 2002 and so we had a run of about 12 years, sold it to Heartland and then stayed with Heartland and acquired several other restaurant technology companies. I kind of brought those together and ran that group. Then Heartland sold itself to Global Payments. I think that deal closed in March or April of 2016. I stayed with Global, running that group until the end of June 2019. I left about two years ago.

{audio:0:06:39} Does the Twenty/20 core of the product form the foundation of the NCR?

{audio:0:06:49} Actually, it doesn't. They bought a quick service solution. They bought a movie theater solution and a C-store solution in Twenty/20 and Radiant decided that they were going to rewrite all of those and have a common platform that would handle things like printing, payments, and so on; the activities that were common, irrespective of the line of business. It was a great idea, but it never worked, so they ended up not investing anything in Twenty/20 and having to buy Aloha about six or eight years after they bought us, to have a play in the table service business. It was a great shame; they kind of wasted their money.

{audio:0:07:55} They never ended up building their development platform of choice, for all of that was Delphi and Delphi became defunct fairly quickly. They made some fundamentally poor decisions, in my opinion. They were left without a product and decided that they would buy Aloha. They brought Aloha to market; I think they spent almost $50 million buying it. They had bought us for a lot less than that.

{audio:0:08:39} How would you describe the competitiveness of these products as they get consumed into bigger parent companies?

{audio:0:08:55} We decided that we would build a cloud replacement for all these legacy points of sale, and we did. We launched that product. It's called Xenial. It's platform-agnostic, runs on Windows, Android, iOS. The failure to go to the cloud is, ultimately, a detriment if you have a legacy product. Today I don't think there's an enterprise looking for a solution that isn't going to the cloud. Nobody's looking at legacy solutions today.

{audio:0:09:46} Do you not think that the bigger companies, the NCRs of the world, are not ready or equipped?

{audio:0:09:53} They haven’t invested in building a cloud solution to replace Aloha. They've invested in building solutions around the periphery. The configuration might be in the cloud and reporting might be in the cloud and the back office might be in the cloud, however, the product, the core transaction POS product, is still a client-server solution. You can see customers leaving Aloha in significant quantities because there is no cloud solution. If you look at that from the outside, it's hard to understand. That's true for many legacy players.

{audio:0:10:47} How difficult is it for them to build that core cloud transaction piece?

{audio:0:10:56} It's non-trivial in terms of time and money. It took us three years and a significant investment to build a product that would run a restaurant. I think the longer you leave it, the harder it is to break into that business. How are you going to displace Brink? I wouldn't say they have a stranglehold, but Brink, Xenial – my former business – and Micros, are the three enterprise players. Rebel would tell you that they're in the enterprise business, but I don't believe they are. There aren't many players and Brink has won a disproportionate amount of the enterprise business because they've been in the market for the longest with a cloud solution.

{audio:0:12:16} Take an enterprise restaurant’s tech stack, how would you segment that today?

{audio:0:12:34} There is a need for an in-store solution that can run whether or not you’re connected to the internet. Although internet connectivity has become more ubiquitous, I don't think there's an operator that's willing to say, it's okay; if my internet connection goes down, I'll go back to a pad and a pen. You also have to have redundancy. You have to share data across all the terminals in your environment unless you're a very simple counter-service operation. You have to be able to open a ticket on one terminal and access that ticket on any other terminal, irrespective of whether you're connected to the web or not. That's one part of the tech stack.

{audio:0:13:42} I think the biggest change maybe has been this sort of coalescence to what I call a commerce platform, the ability to transact with the customer wherever they want to transact. In-store orders made by an employee, in-store orders made by a customer, outside the store orders made by a customer, in the parking lot for curbside; all of those things, require a single commerce engine and I think the industry has been slow to realize that. So I’d segment that.

{audio:0:14:36} And there is a need for a kitchen system, bigger or smaller in terms of complexity. I don’t think that relying on kitchen printers is a particularly efficient way of maximizing the output of your kitchen. Then there’s a need for a back-office solution that can help you manage labor and manage the cost of goods sold. And then there's a need to both report and analyze all of that data and we haven't had very good analytic solutions in our business. We've had many reporting solutions, but we haven't had many solutions that seek to analyze that data.

{audio:0:15:39} I think the winners will be the people who can analyze the data using machine learning and AI and tell the managers what to do. Because the typical restaurant operator is not necessarily numerate, they don't want to run four different reports to figure out what's going on in their business. It’s the ability to tell a store manager, here are the three things you should focus on right now. I believe that the solutions that can do that will win. Then there are peripheral solutions like security cameras and drive-through timers, in-store timers; the things that may make you better in your operation. In terms of counter service and drive-through, digital menu boards in the store and the drive-through are also an integral part of that tech stack.

{audio:0:16:59} Roughly how much do they spend, on average, on a typical enterprise restaurant?

{audio:0:17:10} If you’re replacing everything or building a new store from scratch and you’re doing a POS system and a kitchen system and digital menu boards and drive-through timers, you're highly likely to spend $40,000 to $50,000. Maybe most of that is in the digital menu boards. The POS has come down significantly in cost as people have adopted the cloud solutions, which typically are light on capital cost and, of course, sold in a software as a service model.

{audio:0:18:03} Looking at the ARPU of some of the players like Brink, I think it's $2000 per year per unit. Where do you think that could get?

{audio:0:18:16} I think you have to be able to add value to that stack and if you look at what Savneet Singh, the CEO at PAR, has done, he’s bought a back-office solution; he just bought Punchh and it's all to build the ARPU to $4,000 to $5,000 a store. The payment revenue on a store basis will eclipse the POS revenue, which is why the payment players have acquired almost all the independent POS guys.

{audio:0:19:10} How easy is it for the likes of Brink to get into that payment revenue?

{audio:0:19:22} If you look at very large enterprises, they’re going to go to RFP for payments. Brink, as a PayFac, I believe that’s what they are, or an ISO, will have a very hard time competing with an RFP where the acquirers are bidding directly for that business. It's very cutthroat. I've seen deals in large enterprises that are below half a cent a transaction plus interchange, and it’s very hard to make any money at that margin. It’s perhaps easier as you come down to the midmarket. Perhaps up to 500 locations where it's unlikely that those operators are going out to RFP. Providing you can be competitive, I think there's no reason they won't give you their payment business. Brink’s been smart, in my opinion, because while they offer payment, they aren’t taking the route that Toast has taken, for example, where they mandate the payment.

{audio:0:21:01} So Brink can just match the price even if they don’t have much money on it and just get the POS sold and break even.

{audio:0:21:09} They won't break even. I'm quite sure they'll make money on the payments. I'd say it would be unlikely that you wouldn't be able to make as much as you make with POS.

{audio:0:21:29} What does a big enterprise think when they send out an RFP?

{audio:0:21:35} A large enterprise will go direct to an acquirer, but Brink has a lot of 50 to 500 store customers who aren't big enough to go to RFP. I think Brink can be competitive in that space. Then there's the notion that there’s one throat to choke; I call one number, there's no finger-pointing between the credit card guy and the POS guy when there's an issue, or a batch doesn't settle. Those go away when you've got one vendor, so I think there's some advantage to that for the operator.

{audio:0:22:35} Can we walk through a typical process of a big enterprise switching to the cloud. Say I’m a large enterprise, I’ve got a legacy POS, I want to switch to the cloud. What exactly is the process? What do I look for?

{audio:0:22:51} When you talk about a big enterprise, like 5,000 stores, I’m going to RFP. I’ve probably got some preference. For example, do I want to say I’m not willing to stay with Windows. Or I'm not willing to go to iOS? There is probably some preference. I don't think it's set in stone. Then you're going to issue an RFP, and the RFP is going to list, probably exhaustively, all the features that are important to you. You're going to send the RFP to lots of people. You'll get responses back, you'll probably pick no fewer than three, and unless you're crazy, no more than five, to dig into more deeply. You'll invite those three to five players to come and do a demo. Maybe you'll give them a script with the intent to showcase the things that are important to you and to make sure that the positive responses you've got in the RFP are, in fact, accurate and the solution can do what you want it to do.

{audio:0:24:45} To get to that point, it could take you six to nine months. You are then going to make a selection of one or two that you'll put into a lab and beat on for some time to try and ensure that they will do what you want them to do. You elicit the gaps in that lab process and you're either going to go to both vendors and give them the gaps and say, if you want to move on from here, you've got to close the gaps. Or you'll settle on a single vendor at that point, have them close the gaps, then you'll go to a store. Then you'll go to three stores and then you'll go to some small market, maybe a dozen. Then you'll go to an area and a region and then you'll roll out. I deployed Taco Bell, which is 6,500 stores. It took three years to get the RFP to be ready to roll out across the enterprise, so it's not for the faint of heart.

{audio:0:26:27} How long did it take to roll them out?

{audio:0:26:31} It took about two years to roll it out fully.

{audio:0:26:35} So five years in total, by which time it's almost time to start looking again.

{audio:0:26:45} How can you speed that up? It's a long process.

{audio:0:26:50} You can speed it up by not believing that you have the most unique operation in the world and the only way to ring up an order is the way that you've done it for the last 20 years and you don't want to change. I can't count the number of times that somebody has said to me, well, we don't want to train the people on a new system, so can you make the new system look like the system? Well, I could, but then why don't you just stay with the old system. I think you could cut it down if you were a bit more willing to be flexible and take the system sort of the way it is. There are bound to be some things that you do uniquely.

{audio:0:27:54} If you’re a Panera Bread, you have this "you pick two" option that's foundational in your menu. You get to pick any sandwich, any soup, and any salad in some combination, pick two of those three, they come in half orders, you have to be able to ring that up. Most points of sale are not going to be able to do that out of the box. So some things are unique, and you have to be able to close those gaps. If you have 7,000 or 7,500 stores, you can't afford for it to fail. You can afford for it to fail in one or three or 10 stores, but when you get beyond 10, you'll be looking for a new job if you're the guy that made the selection and it fails when it's fully deployed.

{audio:0:29:02} Is it also because of the franchisees, which are slower to adopt? And like you said, you've got to train them.

{audio:0:29:13} Yes, and there are brands whose franchise agreements allow them to mandate the solution, and there are brands whose agreement does not. It's a much slower process if the brand can't mandate. It can take a long time

{audio:0:29:35} Because the franchisee would just say I’m happy; I don’t want to change.

{audio:0:29:40} The franchisee thinks spending money on technology is taking the money out of their children's college fund and they don't want to do that.

{audio:0:30:03} I think it's changing. I think franchisees realize that they've got to have what the customer wants. If the customer wants a loyalty solution or the customer wants to order on their phone, you have to have unified technology to make that work. I think they realize that.

{audio:0:30:36} How is the franchisee tech stack structured versus the corporate-owned one?

{audio:0:30:51} I think it's becoming converged now. You can't implement a loyalty solution at only the corporate stores; it won't work. Everybody's got to be involved.

{audio:0:31:12} The POS could be different.

{audio:0:31:15} The POS could be different if you could mandate everybody to use maybe two. That's what Popeyes has done. You can use two, and the two have to integrate with the loyalty solution that they just launched, as well as the online solution. But Popeyes went from 43 to two. It isn't that they had 43 approved solutions, they just never approved, and when they did an audit, they found 43 points of sale.

{audio:0:32:10} What do you think is the mission-critical part of the stack today in this cloud world? We talked about loyalty. You've got the POS. What do you see is the most important part or has the most bargaining power in the tech stack?

{audio:0:32:39} You have to be able to place orders everywhere. Either through integration or using a unified engine, you have to be able to transact mobile and online and in the restaurant in some seamless fashion. That, to me, is the most important, and I think customers coming out of COVID expect to be able to use contactless technology as much post-COVID as they had to in COVID. If I'm at a table, there's no reason that I can't interact and order another round of drinks or my dessert or whatever it is that I want. I should be able to interact with the check, my server should be able to interact with the check, and I should be able to pay. I should be able to do all that from my phone, and if you and I are out to dinner and we want to split the check, I should be able to text you a link to the check, and we should both be able to pay for it. I think those are becoming table stakes.

{audio:0:34:12} When you look at the different parts with Brink as a POS, plus what PAR is doing around that, plus you have Olo, which is kind of powering online ordering, how do you look at the different variables here at play?

{audio:0:34:36} Olo has done a really good job of burrowing into the technology stack. If in-store technology providers had been a bit more alert, I think they would have built the technology themselves. The operators would rather have added a seamless solution than have had a point of sale and a separate online ordering solution. Olo has done a really good job and their integration with third-party last-mile delivery is good. All of their integrations are good. I don't think it's an unassailable position. Still, they have a pretty strong position now, and I think they deliberately avoided acquiring a POS at the risk of pissing off everybody else in that POS market. If they owned a POS, everybody else would be less willing to play nice. I thought they'd buy Punchh. They clearly have to buy something. They have to grow, and I don’t know what they’ll buy next.

{audio:0:36:28} I'd have bought Punchh, especially since they had so many customers in common. I might think about buying a last-mile delivery service if I thought I could scale it. I might look at buying a delivery software solution that facilitates self-delivery and/or third-party last-mile delivery. There's a couple of those in the market. But I think marketing technology is where the money is going to be. The CMO already controls more of the IT budget than the CIO. If I were Noah Glass, I'd be looking at finding the right marketing technology in which to invest.

{audio:0:37:37} Do you think Noah ever has to buy a POS?

{audio:0:37:40} Maybe he does, but I don't know what because you buy one and you've made lots of enemies. I mean, if you work with the Brink in half of your customers and you don't buy Brink, you've set the stage for Brink to do something to displace you if you buy one of Brink's competitors.

{audio:0:38:17} What about Brink moving the other way?

{audio:0:38:22} I can’t imagine that they’re not focused on facilitating ordering. I think you’d have to be not the sharpest guy if you weren’t looking at growing your technology stack and your ARPU by disintermediating a third party like Olo.

{audio:0:38:53} So what do I do with Olo?

{audio:0:38:59} If I’m Brink, I wouldn’t care.

{audio:0:39:05} Does that mean Brink is the driving seat because they have the POS, and they can just bolt on all these other services?

{audio:0:39:15} I suspect you’d get a vastly different answer to that from Noah than you would from Savneet.

{audio:0:39:29} As you said, Noah knows that he can't cut off half his customer base if he buys a POS, whereas Brink is in a different kind of position.

{audio:0:39:51} Yes, I would say that's true. It might be easier to replace the mobile and online ordering system than refresh your POS, especially if it required hardware. There's no hardware required if you're an online and mobile solution.

{audio:0:40:31} We were discussing the Xenial rollout. What was the biggest challenge in driving adoption for a new cloud POS?

{audio:0:40:46} If what you have works, you have to need features that you can't get in your current system. Whether or not those features support the deployment and management of the solution, you're looking for a lighter footprint. You're looking to be able to update. Updating 6,500 Taco Bells with a new version of software that requires you to send some package to 6,500 stores then push it to 35,000 endpoints is a logistical nightmare. It's expensive and I think realizing that you could bring down the total cost of ownership by doing something in the cloud is interesting. Still, it's complicated if you've decided to go Android, for example, and your franchisees don't feel like they've amortized the cost of the last hardware that you made them buy. You get pushback there. Franchisees want 10 years out of their hardware.

{audio:0:42:43} Do you think you could face barriers with the franchisees if some of the enterprises want to upgrade to Brink or Xenial too quickly within the 10 years?

{audio:0:42:57} I don't think 10 years is realistic and nor does the franchisor. The franchisor will be pushing for you to replace that hardware because the maintenance of the hardware becomes unreasonably expensive after it gets past five years. I think five years is reasonable.

{audio:0:43:29} I guess you’ve also got to account for some of the other challenges that the franchisees will be facing potentially, whether it's pressure from delivery players or a more competitive market that could even make them stop upgrading.

{audio:0:43:42} Yes; if your legacy POS is keeping up with all of that and integrating with the players. Our approach was to build what we called a commerce engine. It was in the cloud and would connect the legacy POS to everything that the brand may want to do, with online mobile – whether we were providing it or somebody else was – loyalty, nutrition and digital menu boards. So if your legacy solution is doing all of those things, then why switch, especially if it requires a hardware refresh? If you think you want to go Android and you’ve got Windows terminals, if you’ve got 35,000 terminals across your enterprise, that’s a lot of money. It’s tens of millions of dollars of hardware replacement and, onsite, somebody to install it and deinstall the old one. That’s expensive.

{audio:0:45:12} Do you think we’ll see a slower rollout?

{audio:0:45:21} No, I think it's slower in the larger enterprises, and I think we've seen larger enterprises decide to build their own. Yum! is building its own POS and will build the next-generation POS across all their brands.

{audio:0:45:43} But didn’t McDonald’s scrap theirs?

{audio:0:45:47} No, they did not. McDonald's bought source code from a Brazilian company and continues to deploy and use that solution today. That's a cloud-based solution.

{audio:0:46:08} So you think that the big dogs are going to be building their own?

{audio:0:46:14} RBI has bought source code. Panera has bought source code and modified it. Their replacement to XPIENT is homegrown and rolled out. I think the larger players want to be in control and build their own.

{audio:0:46:39} How does that full-stack solution compare to the likes of Brink?

{audio:0:46:47} You know it’s going to be fit for purpose, so if I build something for myself, it’s going to have all the features I need, but it’s not going to have the features that I don’t know I need. Whereas Brink is going to have features that 20 brands are saying, we need X, or we need Y, so it's going to grow. It's probably a lot easier to get to new features in a product like Brink than to get to those features in a product you built yourself, unless you're maintaining a fairly large dev team to add those features as time goes on.

{audio:0:47:41} Do you think the market for the Xenials or Brinks may be 500 to 1,000, not the huge enterprises?

{audio:0:47:53} I think it depends. You have Inspire Brands; Brink is in many of their concepts, but not all of them. I'd say that they'd be a good target to build their own, but then again, they have, I think, Aloha in Sonic and Micros in Dunkin' and Brink in Arby's. I think they're broken up with maybe Arby's being the largest in terms of the number of units. I'd say you've got to have more than 2,500 units to make building your own even a consideration. And do you want to be in the software business, or do you want to sell hamburgers? I used to have that conversation with customers all the time. They'd threaten to build their own and I could never understand. I mean, you do what you do well and we do what we do well. It doesn't seem logical that you'd want to interrupt that.

{audio:0:49:36} I think they say that everything’s a tech business these days, to some extent.

{audio:0:49:41} Well, yes, that’s true.

{audio:0:49:45} You mentioned that Panera used XPIENT, even though the CEO participated in Punchh. I thought he would have been interested in Brink.

{audio:0:49:54} Well, he is the former CEO. And they were an XPIENT customer, but they built their own. So they’re no longer an XPIENT customer or a Xenial customer. I thought that investment was pretty interesting.

{audio:0:50:22} What do you make of that?

{audio:0:50:27} I think he wants to have some influence in restaurant technology and he knows a bit about restaurants. They built their own. Even when he was my customer, he always felt like the customer-facing user experience must be controlled by the brand because only the brand knows how to interact with the customer. I think he's got some opinions and some learnings about deploying technology in restaurants and probably thinks he can add some value to Brink.

{audio:0:51:14} So Panera, for example, would have their own system and they would use the likes of Punchh and those best of breed.

{audio:0:51:22} They used Paytronix for their loyalty system early on, and then they brought it in-house. They had an iPad-based ordering system in the store, the same software that would run on your phone for mobile ordering, and they wrote that themselves years ago because Ron Shape felt like they had to control the experience.

{audio:0:52:04} It seems like a lot of the big brands will think that way. Like you said, if the marketing executives are almost owning more of the spend and everything’s about owning your customer online, isn't it a logical conclusion that all of these bigger enterprises will just feel uncomfortable if they do not really own everything?

{audio:0:52:29} I'd argue that you don't have to own the technology to own the customer. You have to have a contract with your technology provider that obligates your technology provider to do what you want in a time frame that can work for you. So if you write a good contract and have a good partner in your technology company, then I don't think you have to be the one to do the ones and zeros. I don't.

{audio:0:53:00} So they're just kind of worried. It's more of an emotional decision then, it seems.

{audio:0:53:04} It's emotional. I want to be in control. I don't want some other guy being in control. More about that, I think.

{audio:0:53:18} How do you compare the cloud POS systems, Brink, Xenial and the others?

{audio:0:53:29} Well, I'm a bit biased, but I think Xenial was interesting because we designed it from the ground up to be operating system agnostic, so it runs on iOS, Android, and Windows. Brink, today, is still Windows. I don't think that will be true tomorrow.

Brink POS, Olo, & A History of Restaurant POS

Former President Xenial, Global Payments Inc

inpractise.com/articles/brink-olo-and-a-history-of-restaurant-pos

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Christopher Sebes

Former President Xenial, Global Payments Inc

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