Chowly CEO on Divide Between Small, Large Delivery Restaurants

Way back in 2015 when Chicago-based delivery integrator Chowly was just getting started, CEO Sterling Douglass was still licking his wounds after a previous business shut down after a six-month run when he started to realize the potential as thousands of restaurants tried to consolidate delivery operations into their existing software. A mere three-and-a-half years later, the brand has 4,000 restaurants on its platform, integrations with more than 150 delivery providers and two dozen point of sale providers, now adding as many as 500 new restaurants every month.

In the midst of this breakneck growth spurt spread among the fast-growing delivery software world, Chowly is looking ahead to the countless paths it sees to help restaurants master this new, hyper-connected food economy. We spoke with Douglass about his unique perch “watching the world change” and how he sees the delivery landscaping evolving in the next few years.

Whether that’s the rise of virtual and ghost kitchens, or how restaurant operator needs are shifting, he said a lot of the momentum has shifted toward working on so-called enterprise brands—which tends to be large, often franchised restaurant operators—that can boost the financials of software players, delivery brands and delivery-world investors looking to cash in on the rise of delivery.

At Chowly, dividing the needs of smaller, independent restaurants versus the big enterprise brands, Douglass said bifurcating development and sales teams has allowed the company to place a big bet on the biggest restaurant players, without taking its focus away from the independent brands that tended to move faster than larger restaurant groups.

For restaurant operators (and maybe reporters, too) that struggle with the differences between Your Fare, Checkmate, Ordermark and other delivery software players, Douglass said two key distinctions are helpful to point out: whether there’s point-of-sale integration as part of the solution and if there is separate hardware, like Ordermark’s printer-based solution.

“When we talk with restaurants, that’s usually the first distinction we make: Do you want a POS-integrated product or are you just looking for consolidation?” he said. “If you’re looking for a POS-integrated product, then it’s usually between us and Checkmate in the SMB [small- and medium-sized business] space, and then us and Olo in the enterprise space, because Olo doesn’t work with smaller restaurant groups and Checkmate seems to have more of a focus on the SMB side of the industry.”

With so many restaurant integrators crowding the dining room, he stressed that there’s room for everyone given the size of the restaurant industry and the number of solutions trying to solve the new-age problems wrought by delivery. Douglass added that investor priorities have been a factor in what brands focus on what size category of restaurants.

“Venture capital groups much prefer enterprise B2B software companies over SMB, so you get a lot of pressure from your investors when you take on that capital,” he said. “I see all the numbers as well, enterprise groups are more profitable, but that doesn’t mean there’s not a really big pain point for SMBs that they need as well, so from our standpoint we do both.”

A similar playbook has unfolded among the largest delivery brands as well, with DoorDash being the first to shift its primary focus toward enterprise groups. Once they showed the benefits of that strategy, Douglass said, other brands followed suit with moves like Grubhub’s 2018 purchase of LevelUp.

Asked about the consumer-facing impact of this industry-wide shift toward big restaurants, Douglass speculated that delivery aggregators will eventually personalize their offerings, so customers looking to order QSR will see their favorite choices up top, while users more interested in local, independent restaurants will see a different order of choices.

Talking as California’s AB5 ruling stepped to center stage in the delivery industry discussion, Douglass added that he’s still predicting that somebody will come out with an aggregator for delivery drivers themselves.

“The delivery driver could be driving for 13 different services, and the services would enroll because they get access to the driver networks and the drivers would do it because they’d be kept really busy,” he said, acknowledging that, thus far, nobody’s been able to make such a plan work. “I believe all those [delivery] groups, their No. 1 priority is driving volume to the driver networks, not only in the short term but in the long term, because it’s the only way they can show profitability—and autonomous is just too far away.”

With news that Grubhub is partnering with Lettuce Entertain You to launch a Whole30 diet-based, delivery-only restaurant in Chicago, Douglass said restaurant operators shouldn’t worry that they would suddenly find themselves boxed out by delivery providers with their own kitchens.

“The restaurant ecosystem in the U.S. is incredibly unique compared to ecosystems in the rest of the world” where such concepts have succeeded at scale. Whether it’s due to differences in distribution, the regulatory system or “the way restaurants are sold,” he stressed that American restaurant dynamics are different enough to form a “naturally occurring protection barrier” that he predicted will keep third-party delivery share at or below 10 percent.

With the National Restaurant Association estimating the U.S. restaurant market at $863 billion, and most projections pegging delivery at $8 billion to $10 billion of that, that’s still a significant stack of hundred dollar bills that are potentially up for the taking.