It’s no secret the pandemic decimated areas of the hospitality industry—think hotels, clubs, gyms and restaurants–in 2020. Back-end tech companies servicing those businesses got hurt, too. But now, a year after the start of Covid lockdowns, a handful of nimble tech-hospitality companies have smartly rebounded–in large part by leveraging a broader digital shift that’s transforming both consumer and business behavior.
On the consumer side, we all saw the smart and dramatic pandemic pivot of lodging giant Airbnb^: It first planned to go public in spring 2020 but was hit by the pandemic’s many travel restrictions. But the company picked itself up and rapidly repackaged its offerings for Covid: It revamped its website within days to stress longer-term rentals and local travel; emphasized “enhanced-cleaning” protocols; and relaxed cancellation policies. Airbnb’s 3Q20 revenues bounced back to $1.34 billion from $334.8 million in 2Q, and the company staged a successful IPO in December. (It’s now worth more than $100 billion.)
Similarly, many less-known software-as-a-service (SaaS) companies that quietly run the back ends of hotels, restaurants and gyms figured out how to survive and thrive during Covid. These innovators not only helped the customers they serve stay in business; they also helped them streamline operations and improve the experience for end consumers in ways that will likely stick around post-pandemic. These SaaS businesses proved the old saying: with challenges also come opportunities.
Online ordering at restaurants
As we all know, Covid brought about a massive shift to e-commerce overnight. Suddenly consumers needed to buy all kinds of products and services online, not just the ones they were previously comfortable with. Simultaneously, businesses needed to shift rapidly towards offering curbside pickup or delivery. Nowhere was this shift more visible than in restaurants.
While these businesses had traditionally offered takeout, most lacked online menus, let alone online ordering functionality. Lockdown required many capabilities they weren’t equipped to offer, from more convenient ordering options to delivery, sanitization protocols and contactless payment.
Enter Toast, a point-of-sales system for SMB restaurants. Toast offered its merchants free online ordering when food-and-beverage businesses were still reeling. The company’s online-ordering interface nudged customers to buy cocktails, add tips, and purchase restaurant swag — all the “extras” that fatten a restaurant’s margins or, in these circumstances, kept them afloat. And Toast kept innovating: offering scan-to-pay directly from a customer’s receipt, for example, and other forms of convenient, contactless payments.
After cutting staff by half this past spring, the company is back, having likely increased revenue and gained market share through the pandemic: The Wall Street Journal reported it is preparing for an IPO that could value the company at $20 billion, a step up from its last private valuation.
Our portfolio company Olo* powers online ordering and delivery for restaurant chains. When the pandemic lockdowns started, Olo was a lifeline for these businesses. The company grew revenue 94% during 2020 and was profitable, according to the S-1 the company filed with the SEC in late February. It went public in mid-March. Another Battery investment, Crunchtime*, makes ERP software for large restaurant operations and has started tracking restaurant sales weekly for its customers and implemented new features like a reopening checklist for restaurants impacted by shutdowns. It ended last year with the highest number of restaurants using its software since inception and acquired a company offering online training to restaurant staff—a key competency for larger restaurants that will need to re-train millions of new workers as a result of COVID furloughs.
The digital shift at private clubs and gyms
Gyms and private clubs were another hospitality sub-vertical slammed by the pandemic. But again, not all players were hit evenly. Those who stayed nimble, diversified their revenue streams and embraced digitization did surprisingly well.
While new memberships and check ins may still be down, many gyms and clubs have pivoted to offer fitness classes over Zoom or outdoors. None of this would have been possible without rapidly deployed new technology to integrate with Zoom and other streaming services, and new reservation and payments systems to allow for smaller but more-frequent classes.
ClubReady, a technology company that is a division of our portfolio company Clubessential Holdings*, is one of several players developing such systems. Clubessential also recently acquired a company called foreUP that makes online reservation systems for golf courses. It sounds simple, but it actually represents a breakthrough in golf-course management that will likely outlive the pandemic and help clubs operate more efficiently. (Historically, most golfers booked tee times by phone—without offering a credit-card number—resulting in frequent no-shows. The online, credit-card booking system has changed the paradigm.)
Another division of Clubessential Holdings, Clubessential, also introduced a mobile app for private clubs that allowed members to pre-order food, services or goods, and get their charges automatically reconciled with their monthly club statement. Automatic reconciliation proved convenient for members but a godsend for club controllers, who had previously spent days every month on statement reconciliations. The company also has a no-touch, point-of-sale solution linked to its integrated payment-processing system.
Going digital means embracing nimbleness
Hospitality is slowly recovering as an industry, and SaaS-enabled innovations keep emerging. Hotels can now rent rooms by the hour or the year or as private dining rooms, personal exercise spaces, or small offices. AI-powered service automation software is enabling stretched hotel staff to service more guests better – and at a distance. Vaccinated travelers are venturing back into the world. Indoor dining, clubs and gyms are already seeing more event activity and revenues return. But hospitality companies that fully embrace digital solutions will come back faster and, we believe, stronger than their non-digital counterparts.
Battery Ventures provides investment advisory services solely to privately offered funds and neither solicits nor makes its services available to the public or other advisory clients. Nothing herein should be construed as investment advice. *Denotes a Battery portfolio company; for a full list, please click here. ^Battery holds shares in Airbnb as a result of its acquisition of HotelTonight. Content obtained from third-party sources, although believed to be reliable, has not been independently verified for accuracy or completeness and cannot be guaranteed.