Toast's Pricing Reversal: A Lesson in Customer-Centric Decision-Making for the Restaurant Tech
July 20th, 2023
It was an announcement that shocked the restaurant tech industry: Toast Inc., the widely utilized restaurant technology firm, was backtracking on a controversial 99-cent order-processing fee that it had previously imposed on its restaurant clients' customers. The fee, met with significant backlash from Toast's users, has sparked a widespread conversation about ethical business practices and the potential implications of similar decisions on the broader restaurant technology industry.
Fee Reversal and its Implications
In a letter to its customers and filed with the Securities and Exchange Commission, Toast's Chief Executive Chris Comparato acknowledged the misstep, stating, “We made the wrong decision and following a careful review, including the additional feedback we received, the fee will be removed from our Toast digital ordering channels.”
Shares of Toast Inc. took a significant hit following this announcement, plummeting nearly 10% in morning trading, losing a staggering $2.3B in value. While this immediate reaction from the stock market reflected investor skepticism, it's important to note that, overall, Toast's shares have seen a growth of 32% in the ongoing year, in comparison to a 19% rise in the S&P 500.
While sell-side analysts might not need to significantly alter their projections, buy-siders might need to reconsider their positions. The true test of the reversal's impact, however, will be in assessing any potential long-term reputational damage to Toast.
Repercussions for the Restaurant Tech Industry
Toast's now-retracted decision to impose the controversial 99-cent fee sheds light on the broader issue of transparent and ethical pricing in the restaurant technology industry. As restaurants already grapple with fees from other third-party platforms, Toast's decision was perceived as a betrayal by its clients. They saw it as an additional burden, imposed unilaterally and paid for by consumers who, in most cases, had no prior knowledge of Toast.
This incident should serve as a cautionary tale for other players in the industry. Business owners need control over their sales mechanisms and pricing, especially when these decisions impact their customers directly. Delegating too much control to technology providers can lead to situations that risk their reputation and customer satisfaction.
Looking Ahead: Innovation Funded Ethically
Toast’s argument for the fee was to fund its ongoing innovation in restaurant technology. While innovation is critical, it's clear that its funding needs to be sourced ethically and transparently. Imposing a fee on consumers that was intended to fund Toast's research and development sparked outrage among its restaurant clients, who were, in effect, being charged to finance Toast's growth and innovation.
In an industry where margins are often thin and competition is fierce, restaurant technology companies should think twice before passing costs on to already stretched clients and their customers. This incident underscores the importance of businesses ensuring that any pricing changes are not only communicated clearly, but also designed with the direct input of those they will affect: the restaurants themselves and their loyal patrons.
The restaurant technology industry is evolving rapidly, with innovation driving significant changes in how restaurants operate. However, this incident with Toast Inc. reminds us that even as technology plays an increasingly important role in the industry, customer-centric decision-making and ethical business practices must remain at the core of every organization.
In the end, Toast's decision to retract the 99-cent fee indicates that they are willing to listen to customer feedback and adjust their course accordingly - a move that will likely be appreciated by their clients. The entire restaurant technology industry will be watching closely to see how Toast recovers from this pricing misstep, and it is hoped that other companies will learn from this experience to better serve their restaurant clients.