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Dive Brief:
- Restaurant point-of-sale software provider Toast is reversing course on a recently added 99-cent fee for online orders that was to be paid by consumers, saying Wednesday it will remove the fee by the end of this week.
- Boston-based Toast “made the wrong decision” in tacking on the fee, CEO Chris Comparato wrote in a note to restaurant clients posted Wednesday on the company’s website.
- The company chose to do away with the fee following “extensive discussions” with restaurant clients, Comparato said. “While we had the best of intentions — to keep costs low for our customers — that is not how the change was perceived by some of you,” he wrote.
Dive Insight:
In late June, Boston-based Toast said it was adding the 99-cent fee to online orders of $10 or more placed through the company’s online ordering channels. Toast had said the fee would help fund product investment and innovations.
Competitors such as Block-owned Square and restaurant point-of-sale provider SpotOn were quick to needle Toast over the move.
Dorothy Creamer, a research manager following hospitality at market intelligence firm IDC, told Payments Dive earlier this month the decision wasn’t being met well in the restaurant industry. It was seen by some as an overstep on Toast’s part, to get between a restaurant and its customers, she said. Creamer expected Toast might rethink the addition of the fee, which she said was likely driven by investors’ demand for profits.
Baird Equity Research Analyst David Koning estimated the fee could have added about 5-10% to total company adjusted revenue, he said in a Wednesday note to the firm’s clients.
“This is an interesting move, because we think pricing generally provides a net benefit to acquirers, even after some client attrition, but we appreciate the company’s willingness to listen to its clients,” Koning wrote in the note. “Merchant clients were clearly frustrated based on feedback online.”
Despite reversing course on the fee, Comparato noted the company’s pricing won’t remain static. “In that same spirit of transparency we also must acknowledge that innovation requires investment,” Comparato wrote.
“Like any business, as we add new capabilities to our existing product suite we will adjust pricing thoughtfully to help fund product investments and unlock innovation that delivers value to help you thrive,” he told customers.
The company will continue to fund innovation “thoughtfully through multiple avenues” to support its clients’ growth, a spokesperson told Restaurant Dive this morning in an email.
Toast hasn’t “pushed the pricing pedal” even as it’s improved capabilities for restaurant operators, so there’s opportunity available to do so, William Blair Analyst Stephen Sheldon wrote in a Wednesday note to investor clients.
Although backtracking on the fee could eliminate potential near-term upside, “we still believe that Toast can support top-line growth over the next few years through price increases on core products,” Sheldon wrote.
However, “it is still to be determined how this fee (and subsequent removal) could impact Toast’s perception and standing in the restaurant community,” Sheldon noted.
Toast, which provided its services to about 85,000 restaurant locations as of the end of the first quarter, doesn’t anticipate the change will impact its second quarter or its full-year guidance on earnings, according to a filing regarding the reversal with the Securities and Exchange Commission.
A Toast spokesperson didn’t respond to repeated questions on whether the fee had been rolled out to the company’s entire customer base or was still in testing. Koning’s note said the fee was rolled out July 10.
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