Everything you need to know about Olo

What is Olo?

Olo is a US-based company founded in 2005 that provides a software platform used by the restaurant industry. Its Software-as-a-Service (SaaS) platform is used by over 400 brands, from Five Guys and Shake Shack to Denny’s and The Cheesecake Factory, to streamline their commerce platform across 64,000 restaurant locations to help manage everything from taking orders and monitoring inventory to organising delivery and analysing customer data.

Olo works with over 100 technology partners to provide an ‘open ecosystem’ that allows companies to plug-in and utilise a wide variety of digital tools, and the Olo platform acts as the glue that brings them altogether.

‘We believe our platform is the only independent open SaaS platform for restaurants to provide seamless digital ordering and efficient delivery enablement, offering centralized management of a restaurant’s entire digital business,’ Olo explains in its prospectus.

The restaurant industry has undergone major changes in recent years, and many of these have accelerated during the pandemic. For example, many restaurants have turned from only serving visiting customers to now offering takeaway and delivery options, possibly through several apps like Uber Eats or DoorDash.

‘The four walls of the restaurant uniquely serve as both the factory and showroom floor: restaurant operators must manage the intricacies of food production and customer service simultaneously while providing the high-quality, consistency, and hospitality that engenders consumer loyalty and trust,’ Olo explains.

The three core aspects of Olo’s platform are ordering, dispatch and what it calls ‘rails’.

Olo offers a white-label ordering service for restaurants to use. This means businesses can launch their own digital ordering service using their own brand and centralise all incoming orders regardless if they are made through mobile, on a computer, or physically inside the restaurant.

The dispatch offering allows restaurants to offer and manage their own delivery service, rather than rely on those provided by food delivery companies while retaining more control over the quality of the service and the customer data it collects.

Finally, the ‘rails’ offering is all about allowing restaurants to plug-in software provided from other companies into the Olo platform, such as food delivery companies, so they can still use the platform while receiving orders from third-parties.

How does Olo make money?

Olo makes money in a variety of ways but income comes from two predominate channels – subscriptions and transactions. Restaurants pay a fixed monthly subscription to use the platform’s ordering module while it earns a fee from transactions made through dispatch and rails.

Notably, subscription revenue has driven the business so far but transaction revenue is gradually becoming more important. Olo made 93% of revenue from subscriptions and just 7% from transactions in 2018. However, in 2020, it was much more evenly split with 56.7% of revenue coming from subscriptions and 43% from transactions.

Olo’s platform currently handles around 2 million orders each day, having experienced huge growth during the pandemic. Olo says 70% of its customers decided to offer more takeaway and delivery options as part of their coronavirus strategy, prompting more of them to use Olo’s dispatch and rails tools.

One major benefit of Olo’s model is that it targets businesses that have multiple restaurant locations and signs them all up at once, rather than having the painstaking task of gradually signing up individual sites over time.

‘Unlike other enterprise software businesses, where the sales team works to add a single location or division and expand to others, we enter into relationships at the brand’s corporate level and secure exclusivity across all company-owned and franchise locations,’ Olo explains.

These larger customers, defined as those with over 50 locations, have also proven extremely loyal, with 99% of them having renewed their ordering subscriptions in 2020.

Olo believes its business model is geared so that its own performance is aligned with that of its customers, with subscription revenue providing stability and transaction revenue growing as restaurants secure more orders.

Is Olo profitable?

Olo is both fast-growing and profitable. Revenue almost doubled in 2020 and it escaped the red by posting a small pretax profit. However, Olo has warned that it expects to report losses ‘in the near term’ as it continues to grow and operating costs increase.

Still, Olo has delivered a lot with very little capital compared to many businesses, having received less than $100 million in primary investment capital since being founded. It also had $75.8 million in cash and zero debt at the end of 2020.

Does Olo pay a dividend?

Olo has never paid a dividend and does not intend to make any form of payout in the foreseeable future as it will reinvest any future earnings to fuel its expansion and development.

Who are Olo’s competitors?

Although Olo has purposefully designed its platform so restaurants can use services from third-parties, such as food delivery firms or marketplaces, it hopes more restaurant chains will aim to build their own offerings using the Olo platform rather than rely on other companies like Uber, DoorDash or the other multitude of companies that have disrupted the market over recent years.

Olo believes restaurant chains need to maintain more control over their relationships with customers by managing all aspects of the business, whether that be from taking an order to delivering it, rather than allowing another company to be responsible for some of the most important aspects of a customer’s experience. Olo said 70% of its customers joined because they wanted to own their online presence and build their own digital relationship with people. Having your own system also means a restaurant chain can take ownership over the invaluable data collected from customers rather than giving this away to third-parties.

Around 50% of orders received by Olo customers come from third-parties. Surprisingly, Olo believes the number of orders received by restaurants through third-parties will decline going forward and that people will start placing more orders directly with the restaurant itself. A recent survey by the National Restaurant Association revealed that almost two-thirds of people prefer to order with the restaurant itself rather than through a site like Uber Eats or DoorDash.

What is Olo’s strategy?

The restaurant industry has certainly suffered during the pandemic as their ability to cater to visiting customers has been impaired by lockdown rules, but Olo believes off-premise consumption – whether it be takeaways, deliveries, or a drive-thru – was the main driver of growth for the industry even before the pandemic hit.

The pandemic has forced restaurants to go digital to ensure they can take as many orders as possible and Olo believes most have little choice but to partner with another company to bring them into the digital age. Many restaurants have turned to delivery service providers and online marketplaces as a quick way to launch new services, but Olo thinks that has created new challenges that need to be dealt with. Using a third-party delivery service or online marketplace has eroded what are already razor-thin margins, and it has given control over important aspects of the customer journey to another company. With that, the valuable data that is gathered from customer shopping habits goes not the restaurants but to the third-party, meaning restaurants struggle to build a better understanding of their customers. Olo believes its platform can help restaurants digitise their business and solve these problems.  

The immediate priority is to continue growing. That will be achieved by continuing to add new restaurant brands to its roster of customers while also encouraging existing ones to use more services. Customers have traditionally started out using the ordering part of the Olo platform before starting to use other modules such as delivery and rails. In 2019, only 44% of Olo’s customers used all three modules but that rose to 71% in 2020. The adoption of the delivery and rails modules opens the door to more transactional revenue rather than the steady-and-stable subscription income provided through orders.

It will also continue to expand its ecosystem so it can provide new products and services. Olo has highlighted the likes of payments, on-premise dining and data analytics are areas it will focus on.

The opportunities over the longer-term are potentially huge. Olo, with its focus currently honed-in on the US, still has the rest of the world to pursue and thinks its platform can work for other industries – especially fragmented ones comprised of small and medium sized businesses that need an all-in-one solution to digitise their businesses. For example, Olo is already working with several grocery chains and convenience stores that use its software to let people order ready-to-eat meals.

Who are the directors of Olo?

Below is a list outlining the board of directors of Olo:

• Founder and CEO – Noah Glass
• President and COO – Matthew Tucker
• CFO – Peter Benevides
• Chief Legal Officer and Secretary – Nithya Das
• Chief customer officer – Marty Hahnfeld
• Chief technology officer – Andrew Murray
• Chief people officer – Deanne Rhynard

When was the Olo IPO?

Olo completed its initial public offering (IPO) on the New York Stock Exchange on March 16, listing under the ticker ‘OLO’.

Olo IPO valuation: how much were Olo shares worth?

Olo sold 18 million shares under its IPO priced at $25 each – considerably higher than its initial target range of $16 to $18 – to raise $450 million. That gave Olo a market capitalisation of $3.55 billion as it started its journey as a publicly-listed business.

Bloomberg reported in early 2020 that Olo was valued at around $1 billion, demonstrating the pace of growth that Olo has experienced since then.

How to trade Olo shares

You will be able to trade Olo shares with City Index as soon as the stock has completed its listing. Follow these steps to start trading Olo shares:

1. Open a City Index account, or log-in if you’re already a customer.
2. Search for ‘Olo’ in our award-winning platform
3. Choose your position and size, and your stop and limit levels
4. Place the trade