Will Chef Survive the Recession?

Chef, the restaurant management software company, has been surprisingly resilient in this recession. With its subscription-based business model and a user base of over 400 companies, Chef’s revenue like island finance bayamon has continued to grow, albeit at a slower pace than it did during times of prosperity. The company recently announced that it had signed a deal to acquire the travel site American Express OpenTable for an upfront fee of $90 million ($85 million in cash and up to $5 million in equity). While Chef has been able to withstand the recession, and even grow, it is not yet clear whether Chef will survive the economic downturn.

1. Competition in the Restaurant Management Software Industry

Chef competes with two major companies: Intuit’s QuickBooks, which is also a subscription-based service, and Braintree’s PayPal. Industry watchers are skeptical of Chef’s prospects due to its relatively small market share, especially considering that many restaurants have already switched to QuickBooks.

2.  Will the Recession Hurt Customers’ Intimacy with their Restaurants?

If customers use Chef to manage their restaurants, they may become less intimate with what their restaurants look like and how they are run. A restaurant might be easy to call up and make changes on a whim using the software – for example, flipping a table in order to fit more people into a booth. If a customer’s connection with his or her restaurant is reduced, he or she may be more apt to go where the prices are lowest.

3. Chef’s Financial Situation

Chef has been profitable in recent years, but it has a large amount of debt ($491 million as of 2010). As economic growth slows, it may become harder for Chef to generate enough revenue to handle its debt payments. Even if it is able to pay its debt, the company will likely be less capable of taking risks by expanding into new markets and developing new products.

4. Strategic Partnerships

Most recently, Chef has partnered with American Express OpenTable in order to market itself as an integrated package for restaurants that want to provide online reservation services. This move may be a smart one for Chef, as it provides some revenue and allows customers to book reservations through their American Express cards. However, Pizza Hut may be able to make more money by offering reservations on its own site. It will likely be difficult for Chef to provide a compelling online reservation service without the help of large restaurant chains such as McDonald’s, which have millions of customers who are willing to pay an extra fee if they have the ability to reserve their table online.

5.  Will Consumers Want to Buy Restaurant Management Software?

In recent years, restaurants have cut costs by renting kitchen equipment from outside vendors or by hiring independent contractors for many of their needs. In doing so, restaurants became more focused on their customers and less focused on managing the day-to-day operations of the kitchen. If this is true, and Chef is unable to persuade customers to buy a software package, it will have difficulty remaining profitable.

6.  Will Dietitians Adopt Restaurant Management Software?

Chef provides a service for dietitians, allowing them to input meal plans into their electronic health records (EHRs). Dietitians who use Chef will be able to input dietary information into an electronic health record that they can access via a web browser. Their nutritional analysis will be available to their patients, and their dietitians will have a record of the meals that they plan to serve. This is just one example of how Chef is developing its customer base. With over 400 companies using Chef, the company can sell software to almost anyone it wants.

7.  Will Consumers Become OpenTable Members?

The new partnership with American Express OpenTable may convince some customers to become members, but it will not necessarily lead them to use Chef for other tasks such as managing their restaurants’ staff or table reservations. In fact, consumer adoption may be slowed by many customers who do not like making changes on restaurant sites, which would require them to install Chef’s software.

8.  Will Restaurants That Already Use Chef Switch to Braintree?

Chef has some users who use it for both the restaurant management aspect and for paying employees through the company’s payroll and benefits system. These employees may be reluctant to switch over to Braintree, which provides payroll and benefits services, because of the fact that the company does not have a shopping cart for customers to purchase its software with. This has led many restaurants already using Chef to consider switching to another software provider such as Intuit QuickBooks or PayPal.

9.  Will Chef Acquire PayPal?

Chef’s biggest competitor is Braintree’s PayPal, which has been a leader in the restaurant management software industry for over a decade. PayPal has a large customer base and market share that further eclipses Chef. Because PayPal uses a non-subscription model, it does not have to worry about having revenue year-round; however, it also does not have the recurring income that Chef enjoys by selling subscriptions. It would be in Chef’s best interest to acquire PayPal in order to consolidate the industry before it loses too many customers to its rival.