Small businesses' quest to capitalize on impatience
By Tina Orem
June 5, 2014
Americans spend about 37 billion hours a year waiting in line, and it takes a toll on their emotions.
That problem is precisely why payments processor Square has moved into the online ordering business with its launch of Square Order. Via a free smartphone app, iPhone and Android users can view menus at local restaurants, order food and drinks ahead of time, get notifications that their orders are ready, and then pay for their orders (and tip) with their credit cards via the app. The app is supposed to be intelligent: If your customer orders a cheeseburger with no tomato from the same place enough times, Square Order will remember and help her order from you faster next time.
In short, companies improve their throughput because customers avoid waiting in line. Companies get more traffic because their customers can breeze into their establishments, wait for nothing, eat or grab their food to go, and get out. Every customer with a toddler will appreciate how much better life could be in that world.
Square Order targets restaurants and coffee shops that already take orders via phone or online. This makes sense, given the habitual nature of food and the fact that about half of all food dollars are spent in restaurants. And food and beverage items are the second most popular category among purchases made on smartphones, according to Square.
The app replaces Square Wallet, which was a mobile payment app that apparently got little interest. One difference between the two apps is that Wallet allowed merchants to collect from customers only if they were in the store; Square Order lets merchants do this remotely.
For now, though, Square Order only works for businesses in New York and San Francisco. The company says it plans to move into other cities, though it hasn't said when expansion might happen.
There are a few prerequisites, though. First, merchants have to be Square merchants, meaning they use Square as a form of payment — and they have to use Square Pickup, which allows them to fulfill online and in-person orders.
More important, the order-ahead feature carries an 8 percent fee (the company is offering a promotional rate of 2.75 percent through July 1, however). That means if you sell a sandwich and a coffee for, say, $10, you'll pay an 80-cent fee to do so via Square Pickup if the customer orders through the Square Order app. That's pretty high, but Jordan McKee, who is a senior analyst at research firm Yankee Group, says competitors charge as much as 13 percent.
The competitors can get away with 13 percent because of their large customer and merchant bases, he said. “The services tend to be a good customer acquisition tool,” McKee added.
Grubhub Seamless, a direct competitor, charges merchants 10 percent to start — more if the volume of online orders is high. Of course, if the app is bringing in more customers because they've realized they can avoid waiting in line by using the app, merchants may make up the fee difference in volume.
One marketing angle of Square Order: the company says it plans to run ads featuring companies that use the app. In that way, it (and small businesses) can go head-to-head with Groupon and other restaurant deal sites.
But there is a risk: A merchant's existing customers may be the only ones who use Square Order, meaning that merchants may be stuck essentially paying higher processing fees for the same customers. Also, some merchants are understandably more interested in keeping their transaction fees steady than finding another service that claims to attract more customers. But one of Square's objectives is to lower the constant churn among small businesses looking for the lowest interchange fees.
Square Order has two sets of competitors: payment processors and restaurant marketers. Direct competitors include Tapingo, which is targeted toward college students. But there is also Grubhub Seamless, Delivery.com, and Foursquare — and of course the restaurants themselves. Chipotle and Papa John's, for example, allow customers to order through their own proprietary apps. Square Order will also take on PayPal and other systems that let customers pay electronically for food.
Though the idea of having a reliable way to avoid making customers wait might be revolutionary, the other companies trying to promote similar technology likely have only one thing to say to Square Order: Get in line.