Hey Everyone!

As we are speaking, I am writing this in Miami wrapping up a conference I spoke at and am now meeting with restaurants in the area.  It has been a while since I have dropped an update and well.... now I have a pretty big one.  The goal of this post is four-fold.

1) Better showcase the problem and how we are actually tackling it
2) Give much better insight into our full vision and the steps we are taking (appetizers are just the beginning of the meal after all)
3) Break down our development schedule so you have a better idea
4) Give concrete numbers for what we are targeting over the next few months, so you can hold my ass to the fire.

Almost all of the past quarter has been developing the mobile platform as well as meeting with both restaurants and users alike to get a really good feel for what their needs are and what really makes them excited.  As you well know, mobile apps for food and restaurants is a very crowded space - so making sure that we stand out and have that WOW factor for both users and restaurants is imperative.

The Restaurant Landscape: Budgets REALLY Matter

The landscape for digital platforms and restaurants is a mess.  If any of you own or have owned restaurants, you already know this.  Restaurants are a game of thin margins, and current platforms are insisting on taking more than is possible.

This is a pretty standard budget breakdown of a casual dining restaurant.  As you can see, food costs and labor are by far the two biggest pieces of the pie. Restaurants that struggle keeping these two parts in check are the ones that typically fold the fastest.  Next you can see that they do have a budget for marketing - then have common lines like utilities and rent (fixed costs that don't really have much if any wiggle room).  Miscellaneous is really more about making sure you have money to fix things as they break, including dishes or bigger equipment..it adds up.  This typically leaves a wonderful profit margin of about 5% in the end.  This isn't a pie of a struggling location - but a typical successful casual dining restaurant.

This changes when you add current digital marketing platforms into the mix....

With many of these costing restaurants anywhere from 20-40% of their budget line it isn't hard to see how this throws a massive wrench into the model.  If you take the max level of marketing budget (10%) as well as the entire slice of profit (5%) you still run into a scenario where 5%-25% still has to come from somewhere else!  Initially, one may say, 'But Todd, people don't use these platforms EVERY time'.  When they first came out, you would be correct - but now, its not the case.  People now do most of their searching, discount hunting, reservations, food ordering, and more through these platforms.  This has put restaurants in a precarious situation and one that could have major implications on how restaurants focus down the road...including major price hikes, dropping of labor, or even just closing of locations and decline of new places opening.

So how does AppApp fit into this?

We make it a point to fit within the budget structure of restaurants.  Not just for the first time - but for EVERY transaction.  This gives us a unique advantage where restaurants can acquire new customers in a fashion that fits budget as well as improve loyalty as well...all while still staying within the margins of creating a successful restaurant.  The more AppApp becomes adopted - the more it STILL stays in the margins of restaurants, while providing more and more value to the users.  This point sets us apart from all other restaurant marketing platforms - we care about our restaurants as much as we care about our users.  Without one, the other will suffer in the end.

These effects become even more important when you look at several upcoming trends:

1) We are having less children, meaning there will be a crunch on the labor force for restaurants.  This directly conflicts with the fact that the industry assumes it will need to add 1.6 MILLION new jobs to it over the next 10 years.  More openings + less applicants = higher wages and more of a crunch on that budget line.

2) With climate playing a more impactful role recently on food + consumers bigger desire to enjoy sustainable foods leads to an overall increase in the cost of food - again, increasing that budget line, putting a strain on margins.

3) There has been a major increase in the desire for unique ethnic foods when dining out.  The majority of diners want to try out dishes that they can't replicate easily at home.  With the overwhelming majority of ethnic restaurants falling into the hands of single location owners (think your mom and pop places), budget crunches drastically have an effect on whether they can or cannot keep their doors open.

This puts us in a position where restaurants will care more about budget and where we begin to come out at as the preferred options for them moving forward.

Just like your dinner, the appetizer is only the beginning

When we started out on AppApp, our goal was clear - create a platform that worked as well for restaurants as it does for users.  We started by tackling the very beginning of it - exploration.  We knew out of the gate that this wasn't the end, and we are not a one trick pony.  We have a lot of amazing features being worked on now and in the pipeline to start tackling in the future.  Each step is designed to build upon each other adding value at the time of its release and prepare for upcoming features down the road:

Currently we are adding SMS capabilities and Geolocation.  These are very important for us for multiple reasons:
1) SMS is one of the best ways to reach your target customer - with over an 80% open rate, it trumps every form of contact out there to date.
2) SMS allows us down the road to be able to also inform our users in more transactional cases - ex: confirming a reservation went through or a reminder of an upcoming booking they made.
3) Geolocation allows us to better make sure that users are indeed redeeming appetizers because they are at the restaurant as well as gives us information to make sure we provide the most relevant options.  Ex: if you are in the north part of the city, you shouldn't get special offers or recommendations they make you go to the south part.  They should be relevant to your current and upcoming locations.

We will be working on Premium Restaurant/Appetizer capabilities later this year.  This provides us with a way to increase the value of the premium membership.  With several restaurants showing interest in giving better rewards to customers who have shown they are willing to pay (premium), this will be a great way to showcase visually why premium is preferred to freemium.  Similar to how some restaurants want to offer premium only appetizers alongside their freemium ones - some restaurants we are super excited to work with deserve a premium ONLY placement - these would be insanely popular places and/or Michelin starred restaurants.  While they may not need the traffic as much as others, they still have budget for marketing - and getting excited foodies who have found the value in AppApp make a great customer for these places.

These prior steps help set us up for what will be a major inclusion into AppApp - our own reservation capability.  This puts us in an extremely advantageous situation compared to other platforms.  For starters, we now have a product that we are excited about charging restaurants for, but since we have revenue on the user end as well - we are able to not gouge the restaurants like other current reservations platforms do.  This puts us in a position where we can become the most cost effective reservation platform in the market, while still being able to provide many of the solutions other platforms have.

From there - we are eyeing up various other features down the road, that will allow us to improve the user and restaurant experience.  Integrating into all the Point-of-Sale systems of restaurants allows us to learn more about our users, as well as be able to provide valuable information to the restaurants so they can improve the experience of users when dining there.  While doing all this - we will be working on understanding our customers better via analytics.  In turn, we can provide this information to restaurants (at a cost of course). Examples would be: A diners favorite dishes so that the waitstaff can point to that first, a diners allergies, preferred eating times to improve effectiveness of promotions, the list goes on and on.

Finally (well for now) - one of the end game goals is to get into payment.  The market for restaurants is expected to grow to $1.2 TRILLION within the next 10 years.  We believe we can round out the dining experience by making payment simple - Booking through Paying should be doable on AppApp - further alleviating wait times for diners and increasing table turnover for restaurants.

Trust me, I want to be in [Dallas, Austin, SF, Topeka, ect] more than you want me to... but patience is key

I 100% absolutely love all of your enthusiasm - no really - I LOVE it.  But, expanding is very difficult early on - and done wrong can absolutely destroy an otherwise successful company.  We are still in the product-market fit stage of our company, and making sure that users and restaurants are loving our product matters more than anything. We want to be sure they are using it, and no only using it, SHARING it.  Our focus is getting one place red hot and then begin to test it out in a second.  This way we can control a bunch of marketing tests and make sure we are always getting the best bang for our buck.  Marketing is not cheap - and marketing to multiple market is massively expensive...even if you have a bunch of people willing to help get it rolling.  There is a cost to getting restaurants on board, then more to lay out initial marketing campaigns...and once it feels like it's working, then you REALLY have to pour money on that.  Now imagine that if we had to do it in 10 cities because we expanded too fast.  That would be the fastest and most sure-fire way to waste every penny you entrusted us with.  We will get there - but we have a lot of tests to run first.

That said - here is an idea of what we are aiming for:

Because of the convention this past weekend, we have already started meeting with restaurants in Miami and have gotten some fantastic feedback and interest.  We are moving - but we are moving in a way that doesn't waste your money on things we could have been more thoughtful about.  Long story short: don't worry, we are coming for you too.

So, what should we expect over the next six months?

I am never one for pinning down exact numbers this early on - especially since there are so many factors that can mess it up.  But I am always down for setting good targets.  We launch our partnership with award winning marketing firm Ruckus Marking March 1st after a lot of prep - the goal is to quickly learn about what our best marketing channels are and really pin down our ideal users.  So lets have some fun with these numbers:

I believe that bringing in 12-15k new users over the next 6 months would be a HUGE win for us - so lets make that our metric (keep in mind, that is more than 2000 users per month - or about 70 per day).

We have crested over 100 partner restaurants already - in the next 6 months I am confident that we can break 200 partner restaurants.

Our revenue driver will be down to our premium user base initially.  We believe that as additional features are added to premium, the total of users converting will increase.  That said, we also believe as we add new restaurants that the value proposition of that alone will be enough to improve conversion rates.  We think we can get to 3.5% conversion to premium (this is considered average for most freemium models).  As we add new perks - we are confident that the conversion rate will rise.

Final Words

Let's be real - that was a lot.  We have a lot we are working on and I have been super excited with how quickly we have been progressing.  My hope is that all of you have a better grasp on what we are after and are excited about the drive to push AppApp to the top of the industry.  Thank you for your time in reading this.

Best,
Todd Folk
AppApp, CEO