How Does ChowNow Make Money? Analyzing Its Business Model

Executive Summary:

ChowNow is an online food delivery company service that allows customers to order food from local restaurants.

ChowNow makes money from monthly or yearly subscription fees, setup fees, as well as order fees for its Order Better Network.

Founded in 2010, ChowNow has become one of North America’s leading food delivery platforms. It now works together with over 20,000 restaurants.

What Is ChowNow?

ChowNow is an online food delivery company service that allows customers to order food from local restaurants.

The company, unlike other delivery platforms like DoorDash, differentiates itself by not imposing exorbitant fees that can be as high as 40 percent. In fact, it doesn’t charge a percentage fee at all.

ChowNow offers any cuisine imaginable, including pasta, Vietnamese, barbecue, Korean, Mediterranean, Cajun, desserts, sushi, Indian, pizza, and many more.

Apart from access to its food delivery marketplace, ChowNow has also developed a range of other products for its restaurant partners.

This, for example, includes its order network which enables restaurants to automatically get listed on a variety of platforms such as Google, Snapchat, or Yelp, a Point Of Sale (POS) system, or the ability to create membership programs, amongst many others.

Consumers who want to order food can do so by downloading ChowNow’s mobile app, which is available on Android and iOS devices.

ChowNow Company History

ChowNow, headquartered in Los Angeles, California, was launched in 2010 by Christopher Webb and Eric Jaffe.

Webb began his career in the early 2000s as a 19-year-old analyst at Bear Stearns. After three years, he decided to move to New York to play in the big leagues by joining Lehman Brothers as an associate.

Ironically enough, both Bear Stearns and Lehman Brothers eventually became the poster children for the great financial crisis which ensued in 2008.

Webb, as a result of Lehman’s bankruptcy, was yet again on the hunt for another job. This led him to join RBC as an equity trader where he would spend the next two years.

He eventually grew tired of the New York City lifestyle and wanted to move back home to Los Angeles. Moreover, Webb was itching to start a business of his own. Many of his family members had been entrepreneurs for most of their lives, which became a huge inspiration for his.

However, one of his main challenges was to come up with a suitable idea. During his Wall Street tenure, he had always been fascinated with and traded in tech stocks, in particular Software-as-a-Service (SaaS) businesses.

One unlikely investment, though, would prove to become the foundation on which ChowNow was built. In 2006, while still at Lehman, his mother called him up from Los Angeles, saying that she had just spoken to one of the three founders of a very lovely restaurant.

The founders themselves had plans of expanding their business but were lacking the necessary capital to do so. That restaurant turned out to be Tender Greens, which is now a chain spanning dozens of shops across America.

Webb and his family became one of the founding investors of that business, which granted them first-row seats into how such businesses are operated. What he saw was that Tender Greens, like many of its counterparts, was lacking the means of creating a sophisticated online experience for its customers.

The restaurant owners in New York, which he had gotten to know over the years, would tell similar stories. To make matters worse, existing platforms like Grubhub and Seamless would provide very clunky user experiences (on top of the exorbitant fees that they were charging).

With that problem set in mind, Webb and his co-founder Jaffe set out to build a solution that would allow restaurants to build an online presence across multiple platforms while being able to process orders through their own websites (a concept that pizza chain Domino’s had pioneered).

Throughout 2010 and 2011, they were busy creating the product and marketing it to their first set of customers in Los Angeles. After they onboarded a local sandwich shop in Los Angeles in late 2011, word amongst restaurant owners spread fast and allowed them to onboard dozens of new clients not long after.

In those early days, ChowNow was offering a software solution that would enable restaurant owners to have their own ordering apps on Android and iOS as well as be able to accept orders via Facebook’s Ordering App. Additionally, they would receive a tablet to communicate with customers and track orders.

In January 2012, they were able to raise a first seed round of $1 million by taking part in Launchpad LA, a local startup incubator program. The final product was unveiled in March of 2012 during the National Restaurant Show in Chicago

Exactly a year after the seed round, the team was able to score another $3 million in Series A funding. The company, at the time, was on track to onboard its 1,000th restaurant. Six months later, the team decided to extend the funding by another $1.19 million to take advantage of the increased hype in the food delivery space.

Around the same time, Grubhub and Seamless had announced their intention to merge and form the de-facto leader in online food ordering.

ChowNow itself found success in the expansion of its product suite. Months prior, it had launched an in-house marketing agency that would help clients to attract more customers through their mobile ordering platforms. It would take advantage of its custom-built CRM system to create targeted offers and promotions based on customer preferences.

Continuous product improvements, such as its additions of Apple Pay, Yelp, or Android Pay, allowed ChowNow to raise yet another round of funding. This time, in March 2015, investors poured in a total of $10 million into the business. At that point, its client base had grown to over 2,000 restaurants across all of North America.

Throughout the coming years, ChowNow continued to double down on what worked in the past, namely to help its restaurant partners with an ever-increasing selection of products. In August 2016, for instance, it announced an integration with Google’s Business profiles, which enabled restaurants to accept orders through the search engine.

That allowed ChowNow to grow to more than 8,000 restaurant partners by October 2017. That same month, it raised $20 million in Series B funding from backers such as Catalyst Investors. Weeks prior, ChowNow had unveiled its own marketplace app, which would offer food from all of its restaurant partners.

Even with the emergence of delivery platforms like DoorDash, Postmates, and Uber Eats, the company was able to hold its own. This is because it often targeted a different set of customers. Instead of going after the very small restaurant that didn’t have its own delivery fleet, its clientele often included mid-sized restaurants with their own set of drivers.

On the backbone of a heated food delivery market, that entailed an Uber IPO, as well as a $700 million fundraise by Postmates, ChowNow was able to announce yet another round of funding. In May 2019, the company raised $21 million from many of its previous backers, which is often a good sign (as backers like what they’re seeing and want to continue supporting the company).

ChowNow’s business model and distinction from other platforms also got the company in trouble, though. In February 2020, Grubhub sent a cease-and-desist order to ChowNow for claiming that the former charges commissions of as much as 40 percent, stating that the figures are “highly overstated” and “materially false”.

ChowNow, to its credit, didn’t back down and stated that it was willing to fight any legal disputes coming its way. A month later, though, these were probably the least of its worries. 

The coronavirus pandemic, which led to countrywide lockdown, but much of the restaurant business to a halt. Luckily, once more became known about the transmissibility of the virus, restaurants began to open up again, mostly through online platforms like ChowNow.

ChowNow doubled down on the exponentially increasing online activity by announcing a partnership with Instagram in April 2020, which would allow customers to order directly via the social network. It also introduced membership programs for restaurants.

By the end of the year, ChowNow had managed to cross 20,000 restaurant partners (of which 8,000 were added in 2020) all while processing $2 billion in orders in 2020 alone. The company also hired about 100 additional employees, mostly from other competitors that fired them at the beginning of the pandemic when uncertainty was at its peak.

Throughout 2021, ChowNow remained on its growth trajectory. In order to onboard even more restaurant clients, it even voided fees for the first few months for any restaurant that decided to join.

Today, over 500 people are employed by ChowNow, which operates out of close to a dozen offices across North America.

How Does ChowNow Make Money?

ChowNow makes money from monthly or yearly subscription fees, setup fees, as well as order fees for its Order Better Network.

Let’s take a closer look at each of these in the section below.

Subscription Fees

The bulk of the revenue that ChowNow generates comes from the subscription fees that it charges restaurants with inn exchange for access to its product suite.

Restaurants either pay a monthly, yearly, or 2-year fee. The monthly plan comes in at $199 per month, the yearly one costs $139 per month, while the 2-year plan is equal to $129 per month (with the latter two being paid upfront).

On top of that, ChowNow does charge 2.95 percent + $0.15 per facilitated order. However, this is used to cover the interchange fees levied by payment processors like Mastercard and Visa.

The subscription fee gives customers access to a variety of products, such as ChowNow’s marketplace (where they can list their food options), branded apps, website ordering, automated email marketing tools, the ability to create membership programs for its customers, their own dedicated restaurant success manager, and many more.

When ChowNow began, it cleverly positioned itself against the other online food marketplaces. For once, these platforms were charging extremely high fees, which made it unsustainable for some restaurants to operate.

These effects had been exemplified during the coronavirus pandemic in which most of a restaurant’s orders would come vis-a-vis platforms. These restaurants would eventually find themselves losing money on every online order they receive.

One of the keys in establishing ChowNow was, therefore, the creation of its own marketplace app. When the company started out in 2010, installing and testing out new apps was a common user behavior.

But once ‘app fatigue’ set in, consumers were less likely to download dozens of food delivery apps. Instead, they stuck to just a few they knew and trusted.

ChowNow further adopted to that expected convenience level by closing partnerships with the likes of DoorDash, which now execute food deliveries on the restaurant’s behalf (all without imposing high fees).

The major advantage of ChowNow’s business model is the stickiness of its product. Once a restaurant starts to take advantage of its ecosystem, such as the POS integrations or various apps, it is unlikely to churn.

As a result, just like any other traditional SaaS business, ChowNow tends to lose money on a customer in the first few months but recoups that upfront investment after a few months/years.

Setup Fees

Apart from its subscription fees, ChowNow also imposes a one-time setup fee. This fee, which is equal to $199, is applied to cover some of the cost of setting up its various tools.

More specifically, this entails installing its point-of-sale system, the issuance of the tablet, or the creation of the restaurant’s app and website (if needed).

Order Fees

Lastly, ChowNow does in fact charge fees on specific orders. These fees are applied for orders coming through its Order Better Network, which the company officially unveiled in October 2021.

The Order Better Network allows restaurants to connect restaurants to over a dozen diverse channels for delivery and takeout.

Example partners include access to Hilton’s rewards network, OpenTable, Yelp, TripAdvisor, Order with Google, Snapchat, and many more.

ChowNow charges 12 percent for each order facilitated through the network. However, if clients enable its Profit Protector feature, which automatically adjusts menu prices based on the individual network, these fees are essentially levied.

ChowNow Funding, Revenue & Valuation

ChowNow, according to Crunchbase, has raised a total of $64 million across nine rounds of venture capital funding.

Noteworthy investors include Upfront Ventures, Tiller Partners, Catalyst Investors, 3L Capital, and many others.

As an organization that remains in private ownership, ChowNow is not obligated to disclose revenue or valuation figures to the public.

Hi folks, Viktor checking in! Years of experience in various tech-related roles have led me to start this blog, which I hope provides you with as much enjoyment to read as I have writing the content.