This is particularly grubby behavior by Toast. They are already charging restaurants to use their platform. Reaching into every customer’s wallet for $0.99 (hidden fee) per transaction > $10 is greedy. They know it’s disgusting, which is why users have to click the Info button to see details about the fee.
Most customers will not notice and just pay this hidden fee, but that doesn’t make the practice palatable. There have to be other ways for Toast to achieve profitability.
I’ll note that this is in part enabled by the byzantine tax structure in the US, which basically nobody can be expected to tell offhand how much tax they’d be required to pay in a particular place at a particular moment for a particular product. (On the other hand, I’ve seen EU countries with like—the horror!—two or three different nationwide VAT rates for different classes of products require receipts to detail the rate and amount used for each line item specifically.)
I’m fairly okay with calling this an acceptable trade for having (by modern standards) very independent and well-funded local governments, but I still feel I should point out this’d be more or less impossible in most of the first world.
> EU countries with like—the horror!—two or three different nationwide VAT rates for different classes of products require receipts to detail the rate and amount used for each line item specifically
(Assuming it's a physical store frequented by consumers) every price label on every shelf shows the price including VAT.
Your EU/GB store's receipt will indeed break out the subtotal net of all VAT, the subtotal amount of VAT charged (shown broken down by different rates if that's applicable), and of course the overall total.
Note that 99.9% of EU consumers only care about the price of an item including taxes, so those prices are what consumer shops display, and are the only numbers consumers look at.
That is a bs claim - sure, an online store can't guess prices without additional information (just like shipping needs a zip code to estimate on most order pages)
But a physical store - everything is the same price no matter who buys it. Paper towels are never cheaper or more expensive at the grocery store unless the paper towels themselves change price.
And it's not like receipts don't already divide things up - unprepared food (in MA) is untaxed, but prepared food and some other things are so grocery store receipts already divide food up into categories and indicate where the taxed items are.
I’m not talking about a store guessing prices or tax, I’m talking about a consumer doing it.
If I remember I’m generally paying 20% VAT on my purchases and suddenly I’m seeing $3 of “tax and fees” on my $10 pre-VAT bill, I’ll probably know somebody’s doing something funny. If a store receipt (online or offline) is furthermore legally required to put the pre-VAT price, VAT rate, and post-VAT price for each item separately, there’s no way to sneak in a sudden $1 fee except for putting an item for SUDDEN FEE: $1 somewhere in the list. Presumably such an item would have annoyed quite a few people more quickly and efficiently than the current situation where they need to read about it in the Boston Globe, which might have made the vendor more reluctant to impose the fee to begin with.
Again, I’m not saying this situation doesn’t have its own merits, just pointing out that it only exists because there’s an opaque “tax and fees” item to sneak things into to begin with.
You are right everything is the same price no matter who buys it (except online), but there is a fair amount of complexity to sales tax. Dine in food might be taxed, but take out food is exempt in some states. In my state, bottled coffee is taxed if it is sweetened, but not if it unsweetened. Bakery goods are tax free, unless plates are made available then it is taxable. Sparkling water is not taxable, but sparkling water with fruit flavor is taxable, unless it has 50% juice, then it is non-tax again.
Dine in food vs. take out food also has different tax rates in Germany of 19% vs. 7%, but vendors offering both will offer the same price after taxes (and ask you so they can do their taxes).
Different products in supermarkets also have different tax rates, most "good" food will have a 7% tax rate while it's 19% for everything else (with many exceptions).
But the pre-tax price is only shown in fine-print, you as the consumer don't need care what taxes are now on the product while shopping.
Is this not just the default state for delivery apps?
Wolt charges money from the restaurants on all orders, so a 11€ sandwich from Subway becomes 12.10€ when ordered through Wolt, then they charge you 4.99€ for delivery and then charge you 0.80€ for a "service fee". So a 11€ sandwich becomes 17.89€ with delivery and fees.
> Most customers will not notice and just pay this hidden fee
It'll depend on what they're buying. When I go to my local bar with friends and am cashing out my tab? Yeah, not noticing that. Eating dinner? Also not noticing.
Buying a $3 coffee? You bet I'm noticing an extra dollar.
Sure. I'd still notice on $10-15. To use my coffee example, if I go across the street and get a coffee and a baked good it'll be over $10.
My Toast purchases are pretty bimodal. Most of them are either $100+ or less than $20. Sans hyperbole, my point was that I'll notice in one mode but not the other.
Telling someone they're gonna pay $10 + taxes and then giving them a bill for $11 + taxes is obviously fraud and I'm not sure how we got to a point where we seem to accept it. I don't know if we need stricter rules or better enforcement, but whatever we're doing now isn't working.
We need to get rid of taxes being separately listed as well. Taxes should be treated as a business expense. I pay you for food, then you pay for electricity, water, heat, supplies, taxes, insurance, etc. and keep the profits. That's how it works.
Just state one number on the menu for each item and charge exactly that number. I'm more likely to buy something that says "$12" than "$10+taxes" because it's deterministic and not some vague probability distribution in my head of how much "taxes" is.
That’s how it works in Germany. Consumers see final prices and an itemized invoice shows how much tax is included in the price. Advertising prices to consumers that do not include taxes is against consumer protection laws over here.
Exactly. As a customer, what matters is my out-of-pocket expenses. I don't care what portion goes to the store, the distributor, the wholesaler, or the government. I care about how much I pay.
I am fortunate to live in a country where the price that's advertised is the price I pay, but every time I visit the United States I am amazed that people are OK with buying something without it being clear in advance how much it costs. And let's not even start about your demented health care pricing.
It's a vicious cycle: as monopoly businesses make money they use that money to destroy regulation that stops them from making more money. Continue as nauseam and this is where you end up.
This is kinda what Biden was talking about with his "war on junk fees".
Apparently Ticketmaster is gonna be dropping them now. Of course, I'm too cynical to actually BELIEVE that but at least it's in the public discourse now all the way up to the PRESIDENT.
Will anything actually change? Well, I hate to be cynical but I am...
I know nothing about starting a business. Can someone explain why so many companies these days struggle to make a profit? Is it because they spend with wanton disregard of long term financial balances, thanks to huge up-front funding boosts clouding their optics? Or because inflation has so screwed up how customers value things that companies cannot charge what their products are worth? Or maybe that they are all just bad products?
I have no idea, but from an outsider’s perspective, it is starting to get silly hearing about so many companies incorporating shitty manipulative pricing schemes in poor attempts at profitability. It just seems unsustainable.
This seems to be particular for software businesses the require huge scale in order to operate. Uber is still not profitable, DoorDash is not profitable, Reddit is not profitable. The markets these companies are trying to serve are ginormous, and therefore require huge amounts of capital to efficiently scale. It's even more difficult for companies that combine real life with software, e.g. Toast, Uber, DoorDash.
Compare that to Netflix, which is a business that was able to start small and scale with time. It also had huge first mover advantages as most other profitable software businesses do. Network effects are extremely powerful, and benefit first movers. Uber has spent years trying to cultivate network effects, but the service it provides exists in the real world, with real people and real problems.
I would argue Reddit can be profitable if it knew how to properly scale and innovate with advertising (particularly via search, which is where Google makes its money). There's no real reason Reddit can't be profitable if Instagram, Google, and YouTube are profitable. As for real world software apps, it's a lot more difficult.
There are basically a ton of companies in the business of delivering services that people/businesses want but aren't willing to pay the cost of providing them. This is especially true with personal services that don't really have significant economies of scale but it's a big factor overall.
I work at an unprofitable VC funded startup. We plan to be profitable soon, but so far we haven’t been. We’re not huge and not glamorous.
The entire point of taking a VC check is to run your business at a loss while you grow. The idea is to jump quickly from $0 to millions in revenue instead of having that journey take years. So you hire good people, pay them well, spend on marketing (in some businesses) and take on customers at terms that are break even just to have customers at all.
You learn if you have product market fit but you may not learn if your prices actually sustain your business. And then you can either raise prices (hard) or fire people (hard) to get to profitability . Or just raise more VC money and “make it up on volume”
I think this is the exact situation I'm asking about, so thank you for answering! It's a good discussion point.
To me it seems like so many companies start like this, but fail to get past the profitability stage. I guess my question is, are these companies going about this the wrong way? Maybe starting with a big surge of funding to get off the ground is giving false hope to products or corporate strategies that just aren't sustainable. I'm wondering if starting small and letting things grow organically, slowly, is more effective overall in terms of success for businesses. I have no idea though.
What are some examples of companies that grew rapidly with VC funding and eventually became successful, profitable businesses? Netflix, maybe -- anyone know others? (I'm showing my ignorance here, I'm sure there are many obvious ones!)
Don't you know? Business owners are the risk takers, so they should be well rewarded. That means making the most out of everyone working in the company, having to eventually do the least, reaping all the benefits of technological cost efficiencies, able to buy multiple vacation homes all over the world, and so on. These things cost money! And with rising property costs and high interest rates? Someone's gotta pay the bill for that Aspen vaca home, and the business owners have earned that right with their initial hard work leading to their current no work.
Why, and when things get bad, we don't want them to have to sell off their hard earned vaca mansions? Where will their dogs live then? In one of their living homes? No, they get bailed out whenever things get bad, then the economy won't crash aka they don't have to change any behaviors at all.
With these nasty Chinese raising their prices, and gross truckers asking so much money, everything is getting more expensive for them. How will they buy their 3rd 10,000 acre ranch in Wyoming with that kind of price increase? The good for nothing customers should pay instead!
Leaches optimizing leaching as the noose of monetary policy tightens, diminishing corporate profit potential while labor strength improves due to structural demographics.
The desperation will continue as long as money continues to get and stays more expensive than the last decade and a half.
I ran the ideal of a tech startup in point of sale space, launched pre-square, small company, never took investment,
1M in revenue first year…
In an established market, you’re always going to lose 80% of deals to people who have more funding. This is hard for your frontline employees to deal with, they experience it as unwillingness from cowardly management that they are paying for. Customers experience this as lower pricing, being more stable, more likely to do giveaways.
P. much every company from that era is in private equity receivership (fire the engineers, get lowest common denominator replacements for all employees, run it till customers give up)
I always thought Toast had held up because they had investment but didn’t light it on fire like other places, and thus were profitable.
Very jarring to read this isn’t tractable. The lesson is if you’re a sharp generalist, you’re always better off doing your own place and being brutally honest with customers about what the other game is. It’ll take a decade to play out fully to your benefit, but, independence is worth it
>Can someone explain why so many companies these days struggle to make a profit?
Beside the obvious risk of running a company (competition, incompetence etc.) There is excessive regulation, taxes, paperwork etc. I estimate that cumulatively most of us pay around 3/4 of our earnings to regulation, taxes and other forms of bureaucracy.
It does end up killing a lot of initiatives. A lot of people who could have potentially ran even small businesses don't.
To your point: there is no point really for most ordinary mortals so they succumb to soul crushing jobs. For example many small farmers are in this situation.
As a ongoing example I've heard that businesses are leaving California and New York in droves to place with less regulation.
Part of it is overinflated org charts. Both Instagram and Whatsapp managed with an engineering team of a dozen or two people until acquisition.
Typical SV startups have a dozen or two engineering teams, each with multiple people. I have no idea what they’re all doing, but it probably involves lots of rewrites
To be fair, neither IG nor WhatsApp were actual businesses before their acquisition. Sure, WhatsApp had their euro fee which theh waived for everyone. IG could definitely have been profitable without FB but it would have taken a loooonnnnng time.
There's profitability for the business, and then there's profitability for the shareholders. The latter is the bigger problem because it compels all businesses to become increasingly profitable at monotonically increasing speeds. If only we strangled all the profitability out of the stock market (with some really draconian taxes and regulations) we could rein in capitalism and have a more sustainable economy. But that's a pipe dream.
Consumer protection laws used to cover this sort of thing.
Companies should be forced to honor the lowest advertised price for a good. If they are caught not doing so, they should have to refund the money, in cash, up to a 10-20 year statute of limitations, with interest, and with the highest priority in any bankruptcy proceedings. Executives with a report that signed off on the pricing scheme should be subject to wage/stock clawback.
“Lowest advertised price” needs to have a simple definition. I propose the following:
The courts take a price list or other piece of marketing material produced by the vendor, removing all information that is rendered at less than 90% the size of the actual price. They then apply any mandatory sales tax that is paid directly to the government. The minimum result of doing this with any publication the vendor produced within the prior six months is the price the vendor must honor. Sale dates and other promotion terms must be under 25 words and the same size as the price.
This would ban a few common practices that are problematic:
- Cell phone companies advertise low prices per line, then produce contracts at 3-4x that amount. Actual monthly bills have an additional 10% markup.
- City politicians mandate an after-you-have-eaten “living wage surcharge” be added to restaurant bills, instead of having the price of labor be included in the menu prices.
- The state tax for take out items at restaurants in California is lower / nonexistent, depending on the item. However, the state tax collectors intentionally overestimate the fraction of diners that eat at restaurants (with high variance), then charge restaurants for the difference between reported tax and estimated tax, with a presumption of guilt. Therefore, most restaurants just always overcharge customers tax, then pay the balance to the state, in what is effectively a protection racket.
So Toast make most of their money on hardware and accompanying software
Cost of Goods Sold (COGS): $2,227 million
Non-production costs: $884 million
R&D: $280 million
Non-production and R&D costs don't seem excessive. Toast, Inc make a good product widely used and yet cannot make a profit after ten years, and are unwilling to raise the price of their actual product (hardware) to cover costs.
Their big competitor is Square who also lost $540m last year.
If ZIRP-era tech funding across the industry pushed down restaurant equipment prices such that it's not profitable for Square and Toast, have VCs been indirectly subsidising my dinner?
10% of the cost of goods sold on R&D doesn't seem too wild. That has to include all (hardware) product design and likely a good chunk of software development costs as well.
For NCR, a 'boring legacy' POS manufacturer that number is 6%, but they have a bunch of older existing products (founded in 1884!)
I found it odd too. What kind of real research could they be doing. Not all ideas that a team riffs on qualify a research. Maybe this is another case where IRS audits could help out?
This is absolutely not expected for normal businesses.
Normal businesses provide other businesses a service, charge them a profitable fee for services rendered, and make a few tens to hundreds of millions in profit a year and keep shareholders, employees, customers, etc. happy.
VC funded scam businesses spend billions of dollars in VC funding selling their services at a loss for the single purpose of establishing themselves as a monopsony/monopoly, and then once they've established enough dominance, and destroyed the possibility of a competitive market through VC funding, they turn on the screws and start charging monopoly prices.
Basically, they succeeded in using the "tech startup" and/or "unicorn" branding to somehow bamboozle governments and citizens into believing their entirely monopolistic, anti-free market behavior was not monopolistic and anti-free market.
Oh, and I still don't understand why we aren't recognizing the massive contribution this is playing in inflation. I buy a sandwich today from my local sandwich shop and I get the exact same service I did 15 years ago, except now anywhere between 15-45% of the money goes to some other company not integrated in the local economy whose only purpose is to provide a pretty interface and/or steal my data.
> the massive contribution this is playing in inflation
Further, and I'm not necessarily against this part but it's also contributing to tip inflation in a big way. Now everywhere I go has that Toast tip %age screen when I buy something no matter how much or how little actual service was provided. Like most people I feel social obligation to click the button. And voila, now tips are expected for buying a pack of gum at the corner store. At least that money is presumably going to the workers and not the tech bros behind the scenes.
It's hardly just businesses. Around where I live it's very common for local government to have an online payment processor that charges a fee. I assume the town gets a no-fee or reduced-fee service in exchange for that service having the right to impose a fee. You can always just send a check instead (or have your bank do so, which I do).
America really needs a federal law so that the advertised price is the price you pay and not a cent more. That's really all it takes. When I look for a AirBnB here in Germany, the advertised price must include everything and I mean everything. When I booked one from the US, the initial price was low but then they added about five fees for stuff and the price went up at least 30%. It was completely ridiculous.
Does toast provide any value to the customer going to the restaurant now that they have added this fee? Why wouldn't I go on the toast menu, pick everything I want, see the fee and then just call the restaurant? Door Dash and GrubHub have tried integrating into the restaurants website and charging ridiculous fees for delivery, there is even less value in having a fee for pick up.
Are you so awkward that you would rather pay a dollar than talk?
Slowly picking what you want on a website and seeing all your options without having to quiz an employee for a bunch of time on the phone is the convenience. Knowing exactly what you want and saying it aloud is not an inconvenience.
I'm not the person above, but I don't miss calling to place orders. I miss it even less at the end of a long day, a few beers in, in a country that speaks a third language.
I book through a screen when I can, at my own speed. It's nicer.
Calling in orders was unthinkable most times, unless I knew that the business was accustomed to delivery orders anyway. But usually, there was just no need or reason for me to call in ahead for orders. (I don't own a car, so I certainly wouldn't be picking up, always dining in.)
However, ordering pickup food online is an amazing service now. I picked up this habit quite recently, when I realized that Google Maps makes it super easy. They present your choices between GrubHub, or the restaurant's own website, or other services. So what I do is get on the bus, then when I'm about 20 minutes away, I'll just open up my phone and order ahead. Credit card payments are no problem; I often use PayPal with GrubHub, or Google Pay.
Calling in an order on the bus would be unthinkable, since I would not be reciting my credit card details by voice in a public space. But online ordering makes it a piece of cake.
This Toast fee may be affecting me soon; I recently started patronizing a coffeehouse that uses Toast, and ordering ahead seemed like a really good idea. We'll see.
This is really really disappointing. I thought since Toast is frequently used as the POS system for restaurants, using the app to place an order was like placing it directly with the restaurant, no middle men like DoorDash or Slice or whatever. If I’m going to have to pay a fee to use the app, maybe I’ll just call in my order/place it in person instead.
Sounds like that's not yet going to see this fee. Could you imagine what a pain it would be to have a fee like this & have staff around to take the flak for it?
These mechanized economic processes allow companies to put humans at their complete mercy, in a way where no real response is possible. Far off technological control.
Most customers will not notice and just pay this hidden fee, but that doesn’t make the practice palatable. There have to be other ways for Toast to achieve profitability.