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Apps on the menu: Customers develop a taste for ordering food digitally

Ritual founder Ray Reddy, third from left, stops in at Portland Variety, a Toronto café and restaurant that’s among establishments using the app. Ritual allows customers to order and pay for coffee and food via their smartphone.

Kevin Van Paassen/The Globe and Mail

The act of sitting down to enjoy a meal has largely escaped digitalization so far, but that's quickly changing if a new round of funding for Toronto-based startup Ritual is any indication.

The company, which offers a mobile app that lets users order their meals at restaurants ahead of time, last week announced $43.5-million (U.S.) in Series B investment, led by New York-based Insight Venture Partners.

Ritual operates in Toronto, Chicago, New York, Los Angeles, Boston and Washington, and, according to The Wall Street Journal, will use the funding to expand into Seattle and San Francisco.

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Company founder Ray Reddy says the growth is proof that the restaurant industry is finally adapting to the same transformative forces that have engulfed the retail business.

"The way you shop has changed because of e-commerce," he says. "Order-ahead is just one of the byproducts of food going digital. It's very similar territory."

Digitalization is indeed overtaking the restaurant industry, in several ways. On the one hand are order-ahead apps such as Ritual, which let users peruse menus on their smartphones and purchase items for pickup or consumption on-site. On the other are delivery apps such as Foodora and UberEats that bring orders to the customer's door.

Combined, these apps are exploding in popularity, according to trend tracking firm NPD Group Canada. The "digital door" they represent has had double-digit year-over-year revenue growth, to $1.6-billion (Canadian) this year.

"Restaurants are recognizing this is a space they need to get into," says Robert Carter, executive director of food service for NPD. "They're starting to understand the competitive landscape is becoming more aggressive."

The order-ahead component of the shift is being led by big chains, particularly Starbucks, which began testing the capability in some of its U.S. outlets in 2014. Widespread rollout, including to 1,000 Canadian stores, began in 2015.

The Seattle-based coffee chain has attributed big gains to the order-ahead ability, with about 20 per cent of total transactions happening through its app.

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The success may be a double-edged sword, though, with Starbucks reporting lower-than-expected growth this year because of hiccups with its system. The high volume of advance orders had been creating bottlenecks that were scaring away walk-in customers.

The company says it has taken steps to streamline the process and expects better results ahead. "We're very pleased with the results so far as awareness builds and the program gains traction," a spokesperson for Starbucks Canada says.

McDonald's has also been testing mobile ordering in several U.S. markets since at least last year. The U.S.-based company did not return a request for comment, but this year announced a full rollout in the United States, Canada and several other countries by the end of 2017.

The fast-food chain expects similar benefits, where its app will cut transaction times, reduce errors and give workers more time for other tasks, such as delivering food to tables.

Smaller restaurants may be benefiting more from the ability to order ahead.

NPD says 2017 is the first year in which there has been an uptick in Canadian restaurant revenue after years of flat growth or decline. The firm attributes the shift squarely to third-party apps such as Ritual, which make it easier for consumers to discover smaller local operators. That, in turn, helps those restaurants compete against chains and their big marketing budgets.

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"It has helped revive the independents," Mr. Carter says. While third-party apps often take a cut of each sale, "it's an investment that's worth it because it gives them a broader audience."

Mustafa Yusuf, president and co-founder of Flock Rotisserie + Greens, agrees with that assessment. He estimates that about 2 to 5 per cent of the business at his four Toronto restaurants comes from Ritual alone.

"It's significant; we see that number growing every month." he says. "We don't have the infrastructure to do our own app. Not only that, it's a lot of follow-up. Ritual does a great job, so why not outsource?"

NPD expects remaining holdouts will have to adopt app technology – either order-ahead or delivery or both – or risk getting left behind.

"If you're growing in the restaurant business, you're stealing share from your competitors," Mr. Carter says. "It's a steal-share game and you have to have all the tools to steal share."

Ritual's Mr. Reddy says digitalization is also having a counterintuitive effect on the act of dining out. Rather than dehumanizing the process, it is actually helping improve its social aspects.

"[It helps] remove all the crappy parts of interaction such that you can focus on a really authentic interaction between two humans."

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