Toast POS – A Closer Look 2025 Edition

Toast POS — A Closer Look

We are big fans of Jordan Thaeler of Reforming Retail and his evolving take on TOAST POS. Critical thinking is in short supply these days and keen observers like Jordan are indispensable. I think he has gotten as many Cease and Desist letters as I have signed NDAs. Here are some thoughts

ReformingRetail’s Recent Commentary on Toast

ReformingRetail has provided extensive, often critical, analysis of Toast’s business model, strategy, and market impact in several recent articles. Here are the key themes and insights from their latest coverage:

1. Market Dominance and “Flywheel” Strategy

• ReformingRetail acknowledges Toast’s powerful “flywheel” effect, where the company’s dominance in payment processing generates enough margin to rapidly build and distribute new products. This allows Toast to outcompete third-party solution providers, as it can invest heavily in product development and distribution, quickly reaching thousands of restaurant locations with new offerings7.

• The site notes that Toast’s scale—now touching 0.5% of US GDP—gives it immense pricing power and the ability to “monopolize” the restaurant tech ecosystem. They warn that unless other vendors can control payment processing margins, they are at a severe economic disadvantage and risk being pushed out of the market7.

2. Aggressive Upmarket Expansion

• Toast is using its stronghold in the SMB segment to subsidize aggressive pricing and expansion into larger, enterprise-level restaurant chains. ReformingRetail describes this as using SMBs as a “personal balance sheet” to undercut competitors upmarket—a strategy they call “genius” but question the ethics of1.

• They suggest that Toast will extract higher payment margins from SMBs while offering more competitive rates to win enterprise clients, making it difficult for legacy POS providers to compete1.

3. Surcharging and Payment Margins

• ReformingRetail has criticized Toast’s surcharging practices, noting that even when Toast encourages merchants to pass a 3% surcharge to customers (ostensibly to lower the merchant’s processing bill), Toast still collects a significant margin—potentially around 1.25% of gross payment volume—after the rate cut3.

• They highlight that Toast’s payment margins (around 55 basis points, and rising) are a major profit driver, especially compared to competitors like Shift46.

4. Critique of Locked-In Ecosystem and Data Practices

• ReformingRetail has repeatedly warned merchants about the risks of Toast’s closed ecosystem. They point out that Toast often refuses to share customer data with merchants, charges steep integration fees, and makes it difficult or expensive to use third-party tools5.

• The site argues that this “monopolize the stack” approach increases costs for restaurants and reduces their flexibility, likening Toast’s practices to those of restrictive third-party delivery companies5.

5. Skepticism About Upmarket Ambitions

• While Toast is moving aggressively upmarket, ReformingRetail is skeptical about the long-term viability of this strategy. They note that enterprise merchants are harder to win and retain, often prefer local support, and may be resistant to Toast’s all-in-one, closed model8.

• They also question whether Toast’s market share numbers are as high as claimed, suggesting some of the company’s self-reported figures may be based on payment volume rather than actual site count7.

Latest News from Toast POS System (as of April 2025)

Applebee’s Selects Toast as POS and Kitchen Display Partner
On April 14, 2025, Applebee’s announced it will implement Toast’s technology as its new point-of-sale (POS) and kitchen display system. This marks a significant enterprise win for Toast, expanding its reach into large, national restaurant chains and further validating its platform for high-volume, multi-location operations123.

Record Growth and Financial Milestones in 2024
Toast reported strong financial results for the fourth quarter and full year 2024:

• Added a record 28,000 net new locations, ending 2024 with approximately 134,000 locations using Toast69.

• Achieved its first full year of GAAP profitability, with full-year net income of $19 million and adjusted EBITDA of $373 million6.

• Annualized recurring run-rate (ARR) increased 34% year-over-year to over $1.6 billion as of December 31, 20246.

• Fourth quarter revenue reached $1.34 billion, a 29% increase from the previous year7.

Expansion Beyond Restaurants: Retail & International Markets
Toast is actively expanding into the retail sector, targeting food and beverage retailers such as grocery and convenience stores. In 2024, the company tested its offerings in retail and, based on positive results, is investing in a dedicated retail sales team in 2025. Toast aims to reach 10,000 customers in new segments—including retail and international markets—by the end of the year7.

Strategic Partnerships and Enterprise Wins

• Expanded partnership with Uber Technologies, enabling restaurants to leverage Uber’s delivery network for greater reach and cost efficiency6.

• Signed major agreements with Ascent Hospitality Management (Perkins and Huddle House, 500+ locations) and Mendocino Farms (70+ locations), marking significant enterprise customer growth6.

• In 2024, Toast partnered with more than a third of James Beard award-winning restaurants and over half of Michelin-rated U.S. restaurants, demonstrating strong adoption among top-tier establishments6.

Product and Platform Updates

• Continued investment in features for both full-service and quick-service restaurants, including mobile ordering, integrated payments, and enhanced reporting tools5.

• Ongoing development of solutions tailored for hotel restaurants and quick-service concepts, supporting operational efficiency and guest experience5.

Financial Outlook for 2025

• Toast projects non-GAAP subscription services and financial technology solutions gross profit of $1.75–$1.77 billion for 2025, representing 23–25% growth over 20246.

• Adjusted EBITDA is expected to reach $510–$530 million for the full year6.

Summary Table: Key Toast POS Updates (2024–2025)

Toast’s momentum in both the restaurant and retail sectors, coupled with its enterprise wins and profitability milestone, position it as a leading technology provider in hospitality and adjacent markets as of early 2025123679.

Original Article

The latest analysis by Jordan Thaeler  and Reforming Retail covering Toast POS  – Bottomline — We’d estimate that at $20,000 a year a merchant could buy a competitive POS for three stores for every one store on Toast. This is very enticing to Toast’s competitors. But then again, Toast’s customers can’t add 1 + 1. Literally.

After Toast was forced to rethink their dollar ordering fee many are wondering what Toast will do to their guidance.

Can Toast reach profitability? Not cook-the-books EBITDA profitability, but actual profitability?

The investment community is really overthinking this.

Let’s start with this analysis.

The average investment analyst probably has an IQ of 120.

They look at what Toast is doing and translate this to their personal life.

“Wow, if a commoditized vendor added a large fee to a software I use that effectively doubled the cost, I’d likely shop alternatives.”

This is logic.

Restaurant owners are not logical.

Far from it.

They are emotional.

Super emotional.

So much so that their triune brain is on auto-pilot making and decisions for them.

“Are you saying that retailers are essentially upright lizards?”

Yes. Yes we are.

Because we’ve observed them over a decade.

If it looks like a duck, quacks like a duck, and walks like a duck, guess what?

There is no rationality in a retailer’s behavior.

And Toast knows this while investors do not.

So Toast will reach their profitability, which as it stands today means Toast needs to earn another $400M annually.

Toast reported 93,000 locations.

To squeeze $400M means each location would need to pay an additional $4,300 per year.

Toast reported Q2 2023 ARR at $1.1B.

That means Toast merchants would need to pay ~36% more for Toast POS for Toast the company to be a going concern.

The numbers imply that the average Toast merchant is paying nearly $12,000 year per location for Toast (this is SaaS + payments margin).

Adding 36% would mean that the merchant will be paying $16,300 per location for their POS.

Remember in 2010 when literally every cloud POS company’s pitch was:

“Your legacy machines are super expensive. Cloud is way cheaper.”

My, my my: how times have changed.

Here’s the math for how a traditional POS business worked, and how much more expensive Toast really is.

There are two models here: one without payments, and one with. The one with payments assumes market rates of 20 bps of payments margin on $1M of GPV, or roughly 30% of what Toast charges for payments.

This model was refined by a long-time POS industry expert, so it is reliable enough for us to publish.

So what does Toast look like in comparison?

If we take Toast’s current revenues the implied 5-year revenue for Toast is $60,000. This compares with about $50,000 for a POS with payments, although the merchant would own that system free and clear.

Is Toast creating an additional $10,000 of value over those five years?

Absolutely: Toast is offering a ton more products than the legacy systems.

BUT.

That legacy model is spitting out 50% gross margins.

Toast has 21% gross margins.

AND the price of hardware in the legacy model isn’t accurate anymore: the cost to outright buy a POS terminal is < $2,000, accounting for inflation. Assume 3 terminals in the average Toast merchant and there’s a $14,000 difference in the models.

To really make this apples-to-apples, we’d need to increase Toast’s pricing AND reduce the cost of hardware in the original model.

The result is that Toast would need to increase it’s prices by 58%, so that 5-year pricing from Toast goes from $60,000 to $95,000, or an annual price of $19,000 per store.

And that 5-year cost of a legacy system falls to $36,000, or $7,200 per year per store.

Toast is now 2.6x the price of a legacy POS.

Another way to think of this is the SaaS rule of 40. Toast is public and they will be judged – ultimately – by these metrics.

But the law of large numbers and, more importantly, as the market limits of what Toast can penetrate before their churn catches up with them, means that Toast will need to get creative.

When revenue growth stalls in comes profit growth.

And you know how Toast gets profit?

Toast merchants will have to pay even more for their Toast POS.

Toast used to think they could just charge the consumer but that idea came crashing down around them.

How much more will Toast merchants have to pay?

Here’s a table we made with sliding scales based on the rule of 40:

As of Q2 2023 Toast grew revenues 45% with an annualized EBITDA margin of -40% ($98M quarterly loss * 4 divided by their $1B ARR).

Realistically we see Toast’s organic (i.e. not fee-induced) revenue growth slowing to 30% in the next year.

That means the average Toast merchant will need to pay nearly $19,000 per store if Toast is to operate according to the rule of 40 (though they have nearly 4 years of balance sheet to support burning $400M annually.)

If we were Toast here’s how we’d make the math work:

1. Pull out the same $1 ordering fee but allow merchants to eat it. Those that do make your life a lot easier
2. Hide the $1 ordering fee in the payment stream. Don’t even call it a separate fee but lie about interchange rates – Toast has no ethics so this is eminently doable

What Toast absolutely cannot do is transparently increase costs.

Merchants will not like this.

It’s the classic frog in the boiling pot analogy.

You can’t tell the frog you’re going to put it in boiling water (not that the merchant frog would even understand).

Because even Toast has to second guess itself: are we really 2-3x better than the competition?

That’s what a lot of merchants will start asking if Toast makes their pricing transparent.

Toast will argue that they’re providing a lot more value than their legacy POS counterparts, and there’s truth to that.

But it’s also true that Toast is the most expensive POS on the planet.

We’d estimate that at $20,000 a year a merchant could buy a competitive POS for three stores for every one store on Toast.

This is very enticing to Toast’s competitors.

But then again, Toast’s customers can’t add 1 + 1.

Literally.

If think it’s a pejorative then you haven’t spent enough time around retailers.

The short bus exists for a reason.