A slew of chains have committed millions to restaurant mobile ordering technology. By and large, those investments have paid off. Still, technology is only beginning to shift the way restaurants do business. While e-commerce has made its mark on the retail industry, restaurants have been more reluctant to turn to tech. Well, some have. Others, like those below, have reaped the rewards of being on the forefront of tech, seeing their investments into restaurant mobile ordering contribute to increased sales, traffic, and convenience. As the retail segment has demonstrated, technology — by making access easier and cheaper — changes consumer patterns. It’s already having an impact on foodservice, one that demonstrates just a sliver of the seismic shift we’ll eventually see. In fact, according to a Business Insider study, orders placed via smartphone will make up more than 10% of all quick-service restaurant sales by 2020, at which point mobile ordering is expected to be a $38 billion industry. Below, we round up some of the chains investing millions into restaurant mobile ordering — and examine how that investment is paying off.
When it comes to restaurant technology investment, Domino’s is leaps and bounds ahead of many other chains, having launched a number of mobile order technologies in recent years. The pizza chain already offers delivery via Facebook messenger bot, one-click app, Twitter, and smartwatch. Domino’s currently gets some 55% of its revenue through digital orders — and its rivals have followed suit. Papa John’s sees at least 50% of orders made through digital channels, while Pizza Hut clocks in at 46%. The entire segment is looking to grow that number, as the average pizza order is 18% greater when made online rather than over the phone. Domino’s investment into tech shows no signs of slowing. Now, the company is aiming to be on the forefront of automated delivery. In a September 8 interview with CNBC’s Squawk Box, CEO Patrick Doyle said that the company is now partnering with Ford to test automated delivery via unmanned cars. For proof that its investment in technology has created incredible value, one need look no further than the company’s market cap, which increased by more than $3.8 billion between 2013 and 2016. In that same time frame, by comparison, the market cap of all public Casual Dining Restaurants combined increased just $3.6 billion.
In 2016, Chick-fil-A unveiled its own mobile order app, called One, which quickly shot to the top of the most-downloaded apps. The company, which offered a free chicken sandwich for anyone who downloaded the app between June 1 and June 11, had redeemed 131,100 free sandwich offers within the first three days. But the app isn’t Chick-fil-A’s only foray into tech. Over the past few years, in fact, the chain has been working to reinvent itself from a modest fried chicken chain to one investing millions in tech to enable convenience and increase sales. Chick-fil-A’s system-wide sales topped $6 billion in 2015, with its 1,950 restaurants generating an average of $3.1 million in sales last year. By comparison, McDonald’s and Chipotle units generate roughly $2.5 million in sales annually.
Just one day after announcing its quarterly earnings in July 2017, when it missed expectations for revenue, Starbucks saw shares fall more than 10%. But executives on the call were quick to point out that the chain continues to invest in technology, and fully expects that investment to pay off for investors down the line (as Geekwire has noted, executives used the word “digital” more than 70 times in the call). Starbucks has been turning to technology for some time now, having pioneered mobile orders through its app (it launched mobile orders back in 2010). This Fall, the coffee chain is further nuancing the experience through the use of its cloud-based Digital Flywheel program. Backed by artificial intelligence (AI), the technology targets customers with very specific food and drink items, suggesting different items depending on whether it’s sunny, rainy, or cold outside, or if it’s a birthday or holiday. Starbucks estimates that digital will more than double the company’s revenue contribution between now and 2021. That mobile strategy will do more than engineer convenience into the chain’s experience — it will benefit Starbucks itself from a cost perspective, as mobile payments cost a third of the transaction cost of debit/credit cards. Also, mobile ordering has an important operational impact, freeing about 100 million minutes of labor that could be redirected to more productive activities.
In April 2012, the fast-casual sandwich and bakery chain invested $42 million into Panera 2.0: a series of integrated technologies for digital orders, payment, and operations. The months following the rollout of the project saw Panera increase sales, improve ordering times, and streamline the ordering process, while investors saw a 10% return on the investment and customers saw food preparation time go from 6 – 9 minutes to under five minutes. Panera has increased spend on restaurant tech in the years since, having invested more $120 million on information technology in the last three years alone. The increased popularity of digital orders is paying off for the company, as mobile ordering and personalization become the norm. In June 2017, the chain announced it was slated to pass $1 billion in annual digital sales and expects to double that by 2019. Restaurants with Panera 2.0 technology are seeing 26% of total sales coming through digital means, with some seeing more than 35% (the highest percentage outside the pizza segment, which typically sees digital comprise 50% of total sales). Company-owned units are seeing 4.2% same-store sales growth while franchise stores (which don’t yet have the technology in place) are seeing sales grow 0.7%. Rolling out the technology to all stores is expected to be a priority for the company moving forward.
Despite the fact that so many chains are now offering it, mobile order-ahead is still in its infancy. By 2020, though, it is expected to be a $38 billion industry — one that accounts for 10.7% of total sales in the quick-service industry. Its continued growth will be driven by adoption among more QSRs, along with the growth of mobile commerce and loyalty programs. Even some consumer-facing technology, like tablets, can help in terms of reducing labor costs and the number of workers required to be on staff. Restaurants including Chili’s, Applebee’s, and Buffalo Wild Wings all offer tablets which, in addition to creating a more customized experience, take the role of “a third server,” allowing guests to re-order drinks, order dessert, and pay for the check. According to a study by Citizen Bank, tips have risen 15% at restaurants using tablets, and owners are reaping even greater benefits: within two years of featuring tablets, 125 operators featured in the study saw appetizer sales increase an average of 20% and dessert sales climb 30%.
Increasingly, operators are worried about meeting the increased expectations of tech-savvy guests, with some 38% of operators expressing fears in a 2015 survey that they can’t keep pace with guest expectations. Yet many of even the largest chains still aren’t offering restaurant mobile ordering. While it’s easy to dismiss the less tech-savvy chains as being out of touch, in truth, it’s easy to see why some still lag behind. The sheer scale of technological options is overwhelming, leaving many restaurant operators shaking their heads and wondering which direction to go. And then there are the obvious challenges, like the cost and time required of implementing new systems (at which point the technology may have already become outdated).
Despite lagging sales in some pockets of the industry, restaurants continue to seek competitive advantages through innovation. Tech spending, as a result, remains steady, according to the 2017 Restaurant Technology Study by Hospitality Technology. According to the study, restaurants will invest an average 2.6% of their revenue on IT initiatives, with operators looking to increase budgets for CRM/loyalty, digital and mobility. In the retail industry, omni-channel strategies have long been a must-have, while restaurants have been more hesitant to embrace the world of technology. Still, many are recognizing its importance, especially when it comes to remaining competitive in an increasingly digital world. In fact, Pizza Hut’s chief digital officer Baron Concors has said the industry is undergoing an “Uber-ization.” Increasingly, customers will continue to demand (and expect) that their dining experiences be digital. For those who invest in technology strategically, and do it well before it becomes expected, will reap the largest rewards.
How Tech is Killing Off Independent Pizzerias Watch CEO Patrick Doyle Talk Domino’s Automated Delivery The Challenges Facing the Increasingly Crowded Pizza Segment A Robot Wants Your Job: How Automation Will Transform Foodservice US Restaurant Labor Data: An Overview Of Factors Affecting Operators
Aaron Allen & Associates is a leading global restaurant industry consultancy specializing in growth strategy, marketing, branding, and commercial due diligence for emerging restaurant chains and prestigious private equity firms. We have helped helped restaurant companies around the world drive revenues, increase profits, and enhance the guest experience through improved marketing, messaging, and menu engineering. Collectively, our clients post more than $100 billion, span all 6 inhabited continents and 100+ countries, with locations totaling tens of thousands.