Luddites no more: Holdouts adding technology at rapid clip
You have to give customers a reason to pass another restaurant and come to yours. So intones Panera’s CEO, and his chain and others believe that reason lies in technology, at long last.
We use technology to do everything these days. We order clothes on the Internet. Smartphone apps have taken the place of airline tickets. Social media is revolutionizing taxi services and bed-and-breakfasts.
The restaurant industry? That’s another story. The order-taking process at restaurants is little different than it was 40 years ago. Dunkin’ Brands CEO Nigel Travis once joked that going to the QSR sector from his previous jobs at Blockbuster and Papa John’s was like “going back in time.”
The food photo is ubiquitous, but now restaurants are giving consumers much more to do with their smartphones, like pay the bill.
But that’s changing. Chain restaurants are rapidly adding new customer-facing technology in the face of heavy competition and a belief customers simply expect these things. The new technology is designed to get customers in the door more often, change the way they order their food and even let them complete a transaction without glancing at their wallet even once.
This year, Wendy’s rolled out its mobile payment program. Jersey Mike’s mobile app enables customers to order and pay through their phones. Several other chains announced plans to beef up their own apps, including Burger King and Buffalo Wild Wings. McDonald’s and Subway are testing mobile payment apps. Sonic, meanwhile, announced plans to install new ordering technology in its stores while guaranteeing financing for operators to install the new ordering systems.
Panera Bread announced what it calls “Panera 2.0,” in which it integrates technology throughout its stores, including ordering kiosks, tabletop tablets and online ordering technology, to speed service and improve volumes.
Shift to wizardry
The shift from Luddite to technological wizard isn’t happening overnight, but it could well revolutionize the way chains and their franchisees interact with customers. Restaurants probably have little choice but to get out of the dark ages.
“You almost have to,” said John Chidsey, a former Burger King CEO who is now the executive chairman at Red Book Connect, which has a suite of restaurant tech products. “People have come to expect these things nowadays.”
Some of the changes undoubtedly require investment on the part of franchisees, particularly when hardware is involved. But the companies pushing these plans believe they can drive sales while also helping operators improve efficiency. And they believe the moves will help give their chains a competitive advantage.
“The world does not need another restaurant,” Panera CEO Ron Shaich said at the company’s Investor Day presentation where he revealed Panera 2.0, which has been in the works since 2010. “This is a terrible business to just be slogging it out. You have to give customers a reason to pass another restaurant and come to yours.”
Panera has spent $42 million and has doubled the size of its IT team. Yet by 2016, the company wants all of its stores to go to the 2.0 version, in which customers can order via kiosk or through a computer or mobile device. The changes will cost $120,000 per store, and franchisees will pay for part of the cost.
The company believes it’s vital. Its restaurants average nearly $2.5 million, which is among the highest unit volumes for a concept that generally doesn’t have drive-through windows (consider that McDonald’s, which does have such windows, averages $2.7 million, among the highest in QSR).
This has started pressuring operations, resulting in long lines and frustrating people who want their food to-go. Shaich said the company has typically focused on the eat-in customer, and not the to-go customer. “Those customers go elsewhere because we basically send them away, because we’re so focused on the eat-in customer,” he said.
In 2.0, customers will be able to order from their table, and have the food brought out to them. To-go customers will be able to use a stand-alone kiosk and pick it up at the counter. Or they can order it online and have it ready by the time they get to the location. In tests, the system has improved volumes and as much as 30 percent of the stores’ orders came in through digital channels.
Similarly, Oklahoma City-based Sonic is kicking off a three-year plan to add interactive screens to its drive-in menus that, in its early stages, will suggest products, verify orders and display promotions. Ultimately the screens will be used for more customer interaction.
The company believes the system will be more efficient, and could suggest more orders. The cost of the terminals, along with a new POS system and an overall refresh of the drive-ins, will cost $134,000 per store. But the company said its vendors would pay for half of the cost of the screens.
The two chains are joining casual dining concepts in adding tablets to their tables in a bid to speed their own service times. Applebee’s and Chili’s are adding them nationwide, and Buffalo Wild Wings recently announced plans to add tablets by the end of next year.
The technology isn’t just inside the restaurants. Chains are beefing up their mobile apps to enable more ordering functions, add in loyalty program elements and even let consumers pay their bills.
Indeed, mobile payment is a huge wave. Dunkin’s mobile app combines mobile payments with the company’s DD Perks loyalty program to speed service and target customers with more personalized offers. Several other chains are adding mobile payment, promising to make the smartphone tomorrow’s wallet.
Yet that’s not necessarily the main benefit for a restaurant and its franchisees. Mobile payment isn’t much easier for customers than is pulling out a credit card. “It’s not that much of a pain point,” said Jonathan Fornaci, former CEO of Rita’s Italian Ice, and former chief operating officer at the mobile app development company Punchh, which works with chains like Schlotzsky’s. “If you’re only truly doing mobile payments, there’s no competitive advantage.”
He believes mobile ordering will have a bigger impact. Go to a restaurant, open the app, make an order, and get it brought to the table. Or customers could make their order on their way. Fornaci believes this could ultimately end the limited service restaurant line as the technology gets more widely used. “We all grew up waiting in line,” he said. “For the next generation, it’s going to be silly.”
Restaurants that adopt the technology are also getting more specific customer information—information readily available in other industries like online retail or grocery stores.
Some of this technology is coming from entrepreneurs who got their start in other industries, then discovered that it was sorely lacking in restaurants. A decade ago, Ravi Grewal was building mobile banking apps that analyzed customer data to provide more specific marketing. He’s now the CEO of Appsmyth, a developer of mobile loyalty apps, which works with chains like Smoothie King.
The apps analyze data from customers’ use of the restaurants, and combines them with location technology to more specifically market to diners. For instance, Amazon knows its users’ tendencies and can make recommendations for products. Netflix analyzes its users’ movie ratings and uses and also makes recommendations. These apps are designed to give restaurants the same ability.
For instance, Grewal said, the app knows what kind of offers will lure a restaurant’s customer in for another visit, whether it’s discounts or upsize offers. “We may have the same behavior, but the same things don’t motivate us,” he said. As a result, the apps have much higher response rates than coupons or traditional ads.
“Loyalty is not just about rewards management,” Grewal said. “It’s about changing customer behavior.”
Technology adoption is coming at a fevered pitch. At least part of the reason driving restaurants to make the changes is competition. Sales have been tougher to come by in recent months. For years, Panera’s sales growth had been all but unstoppable, but last year those sales stagnated, and Shaich blamed the loss of to-go customers.
Chidsey noted people under 30 simply expect technology to be available at places of business, and those companies not employing it could lose those sales. And, he noted, they could lose employees. HotSchedules, owned by Chidsey’s Red Book Connect, enables those employees to access their schedule through an app.
He also noted technology is cheaper now, thanks to cloud-based services. So the up-front cost of adding an app or other technology to a restaurant is much lower than it used to be. “In the old days, even if you just had 50 employees, you had to have your own servers,” Chidsey said. “You had to store the data yourself. Today, with everything in the cloud, you’re not paying for servers. You’re not paying for individual licenses. It’s simple to process.”
Restaurant ownership also plays a role, Fornaci said. “You’ve got more private equity firms, hedge funds and experienced CEOs coming in from other businesses,” he said. “They’re seeing technology as a differentiator, as a way to really grow the business.”
Correction: An earlier version of this story had the incorrect title for Jonathan Fornaci.