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Time to act on tech upgrades


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Millennials are tech-savvy and expect the brands they buy to share that affinity.

Now is a challenging time to be in the quick-service restaurant business. The fast-casual segment continues to gobble up market share, with sales growth exceeding 500 percent since 2000. The impact isn’t so much rippling throughout the industry as it is roiling the competitive landscape.

QSR operators looking to stay relevant are scrambling to understand millennials, the customer segment driving this disruptive trend. Millennials, who now make up the largest generation in the U.S. workforce, are rapidly reshaping demand by prioritizing the perception of quality over value.

What’s more, they are technologically savvy and expect the brands they buy to share that affinity. And they want a unique dining experience that caters specifically to their wants and needs.

If that weren’t enough, QSR operators also face the specter of pending regulations designed to prevent credit card fraud. By October 2015 all restaurants will be subjected to new Europay, MasterCard and Visa (EMV) standards reflecting the shift from magnetic-stripe credit cards to more secure chip-and-pin versions.

Though not mandated for merchants, QSR franchisors don’t want to be on the wrong side of a mass-scale fraud or breach of personal information. So they are pushing their franchisees to get ahead of this trend, even as they are already being asked to comply with new payment card industry (PCI) standards.

These twin challenges are prompting QSR operators to take on the most dramatic technology upgrades the industry has seen in a decade. This wave of change is introducing digital menu boards that give restaurants daily flexibility with menu options and deals, and allow them to post new information, such as calorie counts. Some chains have begun to arm their drive-thru staff with hand-held tablets so they can address wait times by taking orders directly at the driver’s side.

These initial forays into new technology are being followed by point-of-purchase systems that allow customers to input their own orders, including customized choices. Last year, drive-in fast-food chain Sonic began installing such systems to shorten customer order-taking times, reduce errors and boost profit margins. White Castle and McDonald’s are testing touch-screen order kiosks and iPad-based menus, respectively, that permit customers to pick their own ingredients and create custom-made burgers.

Many of these technology upgrades have the added benefit of helping QSR operators learn more about their customers. Increasingly, QSR operators are using integrated IT systems in coordination with social media to tailor deals for specific customers.

Add it up, and we’re looking at one of the most radical technology overhauls in the history of the QSR industry. Even those franchisees that are typically resistant to change are seeing the benefits of migrating to more sophisticated customer-facing IT platforms as they work to comply with emerging card-processing standards and bring additional choices to customers.

Yet, QSR operators continue to face the same kind of financing challenges they have faced for years. The problem goes to the nature of technology investments in the quick-service industry: They are typically low-dollar investments that don’t draw the attention of many national lenders. A bolt-on program to add chip-card readers to existing POS terminals, for instance, could run a franchisee as little as $5,000. For most lenders, the economics simply don’t make sense. Many are not set up to handle transactions of that size; and those that are often charge very high rates.

As a result, QSR operators have often felt forced to spend more time searching for capital, time that they could have used to win new customers and improve the customer experience – but this is changing rapidly. These days, the dynamic change sweeping customer-order systems and other QSR infrastructure is now being supported by innovative lenders in the financial services community.

At Direct Capital, for instance, our digital lending platform enables a borrower to apply for a loan for as little as $5,000 in about three minutes and receive loan approval within another 30 seconds. That’s because our online lending platform has dramatically reduced the costs associated with taking and processing an application, as well as conducting all necessary credit checks.

From our vantage point, I can tell you that change is definitely coming. The number of system-wide technology rollouts we are supporting is high and rising. Nearly every major brand we work with is focused on upgrading their systems to take advantage of all of the benefits of modern restaurant technology.

If you’re a franchisee or QSR operator and you’re still on the fence about how to respond to these trends, it’s time to act. Fortunately, the tools now exist to make the financing process as efficient and rewarding as possible.

Rick Henderson is vice president of franchise finance at Direct Capital. Reach him at rhenderson@directcapital.com or (603) 434-9434

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