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    Editor's Pick (1 - 4 of 8)
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    Apps as a Main Course -Turning up the Heat on Technology

    Eric Dzwonczyk, MD and Adam Werner, MD, AlixPartners

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    Eric Dzwonczyk, MD and Adam Werner, MD, AlixPartners

    For players in the U.S. restaurant industry, 2014 brought both encouraging and challenging developments, according to AlixPartners’ most recent survey, conducted in September. While macroeconomic fundamentals and consumer interest in dining out seem relatively stable, a tougher cost landscape has emerged—putting increased pressure on margins. As a result, many companies have put cost and margin management on the front burner in terms of their strategic priorities.

    “Savvy use of technology can help rein in costs as well as drive new growth”

    Savvy use of technology can help rein in costs as well as drive new growth—including the creative use of mobile devices for receiving customers’ orders or offering them discounts, social media for engaging consumers and driving positive word of mouth, loyalty programs for expanding share of stomach, and point-of-sale systems for supercharging efficiency. But technology is tricky: The increase in selling, general, and administrative expenses as a percentage of revenues that we saw in the four major segments of the U.S. restaurant industry can be attributed in part to stepped-up spending aimed at supporting growth, such as investments in point-of-sale technologies and mobility platforms. Likewise, many companies are investing in technologies such as loyalty programs and analytics as means of differentiating themselves more sharply from rivals in this intensely competitive industry.

    This report shines a spotlight on technology by assessing its promise and its impact on customer behavior, by analyzing trends in its usage among restaurant industry players, and by weighing its costs versus its benefits.

    In-Restaurant Tablets: Boosting Efficiency and Growth

    Some industry players have been experimenting with the use of in-restaurant tablet computers to drive new efficiency and growth. However, the full-service business models seem to be making greater use of tablets than the limited-service business models are. For instance, McDonald’s is testing kiosks whereby diners use tablets to customize their burgers. Buffalo Wild Wings has tabletop tablets with a sharp focus on entertainment. And at Chili’s, 60 percent of credit card users now pay by using tablets provided by the company at their table.

    In-restaurant tablets offer certain distinct benefits, such as enabling companies to upsell, to accelerate service speed and improve order accuracy, to provide entertainment, and to reduce wait-staff time that would otherwise be required when customers don’t place orders by using tablets.
    On one hand, even though the use of tablets as menus doesn’t appear to be a hook that brings more people into a restaurant, the devices do seem to boost the likelihood of consumers’ ordering additional items they might not otherwise have bought, such as an appetizer or a dessert. On the other hand, tablets come with challenges as well. For instance, the menu characteristics may be complex, requiring frequent changes to the images, to dynamic pricing, and to bundled-value offerings. Moreover, there’s a capital cost associated with introduction of this technology, and the full-service segment seems to have a more positive view of the cost/benefit analysis than the limited-service segment has.

    Although use of in-restaurant tablets appears to be heading toward mainstream practice, technology at the table still has little impact on diners’ choices of restaurants to visit; nor is it a veto factor. Among our survey respondents, only 30 percent said they had eaten at a restaurant in the past year that had a tablet or other technology at the table. When asked whether the availability of technology at the table affects their decisions on where to eat, 37 percent responded “Not much—I don’t think it helps, but it’s not bad,” and 25 percent said, “Somewhat—I would consider it helpful but not necessary.” Interestingly, 16 percent said they would never consider eating at a restaurant that had technology at the table.

    Mobility Platforms: Paying and Playing

    Our survey shows that industry players are also continuing to expand their investments in mobility platforms to support not only mobile payments but also other activities aimed at improving the customer experience. For example, whereas 15 percent of restaurants accepted mobile payments in 2014, analysis of our survey data, along with insights from Hospitality Technology magazine, suggests that the number could jump to as high as 68 percent by the end of 2015. That increase could stem from recent technology advances, such as Apple’s mobile payment technology, delivered with the new iPhone 6 release, and the advent of LevelUp, a mobile-payments platform that charges a processing fee of just 1.95 percent compared with interchange fees of 3 percent. At this point, the burning question is, who—whether within or outside the restaurant industry—is going to be the first to figure out mobile payment— that is, to develop an offering that is compelling for consumers, that drives additional traffic for restaurants, and that is profitable for the company’s investors?

    As for other uses of mobility platforms, we’re seeing some innovation in the use of mobile apps focused on improving the customer experience. The Starbucks gamification focus is one example, and 14 percent of all customer transactions are now taking place through the company’s mobile app. Dunkin’ Donuts’ mobile strategy focuses sharply on promotions. Domino’s has launched a voice-ordering platform for iPhone and Android devices. Popeyes uses Spotify to create a playlist centered on limited-time offers. And Sonic uses Snapchat to release limited-time offers.

    Mobile appears to be here to stay in the U.S. restaurant industry, with the possibility that companies will develop ever-more creative tactics for capitalizing on the technology.

    Checking Out

    Given the mounting pressures on margins coming from a tough cost landscape, determining the right cost-management and growth strategies will prove critical in the year ahead for players in the U.S. restaurant industry. When it comes to technology, companies will need to clarify the how, what, where, and why aspects of using each potential technology. The fact is that the use of technology in this industry can best be described as an evolution, not a revolution. At least for now, technology doesn’t appear to be transforming consumers’ dining-out decisions and behavior en masse, though it’s clearly affecting and reshaping the actions of specific segments, especially millennials, who are heavy users and early adopters of various technology platforms. To extract maximum value from the technologies they decide to introduce or invest more heavily in, restaurants must resist the urge to throw darts at a series of moving targets. Their odds of hitting a target will be much sweeter if they can instead invest purposefully in technology— always considering how to use it to enhance operational efficiency that will constrain costs as well as strengthen the guest experience to drive growth.

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