March 4, 2014
Consumer experience in restaurant industry has undergone a dramatic change in the last decade. Technology advancement at each consumer step is revolutionizing the overall consumer experience. The technology changes we have seen in last decade have not only helped large chains, fine dining restaurants but also the smaller restaurant shops. Cloud, PaymentTech, Analytics, Mobility are bringing fundamental changes through technology-driven disruptions. In this article we will look at the evolution of the technology landscape at Restaurants and Food Chains in the US.
This has been particularly aided by increasing acceptance of technology by the end consumers. As per a recent survey by National Restaurant Association, 2/5th of adults surveyed were open to use of smart phone app if it were to be offered by a quick-service restaurant and nearly 1/3rd of adults were open to use of mobile apps if it was offered by a full-service restaurant.
Pre 2005: The Early Days
With growing popularity of internet, restaurant reviews websites like Opentable emerged in this period. These review websites evolved as a single greatest source for restaurant discovery and selection. This was in addition to physical restaurant magazines. Though, bulk of reservations was done through telephone/in person mode, some of these websites initiated reservation services through internet. Menu was mostly in the physical format for decades but a few of them went for digitization of Menu early on. Payments were enabled by desktop based POS with credit card acceptance in most of the restaurants. POS hardware was perceived costly by smaller restaurants. Loyalty and rewards were run through CRM software integrated with the retail POS hardware but only at limited places. Smaller ones didn't have one. Most of shifts in this period were driven by Internet based technologies on the discovery side.
2005 – 2010: The First Wave
I would like to call this phase as the first wave characterized by increasing influence of Mobile and SMS/Internet driven services
Smart phone penetration in US grew from less than 5% in 2005 to ~25% in 2010. During this period a revolution came in the form of mobile apps, (Driven by Apple from 2007, Google and Windows OS platform) to serve various services segment in the US. This period saw emergence of multiple apps serving one or two steps in restaurant consumer experience described in the exhibit below. Yelp, Foodspotting and Urbanspoon emerged as alternatives for restaurant search. Use of GPS on mobile added more teeth to restaurant search apps making them more effective.
2010 – 2013: The second Wave
This phase can be called as the second wave marked by the availability and increasing influence of Full Mobility, Cloud, Analytics, Contactless payment technologies, geofencing and faster Internet
With growing penetration of smartphones, restaurant services were increasingly being offered through mobile apps in this period. Grubhub, Seamless offered menu/ordering for delivery through mobile apps. This period saw emergence of online coupons as a loyalty and rewards medium for restaurant in US. With evolution of contactless technology, the payments part of consumer experience underwent most significant change. Starbucks stands out as major adopter of mobile payment system with QR code based payment app in the initial period. Starbuck processed more than USD ~1bn of transactions in US using mobile payment solutions. Their location, app based face recognition checkout system at the POS was nothing less than amazing. At the same time, Tablet/Mobile based menu and order taking adoption increased significantly during the period. Ability to use these tablets for receiving payments and linking it to the back end CRM, made this solution attractive.
2014 and Beyond: The Third Wave
Integration will be the cornerstone of this phase as tech firms expand beyond their current scope of services to become full blown restaurant tech providers
Till 2013, most of players were focusing on using technology to serve one or two steps/processes of consumer’s restaurant experience (exhibit). In 2014, players in this technology space are trying to do integration of 3-4 or all steps of consumer experience through a common technology solution. Opentable has been one of the few incumbents looking to integrate each and every step through its solution. Paypal has also been working on its wallet app which allows search, pre-order and payment services for consumers. LTP believes that this year we will see more such players coming up with this kind of integrated services for providing a holistic consumer experience in restaurants. Look at the exhibit below.
Players to watch out for:
There are more than 100 companies operating in the restaurant technology solutions space in the US. LTP believes there are a few companies in this spectrum to really watch out for as they try to expand beyond one or two steps to a bigger play in the restaurant technology space.