For the restaurant industry, COVID-19 steepened the technology curve precipitously. Nowhere is that more evident than in digital ordering systems like apps, desktop/mobile sites and self-service kiosks. While the shift toward digital ordering was already underway — from 2014 to 2019, digital restaurant sales grew from 1% of sales to 10% — COVID took digital ordering from a niche dominated by pizza restaurants and dense urban areas to a mainstay of the industry. Digital sales doubled YoY in 2020 even as industry sales declined 16%; digital ordering now accounts for 22% of industry sales.
Digital ordering systems facilitate faster order processing and payment and reduce order errors — to the benefit of both restaurants and customers. Speed and accuracy are a boon for customers — particularly those who customize their orders — as well as the restaurants that benefit from saved time and lower food waste.
This automation is being complemented by the incorporation of Artificial Intelligence. AI solutions include customer-service chatbots and virtual assistants that can respond to customer questions and complaints or take orders and make suggestions. Even without chatbots, restaurants are using AI to personalize digital ordering, analyzing customers’ prior orders to suggest new items or encourage add-ons. Conversational commerce capabilities engage with consumers through chat, web features and ads.
But while digital order-taking is the most visible use of technology, the changes taking place in the back of house have been equally revolutionary. Because prime costs (food and labor) generally account for at least 70% of restaurant-level expenses, they are the primary areas of AI focus. AI can manage inventory through recommended re-order quantities, but it can also support production in real time. Restaurants are testing systems that monitor food production and signal when it’s time to restock inventory. These systems speed production and prevent out of stocks, but they also help minimize waste (~10% of total production). In the area of labor, AI can predict staffing needs and create in-restaurant labor schedules. Internet of Things tech can even anticipate when equipment will need maintenance and remotely diagnose problems, saving on service calls.
By and large, restaurants are reinvesting these efficiencies back into their businesses, offering customers greater value, faster service speeds, more compelling marketing — or some combination thereof — while holding margins stable. Leading fast food and fast casual operators have seen their digital sales mix climb to ~40% of total, up from the low-single-digits share of sales prior to COVID. Despite significant inflationary pressure in both labor and commodities, these operators have grown EBITDA dollars per store anywhere from 25% to 75%.
As technology grows more sophisticated — and more mission critical — scaled operators will gap out further from their smaller competitors, taking market share as they do.
