Ever wondered how your favorite burrito bowl or frappuccino is mirroring the likes of Amazon or eBay? Buckle up, as we take you through the evolution of digital restaurants, transforming into behemoths of personalized marketing and e-commerce efficiency. We're serving up a hearty discussion on the seismic shifts that Starbucks and Chipotle have made, and we're slicing into the meat of e-commerce metrics such as customer acquisition costs and lifetime value, essential ingredients for a thriving restaurant brand in the competitive online food space. And for a dash of tech-talk, we contrast the automated kitchens of Sweetgreen with e-commerce giants, stirring the pot on innovation in food service.
As the main course, we present the intricate challenges and trends sizzling within the restaurant industry, particularly for those with 10 to 100 locations that are grappling with consolidation's mixed blessings. We sit down to discuss the delicate balance of efficiency and maintaining the zest of culinary innovation amidst a landscape of growing third-party delivery services expanding their reach. The heat turns up as we address the scorching topic of labor costs and tip fatigue, simmering with the question of whether this will push the industry towards the robotic arms of automation. Join us for this recipe of insights, where we blend the fresh perspectives of restaurant owners with the seasoned strategies of industry players to dish out a forecast for the culinary world of 2024.
🔔 Subscribe to The Digital Restaurant Podcast and follow us on YouTube for more episodes that combine the love of food with the latest in technology. Your next restaurant tech adventure starts here!
📖 Get your copy of the Delivering the Digital Restaurant books at www.theDigital.Restaurant
🎤 Have Carl or Meredith come and speak at your company conference! Learn more at www.theDigital.Restaurant
Ever wondered how your favorite burrito bowl or frappuccino is mirroring the likes of Amazon or eBay? Buckle up, as we take you through the evolution of digital restaurants, transforming into behemoths of personalized marketing and e-commerce efficiency. We're serving up a hearty discussion on the seismic shifts that Starbucks and Chipotle have made, and we're slicing into the meat of e-commerce metrics such as customer acquisition costs and lifetime value, essential ingredients for a thriving restaurant brand in the competitive online food space. And for a dash of tech-talk, we contrast the automated kitchens of Sweetgreen with e-commerce giants, stirring the pot on innovation in food service.
As the main course, we present the intricate challenges and trends sizzling within the restaurant industry, particularly for those with 10 to 100 locations that are grappling with consolidation's mixed blessings. We sit down to discuss the delicate balance of efficiency and maintaining the zest of culinary innovation amidst a landscape of growing third-party delivery services expanding their reach. The heat turns up as we address the scorching topic of labor costs and tip fatigue, simmering with the question of whether this will push the industry towards the robotic arms of automation. Join us for this recipe of insights, where we blend the fresh perspectives of restaurant owners with the seasoned strategies of industry players to dish out a forecast for the culinary world of 2024.
🔔 Subscribe to The Digital Restaurant Podcast and follow us on YouTube for more episodes that combine the love of food with the latest in technology. Your next restaurant tech adventure starts here!
📖 Get your copy of the Delivering the Digital Restaurant books at www.theDigital.Restaurant
🎤 Have Carl or Meredith come and speak at your company conference! Learn more at www.theDigital.Restaurant
It's 2024 and on this week's Digital Restaurant, we're looking back on a fabulous 2023. We're going to reflect on our predictions as to what we thought might happen last year and we're going to make some predictions as to what we think's happening in 2024. It's all ahead on this week's Digital Restaurant.
Speaker 2:
Happy New Year, meredith. Happy New Year Carl.
Speaker 1:
Look at you and your sequence. Have you been out all night? Have you just got in for the podcast? Oh, my gosh, I'm exhausted.
Speaker 2:
I'm super festive, though.
Speaker 1:
Well, I hope you had a very happy holiday season. I still remain a little jet lag, to be honest. 26 hours of flying back from the Maldives, it was something else, and plus I've got plenty to share at some point with everyone about the amazing hospitality I had over there. Thank you to Renato and his entire team at the Ritz-Carlton. It's a lot of fun.
Speaker 2:
You're making everyone a little nervous because, since I've been out all night and you just got off the 26-hour flight, how's this show going to be, carl?
Speaker 1:
It's going to be great because, guess what? We're going to do things a little differently, as we always do around this time of year, where we look back on our predictions of what happened in 2023 and then we're going to share a little bit about what we think's coming up in the 12 months ahead. So why don't we get onto it? 2023, let's talk about what we said we thought would happen. So, as we look back into our crystal ball that we had, we said, first of all, leading digital restaurant brands will look increasingly like e-commerce companies. What do you think? Have we got that one right?
Speaker 2:
I think so. I think the leading digital restaurant companies are becoming even more digital, even more like e-commerce companies. And I will tell you a story from yesterday. Actually, I got a notification on my phone that I had a special offer at Starbucks and my brother and I were together and I said oh, but probably we can only get one. And he said well, you order on your app and I'll order on my app, and then we'll get two. And I was like brilliant, so smart. So I go to place the order on my app and then he goes into his app and he goes wait a minute, I don't have that offer.
Speaker 2:
Wow, personalized offers right Based on what they're trying to get each of us to do, and they know that if I get an offer for a Thursday afternoon, I'm probably likely to behave differently, Whereas if he gets that same offer, not so much. So I think that is a great example of behaving like an e-commerce company and really personalizing what we get from those restaurants.
Speaker 1:
You know, I think it was back in April I received an email from another one of our top digital brands out there, Chipotle. They gave me my one year Chipotleversary email and they were telling me all about my preferences, whether I'm on Team Guac or Team Queso, and it was a really good way of them being able to show me that they got me and they knew me as a consumer. That is also something similar to what we'd see from Amazon.
Speaker 2:
Yeah, 100%. And speaking of Chipotle also, in the physical realm they've become much more like an e-commerce company. I remember 10 years ago looking at Chipotle while I was working at Taco Bell and thinking how could we open up our kitchen and make it so the consumer can see what we're doing with the food and increase their trust levels, the way that Chipotle is done right? A lot of people trust Chipotle's food. Part of that's around brand marketing and the things they talk about with their food but honestly, a lot of it comes from the same factories across all the different restaurants.
Speaker 2:
That open kitchen really helped consumers feel confident about what was going into their Chipotle burrito. But now we have Chipotle doing some interesting things with the footprint. First of all, they have a digital make line in every single restaurant. The consumer cannot see, by definition, when they're ordering ahead and getting food off that make line. It's done when they get there to pick it up right. And then, taking that a step even further, they have a digital kitchen which is not really designed for consumers to go into. It's purely for delivery and pickup. There are tables inside, few outside on the patio, but really a fulfillment center like an e-commerce fulfillment center. And then finally, of course, with their investments in automation, they've gone all the way to having a make line that is fully automated. Consumers can only not see it because it's back in the kitchen on the far side, but also because it's underneath, so different from what they were doing 10 years ago and much, much more like an e-commerce company.
Speaker 1:
Yeah, it's funny you mentioned automation, because I last year went to Sweet Greens Automated Kitchen and was able to see what they were doing. When you recall your Cardo grocery company in the UK using automation and robotics in relation to their fulfillment operations, you can see again the more automated you are, the more akin to e-commerce brands you become as well. So it's been an interesting year and I think we're going to see more of this stuff as we get deeper into 2024. I think we're going to give ourselves a point for that first one, but the next one I'm not so sure that we're going to give ourselves a point on. So let's have a discussion.
Speaker 1:
We said we thought e-commerce metrics will become critical to managing a great restaurant brand. Now I think we both still agree that they will become critical, but have they become critical for restaurant brands right now? Now, what I would say initially is that we know that the DoorDash is the uberator of this world. I have certainly improved their ability to provide the metrics that matter when it comes to e-commerce metrics, like lifetime value that they're even getting into as well, but certainly customer acquisition costs. Those types of things are starting to emerge more frequently through those platforms, but are restaurant executives using those terms in the same way as they would use perhaps some of the more traditional financial metrics?
Speaker 2:
I don't think so. I think, yes, they're becoming more important, these metrics, and yes, if you believe that restaurants are becoming e-commerce companies, which we do, then ultimately they have to use e-commerce metrics to manage themselves, but I'm not convinced that it's widespread in the industry. I think it's a good sign Purely digital ordering interfaces like Uber and DoorDash are starting to make those available to people. I think it's another interesting sign that companies like Loopai are trying to combine all of those metrics from different platforms into one place. You've heard restaurants start to talk about things like card abandonment. It's definitely beginning and it's clear that it will need to be a thing, but I don't think it's as big of a thing as we were thinking it would become.
Speaker 1:
Yeah, I agree. I think ultimately, the more we realise that the better measurement can occur through using these metrics, the better decisions can be made as to how resources can be applied within the restaurant market in particular. I think that is ultimately going to be a much richer place to be for the industry. Hopefully we're going to see more growth in conversations about e-commerce metrics.
Speaker 2:
Not wrong, we're just ahead of our time.
Speaker 1:
Well, as ever, let's go on to our third prediction, meredith. We said that restaurants are going to start talking about the percentage of sales they put into technology, something we talk about a lot. Obviously, we talked about this in the 2% to 4% that we put in our latest book, path to Digital Maturity. Have you heard many restaurants talking about that particular metric?
Speaker 2:
I don't think they have put it in percent of sales. I'll tell you why. I think they still have it in so many different places in their financials. They've got some of its headcount, some of its SaaS subscriptions, some of its old license and maintenance thing that they got into 10 years ago, and then some of its capitalized, some of its Apex, some of its in restaurants, some of its above restaurant. All the same things that we were talking about last year, I think, have continued in terms of how complicated it is to figure this out. We thought that restaurants would fight against that and try to simplify and try to really see what they were doing. I think we've anecdotally heard and here's where I would give us credit anecdotally heard that restaurants think they're spending too much on tech now, but I don't know that they have quantified exactly what that is.
Speaker 1:
Yeah, I think we heard about that from Seth, didn't we, on our most recent podcast, where he was saying look, when you actually put some time to figuring out how much you spend, it's quite shocking. Even some of the larger restaurant brands out there the chilis of this world, I think they've taken somewhat of a retrenchment, haven't they, in terms of what they've been spending. That isn't necessarily a bad thing. The industry has recovered from the pandemic to a point, but I think a lot of the decisions made during the pandemic led to a lot of spending different areas to try and find what are we going to do to survive through this period and now that we're emerging out of it? I think it's a case of where do we need to best deploy our technology spend, as opposed to doing little bits everywhere? Okay, the next one we had was that restaurants' demand for technology ROI will combine with the interest rate environment to cause consolidation among technology providers. So consolidation it's been in plenty of different articles, some that we've been talking about a lot. What's your initial reaction to that?
Speaker 2:
Well, I think it is certainly true that interest rates have gone up. I think it is certainly true that, therefore, it is harder to raise money as a startup. Food tech investment was off 82% from its peak in Q3 of 2023. It's a pretty big decline. A lot of that was ag tech, but I think it is, across the board in food tech, very significantly down and when that happens, it makes it harder for the startups to survive.
Speaker 2:
There were also just a lot of startups, Frankly, many of them me too startups in spaces that were very crowded and that was very hard for restaurants to tell them apart. Meanwhile, you've got those restaurants saying am I really getting what I want out of this technology? So the drivers absolutely are there. Consolidation wise, I think we saw some Chalibot Koala, me and you and Mr Yum combined forces Next bite in C3. Next bite in C3, that's right, it's definitely happening Now. Did it happen at the rate that I thought it was going to happen again, maybe here ahead of our time?
Speaker 1:
Well, I think the investment environment certainly has played a role in this, hasn't it? We've seen that now many restaurants, technology companies if they do not have a good proposition that can demonstrate a route to profitability quickly and clearly, it's probably going to struggle to be able to get the necessary investment to ride through those first few years. And that's leading, I think, to a good outcome for restaurants, because it's meaning the best rise to the top and the rest are unfortunately not going to be around with us. Okay, the last one we had was that 2023 was going to be a year of normalization for restaurant delivery. Well, I think we definitely get a point for this one right.
Speaker 2:
For sure. We've talked about this a lot, with the slowing growth rates at both Uber, Eats and DoorDash. Obviously Grubhub in decline, but I think that's for a self-inflicted wound than something structurally going on with the consumer. Those large guys, they are slowing down and although we've talked a lot about how difficult it is to see exactly what's going on in their earnings reports certainly slower than it has been.
Speaker 1:
All right, well, look, 2023 was a lot of fun, but let's talk about 2024, because I think it's going to be an even bigger year. What do you think? I think it's going to be a year of a lot of things continuing to grow and emerge, but one thing which we are saying is that consolidation is going to continue. Now, I think what we're going to see with this isn't necessarily just consolidation from the standpoint of restaurant tech, but I actually think we're going to see that from restaurants too.
Speaker 1:
One of the things which we've been pretty impressed by the growth of the likes of Savory Brands, full-course, craveworthy Brands out there, where they're starting to pick up smaller brands and using their collective weight to be able to pull across the resources across each of those brands, which, of course, if you're a 10-15-unit brand, it's very, very difficult to make all the ends meet. But when you're supporting 10 different brands, suddenly you're a 150-unit business and it makes a little bit more sense. What's your take on this? You've seen similar kind of consolidation for restaurants of that size and what else is happening out there.
Speaker 2:
There have been a huge number of new restaurants that have come to market over the last 10 years and many of them are at the subscale point where they have between 10 and 100 units and interest rates.
Speaker 2:
As interest rates go up, even if they have great unit-level economics, investors might not be willing to fund the growth at the corporate level because it takes so much money from marketing and technology and operations above the restaurant to grow these units, and then also you've got to put capital on the ground to get more units While interest rates are going up. I think it's a tricky time for restaurants in that 10 to 100 area and I agree with you, it's much easier if they band together and start showing resources. Now I've seen banding together going well and I've seen banding together going not well when you see it firing on all cylinders. You see back office functions that can easily be combined in an op-brand specific being combined when it does not go well. You see someone trying to take as an example like food innovation and do it across brands that have very different kitchens. That just doesn't work. So will it be interesting to see how these brands think about collecting brands that make sense together?
Speaker 1:
Yeah, absolutely, and I think what we'll also continue to see is further consolidation for restaurant technology. The amount of choices we were just talking about in terms of 2023 is particularly high, but with more of the restaurant technology companies coming together, it helps the restaurant decision makers to be able to make a more informed decision. We hope that the better the technology works together that it's not just taking a competitor off the market or just getting access to a new functionality the better it works together to create a holistic solution, the better it is, which I think probably sets you in good spirits for what's going on at Empower.
Speaker 2:
That's right, that's right. That's why the sequence actually I'm celebrating. This is going to be my year. I absolutely agree with that. I think if restaurants can essentially outsource that tech function to a holistic tech stack, rather than have a bunch of above restaurant DNA being spent on figuring out what the right components are and how to integrate them all and how to keep them working, I think that's a huge win for the smaller brands out there.
Speaker 1:
Well, let's talk about some of the 3PDs and what they're going to be focusing on, because, from our standpoint, we think the multiple vertical focus is going to continue to be a big priority for them. And why is that? Well, the story hasn't changed. The cost of delivery remains incredibly high and, ultimately, the maintenance of drivers to keep them happy, to be able to find ways to keep them busy during those quieter periods is super important. And, of course, any additional trips is better news for the 3PDs as well. So the focus on things like pet, on grocery, on convenience, on pharmacy, all of those things are going to continue to be important. The question mark is how good is it going to be from an execution standpoint? Because if it is paired together with a restaurant delivery, I think it is creating a poorer experience. What's your take? Do you see more growth happening in the space? Where do you see improvements coming?
Speaker 2:
I agree vehemently with you on all these points. I think the big delivery companies need to be delivering other categories and able to enable continued growth on the revenue side. As food delivery slows down, you've got to go look for other verticals. So that makes all the sense in the world. And these companies are still not profitable. So, as they think about how to get to profitability, part of that might be network utilization, part of that might be spreading the delivery costs over more revenue, so having those drivers be carrying a bigger basket, so to speak. All of those things are in their motivations for entering these additional verticals. And then, yes, I agree with you, the more things you bundle together with food, the worse off food is the other side of this, which we haven't spoken about much is.
Speaker 1:
What does this mean for the independent relative to the big chains? Because I increasingly find in the better known restaurants to appear higher up my search results than the independent operators out there, and I think part of this is because the marketplaces now are becoming search engines ultimately and the bigger brands, as we see on Google and on Bing, et cetera, they turn up typically higher than the smaller operators. Do you think that's going to be a theme that appears through the 3PD's even more in 2024?
Speaker 2:
I do. It has been fascinating to me how much the big brands have supported the 3PD's, and I think it's because they get a fundamentally different deal from the 3PD's. I think they pay a lower commission because their brand is pulling people in, and I also think they get more data from the 3PD's shared back to them. They certainly get favors like direct injection of orders into their KDS, which the independents don't necessarily get, and it's things like that, that, I think, make the big brands a little bit indifferent as to whether someone orders first party or third party from them.
Speaker 2:
You and I were texting the other day. I went to the McDonald's website to try to order something and the first thing that came up was please pick a way to order, and it put their own app on the equal footing with Grab, hub, doordash, uber and Postmates. It didn't try to encourage me to do their own app. It just said these are the different ways you pick, and that's kind of what the consumer wants. Is that complete freedom? So if the big brands have figured out a way to always be found because they're maximizing their SEO and to get better data and to get lower rates, then yeah, why not?
Speaker 1:
Well, we'll find out what this means for those alternative verticals in that space as well. Maybe the small convenience store that isn't a 7-eleven or an A&P and may actually be struggling as well as time goes on. But let's move on to our next one here, meredith, there's a lot happening with regards to California, new York and the cost of labor. I mean, labor cost has been a theme throughout the last few years, but it's not getting any easier. There's also a lot of talk about tip fatigue and the fact that actually now, no matter where you go, it seems you're being asked for a tip, even outside of the restaurant industry.
Speaker 1:
So are all these forces that are going to be ultimately increasing the cost of labor to the consumer going to actually pay out in prices? Or are we gonna find the restaurant starting to embrace automation robotics? Maybe even we're gonna find a growth in the technology companies supporting automation from the delivery standpoint, whether that be through drones or otherwise. I think this is gonna be an area where we're gonna see perhaps a little bit more momentum than we saw last year, because it was something that everyone was talking about in 2020 and 2021, and then things started to quieten a little bit and I think 2024, we're gonna start to see a lot more growth in this. What do you think?
Speaker 2:
I think that's absolutely true. California goes, is the saying, and the wage increases that you're seeing in California and New York are not going to be isolated. That will be rippled across the US, and as wages go up, companies try to have less and less labor. You just look at a place like Europe where you go into a factory and it's mostly robots. Why is that? It's because labor is so expensive. That will happen here in the US as well. Now what I would say that's a little bit different from you is I think it is far easier to quote, unquote, automate and gain efficiencies through software than it is to gain them through hardware, and so I think we will start to see software help restaurants remove labor from the P&L before restaurants start investing in hardcore automation like drones and things like that.
Speaker 1:
What the whole drone side of it is still being impacted by federal support the systems outside of what restaurants and restaurant technology companies themselves can control. So that is clearly a big macro factor that is important. But the cocoa robotics of this world that are making it work either way, certainly in those densely populated areas, they're the ones that perhaps are going to have a good year ahead. Okay, let's move on. We've got our fourth prediction A term we use a lot, digital hospitality we think, is going to finally become a priority for off-premise orders. Tell us why.
Speaker 2:
Well I go back to Lisa Miller's survey of consumers that said delivery is just not worth it and we hear over and over it's pretty good for delivery. Of course, all the delivery ratings are lower than on-premise ratings. When you take all of these things in combination, you say the consumers got terrible expectations for the quality of delivery. It's getting expensive and they view it as not worth it and actually they rate the experience worse than on-premise. Those three things together tell me that either restaurants need to figure it out, take it seriously and do it well or, frankly, they need to just get out of it and not do it because it's going to become brand damaging as it becomes a bigger and bigger percentage of their business.
Speaker 1:
Yeah, I think that's right. The challenge is that it's often been seen as a distraction. Operationally, off-prem is seen as a distraction If you don't have digital make lines, like the Chipotle that you mentioned earlier. It's always been a complicated extra channel to manage. But I think the reason why we're saying it's finally going to be taken seriously is now it's just a part of running a restaurant.
Speaker 1:
Restaurants are realizing they've got to take the customer voice seriously. They've got to have different systems in place to address the challenges that are going to come up when it comes to, certainly, delivery transactions. But also now they're going to invest in the things that are going to help them get more transparency on what is causing those issues, how to better communicate with customers, how to add those little things that perhaps can enhance the experience and to get the customer to try them one more time. The whole thing about DoorDash or Ruberead's is that you're leaving credits back when you have a poor experience is really something which I think is going to ultimately create a frustration for restaurants, because what we're looking for is the customer to come back to the brand, not to necessarily just come back to do what Ash will be reads so by having better digital hospitality coming from the restaurants themselves. I think we're being a better place.
Speaker 1:
Yeah, okay, our last one experiential dining or digital? First In the path to digital maturity, we talk a lot about the restaurants having to choose a lane Once they get to a certain point in maturity, that they need to choose a particular path, because it may be difficult to truly become a digital restaurant by trying to be all things to all people. Now, we're not necessarily there yet as an industry, but I think what we're seeing certainly for sectors like casual dining or for restaurants that are in malls that are perhaps struggling for traffic that unless you invest in experiences, something beyond just the food itself, something that can do something more than just the convenience you can get from off-premise, you're going to perhaps struggle to get that customer A to visit you and certainly to come back. What's your take here on this?
Speaker 2:
We're entering almost a barbell in consumer expectations. They either want extreme convenience or they want an experience. They're not looking for that thing in the middle, which is neither a great experience nor super convenient. That's where you're seeing the restaurant brands really struggle is when they're in that middle. Maybe they're an older, more tired QSR brand, maybe they're casual dining. Folks aren't really coming in because it's not a great place to be but they're not super convenient. Folks aren't really ordering delivery from them either.
Speaker 2:
Those are the restaurants that, by and large, you're seeing a transaction decline in. The ones that we see doing really well are ones that are choosing a lane so fine dining. Up until the last few months, where I think we've had some economics loadout affecting them, americans were going back to in droves because they wanted to have that experience. They wanted to be with their friends and family and go out, see and be seen, have someone help them engage with the food and the brand and find the right things for them. And then the other end, you saw brands like Chipotle again, our digital leader do really really well because they need things so convenient. I've said many times that I eat Chipotle probably more often than I should, in large part just because it's so dang easy right, which is a sign that I'm making a choice about what food to eat because of convenience more so than because of actually wanting food. Very interesting.
Speaker 1:
Yeah Well, I think one thing's for sure both the convenience aspect is going to improve and hopefully the experiential side of things will improve as well. But there's a lot to be done in 2024. And no matter whether you're on the restaurant side or on the restaurant tech side, hopefully you'll continue to join us here at the Digital Restaurant as we help you on that journey by telling you the latest goings on in the space and, of course, as always, if you have any comments, thoughts, tips to share that you'd like us to cover, we're always well listening and eager to hear from you. But to finish up, Meredith, I've compiled a little look back on a wonderful 2023. We had a great year here on the Digital Restaurants and here's to an even better 2024.
Speaker 2:
Happy New Year. With that, the 2023 season comes to an end.
Speaker 1:
Good night, the Digital Restaurant podcast is available for you to follow and subscribe. Wherever you listen to your podcasts, watch us, rate us and subscribe to the Digital Restaurant on YouTube, and follow along on all our social media Digital Restaurant channels. Thanks for listening.