QSR & Mobile

Why Mobile Order Ahead Isn’t About Payments

Allow me to tell you a little story about mobile order ahead in the QSR space.

Two aspiring entrepreneurs, between gigs, began kicking around a few new ideas for a business. Food was a segment they thought was a natural to explore, for the obvious reasons — people have to eat. But more than that, there were secular changes afoot, influencing the consumer’s relationship with food and where and how they were buying and eating it.

And, with change, came an opportunity to reinvent and disrupt, they thought.

The pair also observed how the lines between cooking/eating at home and ordering food out/eating food somewhere else were blurring, at key times of the day — morning, midday and dinner time. They also observed how quality, price and convenience were a priority for consumers, but recognized that delivering that three-legged stool would be challenging, especially during those peak periods.

Now, by their own admission, these two weren’t experts in the restaurant space, having dabbled a bit in it but never working in it for extended periods of time. But that didn’t stop their wheels from turning.

They decided that the trick to innovating in the space and delivering what consumers wanted could be accomplished by being efficient — first by limiting the menu to a few desirable, but high-quality, items and then organizing food sourcing and prep around those items. Keeping the food quality high and prices low could be accomplished from those efficiencies — producing higher-than-industry-average operating margins and, they hoped, higher-than-average customer satisfaction too.

But their secret sauce, if you will, was to leverage a popular new consumer device that consumers had fallen in love with and that could take their restaurant efficiency and service idea to another level. They felt that they could use that device to expedite the ordering process — finally putting in place the third leg of their three-legged stool: service delivered efficiently, outstanding food quality delivered at a great price and an innovative consumer touchpoint that initiated the order.

That three-legged stool became the foundation for their business, one that revolutionized the quick service restaurant segment when it was introduced. Consumers were treated to consistently great food at affordable prices that they could order in advance and pick up at a restaurant later — minutes later, in fact.

Ushering in mobile order ahead in the QSR space for the first time.

In 1948.

Where Mobile Order Ahead Got Its Roots

Well, to be precise, that was the year that automobile order ahead was born.

The year was 1948, and the establishment, as some of you might have now guessed: the famous In-N-Out drive-thru. Its founders, Harry and Esther Snyder, were babes in the fast food woods at the time, but they wanted something meaningful to do with the rest of their lives after WWII ended. The biggest contribution that the restaurant industry made to them at that point in their lives was bringing the two of them together — Harry met Esther at the restaurant she was managing after her stint in the Navy ended.

The notion of “fast food” then was not new — A&W opened the first such establishment in 1919, but White Castle (Anyone out there remember those?) was actually the first place to use a standardized food production process and menu to create an efficient food preparation process that made it possible to prepare and serve food at low prices, without wait staff. Theirs’ was a place where, for the first time, customers could walk in and see their food being made and walk out with a bag of burgers in hand.

But it was the consumer’s love affair with the automobile that drove the Snyder’s, and others before them, to think differently about how consumers might want to order, be served and then decide where to eat their food.

Cars, of course, are the access device I am referring to — an innovation that drove version one of fast food ordering: the drive-in and the carhop. Carhops were more than just a marketing hook and novelty — they were an integral part of a restaurant operation designed to keep restaurant costs low and operational efficiencies high. Sending carhops to and from customers’ cars to get orders and deliver food was the best way to serve more customers, with fewer staff and smaller restaurant footprints. No waitresses and no indoor seating, but lots of carhops and a standard menu of burgers, fries and shakes would deliver higher customer satisfaction and restaurant margins. Not to mention incredibly fit carhops.

But the Snyder’s wanted to take this notion further and put their chips on the American consumer’s growing love affair with the automobile and how they were using it in their daily lives.

After the war ended, and thanks to advances in car manufacturing, cars were no longer a luxury owned by the fortunate few. By the end of the 1940s, car ownership was ticking up — and by the end of the 1950s, nearly 40 percent of all American households owned one. And drove them around — a lot.

That gave the Snyder’s their big idea and ushered in version two of fast food ordering: Instead of a drive-in where people drove their cars into a parking lot and a carhop took their order, they wanted to have customers place their own orders — in advance — and allow them to pick that order up a few minutes later without ever having to get out of the car and go inside a restaurant. They thought that combination would deliver consumer convenience and operational efficiency, provided the order was linked to a menu that was limited which the food prep stations inside were teed up to deliver.

So, with an investment in a two-way intercom system, In-N-Out was the first establishment that let customers pull up, look at a menu, place their order, drive a few feet further to a window to pay for it and then drive away with food in hand — ready to eat wherever consumers wanted to eat it, including home at the kitchen table. This system would serve lots of consumers anytime, especially at busy periods, more than could be served in a more traditional sit-down or walk-up-and-order establishment.

The basic problem that the Snyder’s wanted to solve nearly 70 years ago is what’s fueling the innovation now taking place in the QSR/fast food space today: reducing the friction in how consumers order and get their food, especially during the peak breakfast, lunch and dinner hours.

And why the first places these establishments are investing to deploy that innovation today — and have now for a few years — isn’t how customers are paying for their food.

It’s how they’re ordering it.

The very same problem that the Snyder’s observed and solved for in 1948.

Mobile Order Ahead and Efficiency — 2017 Style

Spending on eating out has grown steadily since 2000. At the start of the 2000s, only 39 percent of food spend happened outside of the home. By the end of 2016, that number had grown to almost 44 percent and is likely to continue to rise.

Total spending on fast food is growing too. Of the total money spent on food outside of the home, fast food accounts for roughly $228 billion of it, a 5.3 percent gain over 2015.

Like the 1940s and 1950s, when the notion of fast food was just coming into vogue, convenience and price remain the key drivers for why consumers desire and eat it. Everyone from two-income families to millennials to single parents to retirees crave the convenience of popping in (or driving thru) a McDonald’s, Taco Bell, Chick-fil-A — or name your favorite — and grabbing a good meal for a great price — often multiple times a week.

Analysts report that 7 percent of Americans eat at a QSR establishment daily; 50 percent visit a fast food restaurant, on average, twice a week; 70 percent do three times a week and 80 percent do at least once a month. A segment that was once the brunt of bad jokes about questionable food quality has upped its game by making its food healthier and adjusting its menu options to reflect the changing American consumer palate, while keeping prices affordable. The American Customer Satisfaction Index reports a satisfaction score in the QSR sector in 2016 of 79 (on a scale of 100), up 2.6 percent from the year prior.

The highly coveted millennial group is a key stakeholder that QSR’s want to attract — and for a very good reason: They eat out at fast food and fast casual restaurants a lot. Studies report that millennials eat out three to four times a week and spend 44 percent of their total food dollars at those establishments.

This is all coming at a time when the QSR industry is facing a lot of headwinds.

First, competition is coming from all directions. Local and regional ethnic food chains, food trucks and specialty food chains are popping up in big cities and small towns alike, catering in many cases to those who desire a healthier fast food option. Grocery stores have expanded to include prepared food sections that offer traditional lunch and dinner fare. So do the mega-Walgreen’s — the one near our offices in Boston carries frozen yogurt and sushi, along with a whole selection of prepared sandwiches and salads. Amazon Go, when it opens, will reportedly have the same sort of lineup.

But regulation is imposing new guidelines that increase cost of operations. Labor costs are on the rise as healthcare costs and the mandated federal minimum wage increases drive up the cost of business. This comes at the same time that the pressure to produce a great product without raising prices materially is also increasing.

With labor costs at roughly 30 percent (and even more at some establishments) and food costs at as much as 30 percent, QSR operators are turning to technology and innovators to help them solve one of their biggest pain points: making it easier for their customers to place and pick up their orders.

A Picture is Worth about 20 Percent More in Average Ticket Sales

Gas station and convenience store operator, Sheetz, was a pioneer back in 1997 when it introduced touchscreen ordering in all of its stores. By giving consumers a visual of what they could order, the Sheetz CEO said at the time, the sales of things that consumers ordered increased. Sheetz management also found that it was easier to introduce new menu items — and have them sell. When people could see a visual of something new on their touchscreen board, their sales results reflected a willingness of those customers to give it a try. And integration with their point of sale expedited payment and checkout.

Fast forward a couple of decades and the sea change advances in technology and access devices that now exist.

Online ordering via the desktop and the mobile phone has had the same effect. Eat24’s CMO was reported as saying a few years ago that online orders deliver more bang for the restaurant operators’ buck, because people are reminded that they can order more than what they might be able to remember or ordered last time. What might have been an order for a pizza and a coke in a store, he remarked, ends up being that same pizza with some appetizers and a six-pack of soda thrown in.

For both Sheetz and Eat24 restaurants, the key benefits were increased order size, new sales through new customers who might have been tempted to give them a try and the operational efficiencies that came along with the ability to serve more customers and process more orders with fewer in-store staff.

But it’s the combination of mobile devices, apps and integrated payments that now take the remote ordering concept to a whole new level — which delivers the execution of that three-legged stool the Snyder’s built their business around in 1948 and puts it on steroids: service with exceptional efficiency, great food at good prices and an innovative consumer touchpoint at a time when fast food establishments need a whole lot of help improving their bottom lines.

Today, where mobile order ahead is deployed, it’s upping customer spending, helping operators gain new customers and enabling the efficient delivery of food ordered this way by reducing the time spent filling those orders. Mobile order ahead and mobile pay opens up a whole new lane, if you will, that can process more consumers in an hour than can be done trying to hustle consumers through the ordering and checkout line in a physical store. This “Second Restaurant,” as the Chipotle CFO once described to analysts, added $500 a day in extra sales to some stores, with multiples of that in others, just because of the efficiencies that fulfilling orders in a more streamlined fashion creates.

Mobile order ahead is also prompting a rethink of store footprints. How much space needs to be allocated to offline orders versus online orders and fulfillment, decisions that can free up operating spend and reallocate labor costs, — and even whether people are needed at all. Starbucks is testing a mobile-only concept store in Seattle that will shed light on how many, if any, people are needed to checkout customers. McDonald’s, who’s also testing mobile order ahead, is trying out a centralized order-taking center for its drive-thru orders, reducing the need for staff in local stores.

Some variations of the mobile order ahead and mobile pay concept that use subscription business models can expand the sheer capacity of orders produced in an hour by a factor of five, resulting in the ability to even offer food at lower than “list” prices, because of the ability to increase order throughput.

The more sophisticated mobile order ahead and mobile pay apps remind users to place an order and use predictive intelligence to suggest what a consumer might like to order. That same intelligence can be used to time shifts and drive specials and traffic when operators need it — during slow times of the day and days of the week. And those platforms can even open up new revenue opportunities so brands can promote their offers at precisely the time when the consumer is about to make a decision.

Of course, the ability to embed payment into this experience is what makes it so incredibly appealing and frictionless for the consumer and possible for the QSR operator to enable. Just like Uber solved for the friction — first, of getting a reliable car service, and then second, having to pay for the ride once completed — mobile order ahead and mobile pay is fulling that same one-two, friction-filled punch for consumers who want to use those establishments, and for fast food operators to offer.

I thought this story was important to tell for a few reasons.

First, what’s old is really new again. Times may change, technologies may change, but the same fundamental problems seem to stand the test of time. That means when thinking about the problems that you’re solving for your customers — whoever they are and in whatever segment they may operate — it often helps to think deeply about the fundamental frictions they are encountering and need to solve to keep their businesses vibrant. And then where integrating payments can take the value proposition up a few levels.

Second, solving for these higher order frictions is what drives massive shifts in traditional industry segments. In the restaurant space, innovations in the ordering process is changing the way that consumers now expect to interact with the places they now go for their breakfasts, lunches, and soon, every meal they eat away from home. Soon consumers will come to expect mobile order ahead and mobile pay to be a de-facto part of their QSR experience.

Restaurant operators, the smart ones, are all over this and are putting the pieces in place now to get on the right side of the shift. Chipotle’s CFO remarked that while 66 percent of orders they fill are eaten away from their restaurants, only 7 percent today are made outside of their restaurants. They see nothing but upside by working hard to move more of their customer’s business that way.

Like the Snyder’s did in 1948 when they opened the consumer’s eyes to a whole new way to order and consume their food, innovators today are giving the modern-day restaurant innovator the tools to create and deliver that three-legged stool of efficiency, food quality and innovative consumer touchpoint. Today, consumers are using the devices that they have adopted in droves and love to use: their mobile phones and tablets and the voice-activated assistants, such as Alexa, Allo, Siri and (soon) Bixby, and apps like Waze that will enable mobile order ahead at Dunkin’ Donuts.

And proving even further that everything old is, indeed, new again, soon even via the device that may have started it all: the (now connected) car.

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