The restaurant space is in the midst of a digital upgrade, anchored by a wave of activity around cloud-based point-of-sale (POS) solutions and the related consumer-facing mobile experiences, business efficiencies and enhanced data services that come with them.
Square launched its own restaurant POS solution, which includes an integration with its delivery platform, Caviar, the same week First Data announced it had led a $12 million funding round for restaurant data analytics turned POS software platform Salido.
According to Geoff Johnson, chief innovation officer and VP of product at Bypass, this wave of interest in upgrading restaurant POS systems is long overdue.
“In segments like table service and quick service restaurants, the restaurants that are looking to buy a new point of sale — especially the larger groups — just don’t have a lot of options when it comes to cloud-based systems,” Johnson said.
Being forced to work inside the parameters of legacy systems not only denies a restaurant operator the chance to meet mobile consumers’ needs, but also makes it impossible for them to pursue new opportunities to serve those consumers. Upgrading to a new POS that only addresses in-store requirements means restaurant operators may miss out on quickly integrating new features — like loyalty, rewards and even delivery — into a single system that streamlines back-end inventory, accounting and management reporting.
It’s the chains with 50 to 1,000 locations that suffer the most, Johnson said. The large, national chains can build what they want, at scale, and easily deploy new systems, but these medium-sized chains are much more limited to picking from what the market currently offers.
“This segment of restaurant owners and operators aren’t technologists and can’t afford to staff an in-house team to handle technology strategy,” he explained. “They have to adapt whatever the market is giving them or what the market has decided to adopt from a technology standpoint.”
The good news is that the restaurant POS space is now evolving and moving to the cloud, Johnson said. According to the latest PYMNTS Restaurant Readiness Index, some 61 percent of QSRs now have cloud-based POS systems. That change is offering these players an opportunity to directly adapt their services to changing customer needs and expectations.
Medium-sized restaurants are at something of an interesting crossroads when it comes to innovation, according to Johnson. There are a lot of potential options in front of them — including order-ahead, delivery, self-serve kiosks and more — but often no good way of integrating those capabilities into their existing POS systems.
One of the interesting trends in the market will be the cloud-based POS and restaurant management systems migration, and how it will change the way restaurants think about services like delivery — something that can be seen in Square’s wrapping of its delivery platform Caviar into its new restaurant POS offering.
There are two issues with third-party delivery aggregators, Johnson said. The first is their business models, because unless they are very, very good at logistics, it’s a tough business to sustain without having access to a large venture fund’s checkbook or charging large fees. The latter will chase customers off after the perfunctory free trial period.
The second is ownership of the customer, a restaurant’s most precious asset. Aggregators represent a very big disintermediation risk for restaurants. Larger brands with money to spend are catching onto the fact that there is a real power in not using aggregators, but instead having a more fully branded experience they can control. After all, if customers bail, so will restaurants, Johnson said.
He posited that those with enough name recognition and marketing power have another option: directing companies to their website to their own delivery services — provided they can deliver, that is. This mitigates the loss of a customer relationship to the delivery service whose brand the consumer sees when it delivers food to his door.
That can only happen if restaurants have options that are also integrated into their POS systems and across all the channels through which they serve consumers, however. That’s where a cloud-based POS solution delivers optionality to a restaurant operator.
Tapping the Data
Innovation is a tough game in the restaurant space, because the advances and offerings don’t exist in a vacuum, Johnson said. Instead, they exist in a definite context with specific customers — and the devil is often in the details.
Take, for example, self-service ordering kiosks. Kiosks are a favored piece of popular “whiz-bang” technology, despite the fact that they are only useful in some contexts and often create more problems than they solve.
“This really works well for very large brands, where customers come in and by and large know what they want,” Johnson said. “The success stories are very large national brands like McDonalds, Wendy’s and Panera.”
Go just a level below that, and suddenly this idea doesn’t work nearly as well. Shake Shack learned this the hard way, recently abandoning its kiosk-based cashless store concept, going back to cashiers accepting cash payments.
“There is sometimes a blindness to operational thought when a fancy new technology or software comes along,” Johnson noted.
Restaurants will get excited about a new kiosk that will let them take three times as many lunch orders, without considering that it will not get their kitchen to cook three times as many lunch orders at once.
“You’ll see firms trying to be on the cutting-edge of technology to give the customer what they want,” he explained. “But customers don’t always really know what they want, and in reality the delivery of the food to the customer, where everything is done well, is what they want most of all.”
This means the high-tech, upgraded future of restaurants won’t be driven by “whiz-bangy” technology, in many cases, but instead by the nearly invisible use of data in the background to properly capture what consumers like, what they don’t and what the next natural expansion points should be.
“It isn’t just data — there will be a machine learning aspect to technologies in this space, which is where all the real power will come from,” Johnson said. “Data alone requires someone very smart to do something with it. [Artificial intelligence (AI)] allows us to build all of our collected data over customer interactions into an algorithm and do something automatic with it.”
That might include data-backed observations about which goods to offer, how to more effectively price offerings or whether to push into an order-ahead platform.
“That is also where the intellectual property is,” he added. “With the technology — the POS that behaves in almost a commodity way — it is easy to see what it is and what it does. There is nothing behind the scenes. When you start to develop AI-based systems, the algorithms and the insights it pushes is where the value is. That isn’t easy to build, see or copy.”
That kind of insight, gleaned from data farmed across cloud-integrated systems and applied to restaurants’ real-time problems, is the end point toward which all of this recent interest is ultimately leading.
“That is where everyone is trying to get to, and really finding ways to know this stuff and pass it back to restaurants is where this is going,” according to Johnson. “It’s going to take a few years to get there, but that is the path forward.”