How QSRs Are Handling Social Distancing, Fraud Uptick

Independent restaurants and small quick-service restaurants (QSR) chains face an uphill battle when it comes to competing with their nationwide counterparts. Not only do industry giants have innate name recognition, but they also have colossal advertising budgets and access to cutting-edge mobile ordering technology and features that small operations cannot match.

The new coronavirus, COVID-19, has only made this competition fiercer. Big chains have the resources to deal with this disruption and can ride out the storm, while independent restaurants and small chains are scrambling to stay afloat in the face of dine-in bans and stay-at-home orders. Chicago-based LYFE Kitchen, a small fast-casual chain specializing in healthy options, is one business feeling the stress of the ongoing pandemic.

“You have a limited amount of capital and resources, [but] you want to stay current, which is hard to do,” CEO Gail Taggart said in a recent interview with PYMNTS.

LYFE’s mission in the midst of the pandemic is twofold: boost the amount of business from pickup and delivery orders and counter the increased risk of fraud that is accompanying the crisis. Taggart is optimistic about the restaurant industry’s future if it is willing to adapt to the times.

COVID-19 Woes

The biggest global news story is how COVID-19 is bringing enormous changes to everyday life. Major shifts are happening in the mobile ordering, QSR and restaurant industries, with dozens of countries and U.S. states issuing stay-at-home orders that limit restaurants to takeout or delivery services. Eateries nationwide are working hard to adapt to the new normal, but it is a massive challenge and many are forced to adjust practically overnight.

“Most restaurants are really trying delivery and pickup — even full-service restaurants that normally wouldn’t. Most of us don’t order an expensive steak and a bottle of wine to go,” Taggart said. “But I don’t think it’s going great. Many restaurants that I follow that started with the delivery and pickup services [just] seven days ago have either narrowed it down to just Friday and Saturday night or they’ve just thrown in the towel.”

LYFE Kitchen has a leg up in this crisis as more than 30 percent of its business was already conducted as to-go, and it had the infrastructure in place to expand these operations. The chain closed all but one of its three Chicago locations to consolidate its takeout and delivery services, rerouting all of its Uber Eats orders to this restaurant regardless of customers’ locations.

“The restaurant we kept open happened to be in Northwestern Memorial Hospital,” she explained. “So we’re getting a ton of hospital staff as well as people off the street.”

LYFE leaned into this boon by offering free coffee to hospital staff and allowing customers to purchase meal vouchers for those workers. This program not only made sure that hard-working doctors and nurses were fed and supported but it also brought business to the restaurant.

“It’s definitely been a win-win,” said Taggart. We’re moving through product, we’re taking care of the hospital, and it feels pretty good in there.”

The ongoing outbreak brings with it a more subtle threat than the economic challenges, however. Bad actors are taking advantage of the chaos and bringing about an upswing in digital fraud.

Fighting Fraud

Digital fraud attempts have increased since the beginning of the pandemic, with a recent survey from TransUnion finding that 22 percent of Americans had been targeted by digital fraud related to the outbreak. This is on top of a staggering 347 percent increase in account takeover (ATO) fraud between 2018 and 2019. Restaurants, including LYFE Kitchen, are no strangers to such cybercrimes.

“It’s really tough, and there’s not really a police task force that’s that interested in going out and recovering our bad debt,” Taggart said. “We do have a pattern of theft that comes up from time to time, [and] by the time it gets to us, our recourse is very limited. It doesn’t land on the credit card companies — it lands on the small businesses.”

LYFE partnered with mobile and online food ordering platform Olo and customer engagement and loyalty platform Punchh for its ATO prevention system, each of which provide different security layers — any fraud attempt that bypasses one will likely be caught by the other. These fraud prevention shields cover its online ordering portal, loyalty program and point-of-sale system and captures data from each fraud attempt to flag further instances by the same bad actors in the future.

ATOs and other forms of fraud are just some of the challenges the QSR industry faces as it adjusts to the new reality. Consumers are on edge and restaurant revenues are declining, meaning there has never been a more important time to keep customers secure and maintain loyalty and trust.

Restaurants Should Not Forget Their Roots

The restaurant industry relies on personal interactions, be it chef-to-waiter, waiter-to-customer or customer-to-cashier. This industry identity should not be forgotten as digital ordering becomes more popular, said Taggart, even as mobile order-ahead becomes necessary to stay competitive.

“I have a pretty strong belief that we’re a face-to-face service industry, and we should maintain that … as long as possible,” she explained. “I realize that the customer preference for self-service kiosks or online ordering is quickly getting to be the majority. I don’t think it’s the majority yet, but it’s getting there.”

This adoption of ordering systems is particularly difficult for smaller businesses that do not have technology budgets comparable to big chains. They must instead rely on their staffs’ talents and resources, according to Taggart.

“We’ve invested in it by investing in the training of our people,” she said. “I’ll probably hire an IT person before I hire another chef. That doesn’t make sense, but the business has changed and that’s kind of the reality.”

The industry’s changes are far from over. Restaurants like LYFE Kitchen will need to continuously adapt both to the current pandemic and the obstacles facing the industry when this crisis is in the past.