This post is part of the On the Margin blog.
It might be a stretch to say that having an effective digital strategy is a matter of life or death for restaurant chains in 2017. But it’s not much of one.
At a time of heavy competition in the industry, online and mobile ordering are increasingly becoming points of consideration for consumers that have plenty of options for their meals. Consider:
• Panera Bread Co. on Tuesday noted that digital orders are now 26 percent of total sales at company-owned locations. Panera has added online ordering and kiosks at those locations, and consumers have clearly responded. And same-store sales at those units increased 5.3 percent in the company’s first quarter, and rose 11.5 percent over two years. By comparison, franchisees’ same-store sales are up 7.3 percent over two years. Panera is one of the stronger restaurant chains in the country right now.
• Chipotle Mexican Grill Inc. said this week that digital sales increased 53.5 percent in the first quarter. The company used “smarter pickup times” technology that assigns pickup times based on transaction volumes. And the company has a second make line to help with those orders. Chipotle’s same-store sales increased 17.8 percent in the first quarter, far above the 15-percent growth analysts expected. The chain has a long way to go to recover sales it lost last year, but it was a strong report.
To be sure, digital ordering is hardly a panacea to what is ailing U.S. restaurants. Starbucks Corp. struggled in the first quarter in part because the company couldn’t handle all of its digital orders. In other words, if you’re going to have digital ordering, make sure it doesn’t make things more complicated.
I also remain somewhat skeptical about the overall potential for a specific mobile app at most restaurant chains. Most of them simply don’t get enough habitual business to warrant valuable space on consumers’ mobile phones.
Oh, and food and service still matter. People won’t online order food they hate.
Yet the success of restaurant chains in generating digital orders is a vital consideration at a time when many companies are investing heavily in this area — it’s arguably amounting to one of the biggest, overall shifts in the way the industry interacts with consumers since the invention of fast food.
McDonald’s Corp. has high expectations for its own efforts. The company is planning to expand mobile order and payment to all 14,000 of its U.S. locations by the end of the year.
It's also adopting a Panera-like, “Experience of the Future” model at those restaurants, with plans to have kiosks in most U.S. locations by 2020. The company says sales are stronger at restaurants that have the kiosks.
CEO Steve Easterbrook said the efforts could generate sales for years, far longer than, say, the introduction of a new product.
“It takes time for consumers’ behavior to change,” he said.
The biggest example of the ability to drive sales using digital orders is, of course, at Domino’s Pizza Inc., where digital strategies and innovative marketing have combined for a three-year same-store sales increase of more than 30 percent.
Pizza chains were early adopters of technology, and the largest concepts are all takeout and delivery, which lends itself to quick adoption of online and mobile ordering.
Yet the restaurant business is an increasingly takeout business itself. More than two-thirds of McDonald’s customers, for instance, use the drive-thru. And 61 percent of all restaurant orders right now are takeout, according to market research firm The NPD Group.
Even at casual-dining chains, takeout is an increasingly important element. It’s the only traffic in that business that’s growing, according to NPD.
Consumers are increasingly strapped for time. They don’t eat inside restaurants as much as they once did. So restaurant chains looking to cater to large numbers of consumers need to look at digital ordering if they’re going to keep up with the industry.
Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.
Contact Jonathan Maze at [email protected]
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