Technology has become a major competitive advantage for some of the companies winning in the restaurant industry. In this segment fromIndustry Focus: Consumer Goods, the team discusses where the employment of things like mobile ordering and automated kiosks makes the most sense.Chipotle (NYSE: CMG) and Starbucks (NASDAQ: SBUX)aim to serve more customers, while a chain like McDonald's (NYSE: MCD)gives us a glimpse of the future.
A full transcript follows the video.
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This video was recorded on May 16, 2017.
Vincent Shen: Moving on to our main topic, we have restaurants.Specifically within this space,the role of technology. For any Fools who have been following this sector, you've seen in headlinesrecently that restaurants have struggled with some lowtraffic, declining same-store sales from a period ofoverexpansion, but I wasthinking about this in relation to theseother industries that I've talked about today, with you andearlier in the studio with Adam,the fact that department stores,on the one hand, and cable companies, they face someexistential threats. You have e-commerce on one hand, you have various streaming internet alternatives on the other for cable companies.
I think the restaurant industry is interestingbecause fast-casual might take share from quick service, thebroad industry might see weakness due toexcessive expansion, like in this case. But in the end, people have to eat, they love eating out. Andas a result, I thinkexecution becomes a really cleardifferentiator betweendifferent chains, and there's not as much of anindustry boogeyman that you can pin your problems to. But on the flip side, you have thesuccess stories, and some of the big trendsI get excited for the restaurant industry includeloyalty programs, restaurants trying to sourceingredients locally, andalso, there's technology. That'swhere we will focus. I think previously, we spoke about how robots, for example, eliminate the need forhuman employees all together. But a lot of the technology initiatives that we'lltalk about today seem to bepreviews of how that might work.
Dan Kline:I think if you look at some of the technology we're talking about,what you're really focusing on is,restaurant sales overall are down a little bit,1% or 2%. It's not anywhere near the retail drop. So you'relooking here and saying,I'mChipotle, orMcDonald's, or whatever the chain is --how do I maximize my business? What's worked, andit's worked forStarbucksandPanera, andwe've talked about this before, is mobile ordering.I think mobile ordering at Chipotle makes a ton of sense and will be a game changer. WhenI say game changer, I mean a 2% to 3% net sales gain. It's notsuddenly going to explode their business. Butif you walk into a Chipotle -- andwe've both done this -- and there's10 people in line ahead of you, you might leave, because it's slow. So what a lot of Chipotles have done is set up asecond production line in the store, andif you order from the app, yourfood will be ready when you get there. And they're havingall the same execution problemsStarbucks had. The people at the front don't knowwhere the order is,have you paid, how do you handle it,do you pick it up. Butall that will get sorted out, that'sjust growing pains and retail training,which is not an easy thing to do. So I think at your higher-end places likeChipotle thathave lines, that'sactually going to allow them to serve more customers during peak hours.
At aplace like McDonald's,I think ultimately, there's a gain intaking workers out of the equation. But in the short-term, maybethere's some drive-thru benefit to being able to order and pick up,not going through the line. But in a McDonald's, I don't see as big a benefit when most things are not made to order, and it's sort of a production line, of even if you want a pretty special order, it's coming out quickly. So there's not really a major need to cut that. So McDonald's will gain eventually from technology, but in the short-term, I think you're going to see some of your higher-volume fast casual places like Chipotle, as you've seen with Panera, really benefit from this technology.
Shen:Yeah. And we're definitely still, I think,in the early stages of the launch and the testing phases for a lot of the companies that are dipping toes into this. There are companies likeDomino's, which are turning this into an art for themselves, and really juicing their quarterly results, seeing tons of growth with the technology and how they implemented it really well. With Chipotle, you mentioned the second make line,I think they call it, they'recalling it "smarter pickup times". They've beenable to quantify some of the benefits in that thisbetter management of their digital orders,they give them more accurate estimates ofwhen orders will be ready. Insome of their testing, they mentioned thatdigital order wait times decreasedas much as 50%. Restaurant staffhave better tools to essentially manage this channel,like you mentioned, during peak business times. Ifthey have a bottleneck,in terms of those peak hours andhow many people they can serve,this can alleviate some of that, then that does flow through to their top and bottom line.
Kline:Andthere's a major customer servicebenefit. If you call Domino's --back in the old days when you called Domino's.I'm sure your generation now isSnapchatting Domino's and then paying viaVenmo.
Kline:But back when you used to call Domino's,if they told you your pizza was going to be an hour, you went, "OK,my pizza will be an hour." If in an hour, your pizza showed up, you were satisfied. So I was talking with you earlier.I use the Pei Wei app. ThePei Wei app is pretty innovative in that you cancompletely customize any order. If you want sweet and sour chicken with no sweet and sour sauce,hold the chicken, you can do that. And you can put in what time you want to pick it up.I was picking up, it was maybe 5:20, so I put in 5:40,that was the distance from my house. And the app came back and said, "Your time has beenadjusted to 5:50." AndI went, OK, no problem, I'll leave10 minutes later versus if I had been at the store,waited in line,placed my order,I would have been there for 30 minutes. So it was an absolute benefit of my time,better customer service,and it will make me much more likely to go back. AndI think that's where you're starting to seesome of the value in these. Pei Wei is a higher endfast casual concept that can take quite a while in a line.
Daniel Kline has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool owns shares of Panera Bread. The Motley Fool has a disclosure policy.