McDonald's management believes it has lost 500 million customer orders to the competition in recent years.The fast food giant hopes its "Experience of the Future", featuring ordering kiosks and other services, might help to eventually restore its edge.
In this segment fromIndustry Focus: Consumer Goods, the cast talks about exactly how restaurants can benefit from similar initiatives, including larger ticket sizes and better service.
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A full transcript follows the video.
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This video was recorded on May 16, 2017.
Vincent Shen: So, we've talked so far about Chipotle,Pei Wei,in your experience. I think those are places where the food quality may be up a tier, they'rebringing in plenty of customersin that regard. Going to the more fast casual side, where acompany like McDonald's --
Kline:The more fast food side.
Shen:Yeah, the fast food side. Bringing out their "Experience of the Future", they're dubbing it,testing with kiosks for ordering,technology that allows their employees to bring food to your tableside. McDonald's management has cited that million orders were lost to theirdirect fast food competitors in the past few years, due to theirissues they faced. The thing with McDonald's is, they sawquite a nice bump,at least relative to theirmore stable industry in their business,due to all day breakfast. That hasessentially dissipated. Do you think thattechnology in this regard can help themovercome some concerns that there always are, in terms of food quality?
Kline:It'seventually going to help them overcome some costs. That,we've covered. In the short term, we'vetalked about this personally butI'm not sure if we've talked about it on the show,if I walk into McDonald's andI want a Big Mac with no special sauce, withan extra slice of cheese, with four pickles, not three, andI try to tell that to the human being behind the counter, who may be a college kid, may be a go-getter,super smart, they've been working at McDonald's for seven hours at that point, they don't care that I want four pickles. So if that goes into a kiosk,not only is there amuch easier ability for the person --eventually robot -- making thathamburger to get it right,and a record for if they don't get it right,for me to hand them a receipt, to say, "Thiswasn't supposed to have ketchup." So I think you're going to see a subtle but important improvement,especially on drive-thruwherethere is nothing worse than, youorder your 10-piece McNuggets, yourlarge fries, and you get home with your drive-thru back andopen it up and it's someone else'sBig Mac that you don't want. So I think this is going to eliminate a lot of that pain point, and that willabsolutely have an impact onthe bottom line, but it's not as direct as, "Boy,the line is long, now I can serve twice as many people."
Shen:Yeah. I will add,in addition to McDonald's,Wendy'sannounced earlier this year that they would install kiosks at about 1,000 of theirlocationsby the end of this year. They've cited similar things that we've talked about,reducing labor costs, for example. But on the Panera side,Panera 2.0, some thingsmanagement has said that I thinkmake it really interesting, in terms of the lift inticket size that you can get from thesekiosks, there is a quote from,I don't know if it was somebody in their management, but I found this quote thatbasically said, "People who order at a kiosk will generally spendabout twice as longordering with that kiosk than they doif they're speaking directly to a cashier." What thatultimately means or leads to is moreopportunities for upselling --every time you place an order for a salad,do you want to pair that with a soup? Youorder a coffee, do you want to pair that with a donut? Then, they're able to customize their orders,and ultimately get larger tickets. Domino's has spoken to this as well with their apps. Peopleupsell themselves. When they're ordering a pizza, they add things to it that they wouldn'totherwise if ordering by the phone.
Kline:Andit takes away shame. IfI'm at Starbucks, andthere's a person, I'm going to buy black coffee,room for cream. If I'm ordering on my own, I'm like, "I'llhave a Unicorn Frappuccino with extra chocolate chips,could you grind up a pie in that?" So,I think there's a level where,if I'm ordering Domino's andI'm a person talking to a person,I might be like, "I'll have amedium pizza with pepperoni, please." IfI'm on my own, bacon, pepperoni,sausage, and put another pizza on top of it. So you get into some impulse control issues. AndI think there might be some technologyability going forward to managecalories and things like that, in a way that you'll still spend,but maybe not make the stupid decisions I just described. But, yeah,absolutely, if you don't have to interactwith another human being, you'regoing to order more. You might get that soda you'd beembarrassed to buy from a person, or the dessert, orwhatever it is.
Shen:I think trying to quantify some of these things,some of the benefits we see,beyond the labor cost, thelarge ticket sizes, the fact that people order more, and the fact thatif you order exactly what you want and you're not worried about itbecause you're on a kiosk, you'renot worried about telling the cashier aboutall the different customizations thatyou want to make, you'll enjoy the food more. Andmaybe that leads to better loyalty to that chain,or whatever it is.
Kline:It'salso about removinguncomfortableness. We've talked a lot about this,we both like all sorts of different ethnic food. IfI'm an American and I've never had Thai orKorean or Japanese or whatever, and I walk in and it says,whatever the local name is, it says Pad See Ew, and I'm like, "Idon't know what that is. Is that chicken? Is that noodles?" If it says Pad See Ew, they're noodles with this and that and that. Or, an empanada, here's what anempanada is, and it lays it out.
Shen:Or,if it's spicy, and you worried about that --
Kline:Right,where you want to remove the spice, orallergen concerns, or whatever it is, the more of thatyou can make not embarrassing --as someone who has a food allergy,I hate walking into a restaurant, andI have cousins who have very serious peanut allergies, soyou have to make a big deal out of it. Ifthat could just be something that I could automate andstill know they were going to be safe and things were going to be done, it would make times I cook at home times I go out to restaurants.
Shen:Sure. So we have these kiosks, and we have,even beyond the mobile ordering, whichobviously, hopefully, can help some of theserestaurants during the peak hoursspeed customers through, increase theirvolume. The idea ofsome of these tablets thatrestaurants are also outfitting some of theirtables with. This is more of a sit-down experience.
Kline:I love this. They've been doing this atChili'sforquite a while. We went toSmokey Bones, aBBQ chain, this weekend. The waitress was clearly harried. She had too many tables,she was very stressed out. Andthe fact that I could order a drink andit would show up and it wouldn't be the waitress,it would be someone else bringing it, and thatat the end of the night, I could pay and not have to request a check --it's little things like that that make the experience. Andyou don't want that at a nice steak house. You're not going to drop $200 on dinner andcheck out on a tablet thatyou could playSpace Invaderson. That was abizarre game to pick,nobody playsSpace Invadersanymore. But my expectations at Chili's are not for fine dining, they'regive me my baby back ribs and fries and get me out of therepretty quickly, bring me another drink. So it really eases theexperience.
Shen:And a lot of restaurants that haveoutfitted their tables with thesetablets have found that people aremore likely to order the ancillary items,higher instances of customers ordering dessert,coffee, other drinks. Those are all nice marginboosters for those businesses.
Kline:There's a window. If you're arestaurant, there's a periodbetween the end of dinner and the feeling of fullness whenpeople will buy dessert. They often regret desertby the time it shows up. That's why most restaurants have a to-gocontainer for desserts you shouldn't have ordered. But if the waitress is too busy ormisses that window, orI would have had another beer if she got to me 10 minutesinto my meal, but at 20 minutesinto the meal I'm like, "Oh,I'm driving too soon," or, "MaybeI don't need to spend this money." So there's an amazing ability to give meevery impulse if I'm sitting there andfinish my gin and tonic and want another one,I just hit the button and there it comes whereas if I had that extra five minutes ofreflection, maybe I would go, this is a bad idea.
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.