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THE DIGITAL RESTAURANT: January 15, 2024

Ready to envision the future of dining? This week, we're slicing into how Walmart's cutting-edge drone delivery could be a game-changer for the restaurant industry. Imagine your favorite meals flying to your doorstep! We dissect Walmart's innovative approach, servicing 1.8 million households, and its ripple effect on everything from kitchen layouts to inventory management. Plus, we're serving up a taste of personalization with AI-powered search, and how this tech could create a bespoke dining experience for your next big game day party.



Articles mentioned in the video:


Transcript:

Carl: Good morning, Meredith. How are you doing today?


Meredith: So good, Carl. How are you today?


Carl: Very good, thank you. I'm feeling bright and orange, as you can see.


Meredith: You look bright and orange.


Carl: I'm trying to bring a bit of color to the show at the start of the year. We haven't done one of these news podcasts for a while, so I feel like we have to just work our way into it and remember what we're talking about here.

Back to the standard format of five questions this week.


Meredith: All right, well, let's get into it then.

Walmart announces more drones at CES

Meredith: First question: last week has been a big week at CES and Walmart made a big announcement. Tell us about what it was and why we as restaurant people care about what Walmart is doing at a consumer electronics show.


Carl: Well, we've often said that keeping an eye on the industries that are a step ahead of restaurants gives a foreshadowing of what might come to restaurants in the years ahead.

And the world's largest retailer in Walmart announced at CES this week, a representation of how they see them growing their customer offering through technology. And I thought there were a few interesting things to share.

The number one thing is that they're purchasing additional drones, extending their current footprint, whereby they can now service 1.8 million households. They've been trialing 20, 000 drone deliveries over the last few years, and now it seems they're going to scale that to a completely new level. In fact, it's enough, Meredith, to cover 75 percent of the Dallas Fort Worth geography, some 30 towns and municipalities, and these drones can deliver about 75 percent of the 130, 000 SKU's that a typical Walmart super center actually offers.

They're working with the providers that we've spoken about on the show before, like Wing and Zipline, and they have FAA approval. Prathibha Rajashekhar, I think is how you say her name, a Senior Vice President of Innovation and Automation at Walmart said. "Drone delivery is not just a concept of the future, it's happening now and will soon be a reality for millions of additional Texans."

The CEO for Wing, Adam Woodworth, "demand for delivery is real. If this milestone is any indication, we believe 2024 is the year for drone delivery." Zip line, another provider at Walmart has flown 60 million commercial autonomous miles since they began in 2016, and they complete a delivery via drone every 70 seconds across the four continents that they're working within . Their CEO, Kellar Rinaudo Cliffton, said it's "delivery through a drone is seven times faster. It's zero emissions and whisper quiet."

With 4700 Walmart stores across the country within 10 miles, they've got access to 90 percent of the US population, so drone delivery may become a reality far sooner than perhaps many of us have been talking about, at least in restaurant circles.

So what does that mean for restaurants? Well, superstores have a lot of real estate, right? They have large holding bays, they have goods in areas, they've got lots of roof space, and most importantly, they have good access points for loading and dispatching of those drones. Restaurants today, in their current design, do not.

Now you and I last week were in a cloud kitchen and we saw the challenges of a constrained ingress and egress and when it's difficult for delivery drivers to get in and out. And that should be an optimized delivery system. So perhaps for future delivery kitchen designers readying themselves for efficient drone delivery might be something to think about in the design.


Now that wasn't the only thing shared by Walmart. I'll share a couple more if I may. They also announced a Gen AI powered search experience for iOS customers. The idea here is that they're creating a more personalized experience for a specific use case. When I read this, I thought, well, maybe if you're readying yourself for a big football game if you can use what they're offering here on an iOS app to create some kind of cross category results, then you're going to be able to see something that's quite powerful. Then you're almost having your event customize what you're seeing so that it can anticipate what you're after.

you can see that type of technology being very powerful for restaurants too. Instead of seeing the individual dishes that come across menu categories, if you're now being shown various different catering platters available from restaurants offering the type of food that would be relevant for a football game, perhaps even partnered with beverage suppliers, that creates a level of convenience and gets part of the way through the process that circumvents what otherwise would be a bit of noise into the process.

The article that we've put in the link below also talks about Walmart In home replenishment which is about ensuring that consumers' refrigerators are never empty of their most common staples. Now we've seen some of this in the past: Amazon Alexa always tries to remind me when you're running out of something.

And then, of course, smart refrigerators out there as well that scan your fridge. There's some suggestion of reordering capability through that. And I'm not sure how effective that's been to date. And I'm not sure how food suppliers to restaurants are already doing this in some way, shape or form.

I'm sure they're looking at what's being purchased to help provide forecasts as to what perhaps might be needed. But the ability to use AI and current buying trends and available inventory on the supply side, together with things like trends, key events, weather could be a really interesting way, in which running a restaurant could be utilizing this similar type of artificial intelligence in the future too.

So really interesting stuff going on at CES as always. But I thought those elements from Walmart were particularly interesting.


Meredith: There's a reason why restaurants tend to be late adopters of technology. When you look at something like a Walmart, the store is so much bigger, both in terms of footprint and in terms of AUV that it can afford to spend CapEx on some of these interesting technological advances that they can be an early adopter on it makes sense. And, God bless them. Let them do it. Let them learn how it works for us, then bring the price of it down and then restaurants can do it later when it's cheaper, right?


Carl: They're obviously focusing on this particular function for folks that want to have delivery within 10, 15 minutes. Well, we all want our food within 10 to 15 minutes. So if Walmart get this right, then not only are they going to be able to solve this for other industries, but they're also going to be having a competitive advantage, I'd suggest to the Amazons of this world who also, of course, are playing in this space.

 

Federal rule change on 1099 classification

Carl: Okay, let's change our focus. And now talk about an area which it's been bubbling around the surface for a while, but federal regulation and how it affects labor with regards to delivery drivers is an area I know you've been looking  into this week. What do you have to share?


Meredith: The Biden administration has updated their rules around what makes a 1099 versus an employee or W2 worker. This is something that is very interesting for the restaurant industry now. Wouldn't have been in the past, but now because there are so many 1099 gig workers doing deliveries.


What is the change? So there used to be a two factor test that helped the government decide whether or not someone should be 1099 or W2. New rule is six factors. It's not really clear how those six factors will be implemented, what criteria one would use on the different six factors, who's in charge of figuring all this out but the six factors I will tell you are the ones that we had before which is the degree to which the employer determines how and when the work is done and the worker's opportunity for profit and loss, but they're adding to it the amount of skill the job requires. That's weird because there's some very highly skilled 1099 jobs, like being a consultant, and there's some very low skilled 1099 jobs, like being a truck driver, and a lot of things in between. So I'm not sure how they're going to sort that one out. The permanence of the working relationship, the worker's investment in tools for the task and the extent to which the rendered services are integral to the company's operations. That last one's pretty scary, right? Because entire marketplace platforms are built on the idea that 1099 workers exist. So definitely integral to the operations.


Remains to be seen how the government will put this into place, but they're certainly making some noise about it.


When you have a W2 employee, you're paying payroll taxes, you're paying into Medicare, you're paying into social security. 1099 employees, they still pay income taxes. But, they don't pay all those other taxes. Those payroll, Medicare and Social Security, those are pretty important taxes to our government and as the number of W 2 workers continues to decline as a percentage of workers and the amount of income, as a percentage of AGI that's coming from pay stub versus coming from 1099 work continues to decline, that has an impact on the federal government's P& L. They need that income. So it's not at all surprising that the Biden administration is looking at this, but it does remain to be seen what will happen.


Now, of course, Uber and DoorDash have both said not to worry. We have looked at all six criteria and we still think we're fine. I kind of do too, but we'll see what happens.

Carl: One thing's for sure. The the delivery driver conundrum continues, doesn't it?


Meredith: As you know, I'm a huge fan of gig work. I call it the gig ATM. If you need a little bit of cash, you can just go out and drive in your car or do whatever gig work you like doing. I think it's fantastic. And it's fantastic in particular for women. DoorDash has said that a majority of their drivers are female. As a working mom, the ability Order delivery is hugely important to making my whole life balance. I love gig work and that it's something that we can all take advantage of. You and I in our roles as media personalities end up doing some gig work when people have us come speak. There's all kinds of gig work and I think it's great. I'm very supportive of it.


So hopefully the Biden administration does not take this too far and shut it down like California tried to do. Which did not go well, because so much of our economy is gig work. It's not just Uber and DoorDash. Those are the things we talk about a lot, but in the state of California, like truck drivers coming out of the ports, the entire entertainment industry: these are 1099 kind of jobs.


PopMenu surveys restaurants and consumers on what lies ahead in 2024

Meredith: Carl for you, Pop Menu surveyed both consumers and restaurants and has a few things to say. Tell us about it.


Carl: They they certainly have and PopMenu often do this. I think we featured them last year as well when they pull out a survey where they've spoken to both restaurant leaders 461 as you can see here, and a thousand or so consumers over the course of the last two months of 2023.


So this is relatively recent information and Brendan Sweeney here, their CEO and Co-founder saying there was a "general optimism from the restaurant executive group with about a third expecting to grow their footprint in the next 12 months." In terms of revenue growth initiatives, he later goes on to say that 67 percent plan to promote their beverage menu more than they did in the previous year.


While 85 percent want to increase their catering menu and 44 percent will do something I haven't heard about much before, Meredith, which is host special online ordering events, which sounds like a really cool thing to do. When it talks about the focus areas of what they're trying to improve, look at these two 62 percenters is there. 62 percent want to improve the guest experience and 62 percent also want to become more efficient. Of course, the top ones were grow revenue and increase margins, but I suspect that would come up every year. What is also interesting is the way in which automation is becoming increasingly a part of their focus. So 56% plan to automate more online functions, while 48 percent plan to do the same for on premise functions as well. So across the entirety of the restaurant space. And another thing that we were speaking about earlier this week restaurants are saying their top two most time consuming tasks are creating marketing content and managing social media. And there's this real tough space, especially for the smaller operators for them to really find the time to do this well without having the budget to afford the big agencies that do this for the larger groups. The other thing I'll mention here is that 61 percent of consumers are looking to maintain current spend in 2024, with only 26 percent expecting to spend more than what they did in 2023.


Having an affordable menu is a big part of what they're saying will help them choose a restaurant. In fact, 56 percent said affordable menu options are really critical that was number one on the list. But look at number two here, 52 percent said, if you offer a more digitally enabled experience, that's more of a reason as to why I would choose your restaurant.


Meredith: Amazing.


Carl: Isn't that interesting? That actually trumps having positive reviews on the website, being sent special promotions, has photos, and all these important staples. Being a digitally enabled experience is actually super important.


Meredith: It's just like Greg Creed always said. Easy beats better.


Carl: I agree. I think he's right. If you can create that digital engagement that starts at the point of ordering and then lasts throughout, even beyond the time when you've left the restaurant, I think that is something which guests are looking for now, because, of course, they're experiencing it in many other verticals.


Data driven Restaurants - The Nations Restaurant News Intelligence Report

Carl: Okay. I'm going to stop there because I know you've got lots to cover in this next one. We all know here on the show that you're a big fan of data. And so when Nations Restaurant News Intelligence and Christy and the team put out a 41 page report, I know you have been a very busy bee digging into the details . Tell us what were some of the key insights that you've drawn from this report, which is focusing on the importance of data and data driven restaurants.


Meredith: Oh, Carl, you know me so well. You email me this report and I was like, Oh, it's like a gift. I love it. The first thing I noticed as they were going through their key findings is a relationship between page three and four. On page three, they say, step one, digitize your business. That makes sense. You should do that. You can't have data without having some digital interfaces, but there's a very curious word on here where they say the way in which you digitize your business is to add. To add things to what you already have. And now when you go to the next page on page four, they say integration remains a challenge.


Well, guess what? If you keep adding things, integration is going to be a challenge. That is true. As you know, I, at Empower Delivery, am a fan of taking first principles and saying, if we want to design for how the consumer wants to interact today, what would we come up with? And it is certainly not adding a whole bunch of things to an existing, underlying, shaky foundation.


I thought that was some interesting advice from them and led directly to what wasn't going so well.


Next thing on page five here this question, Do you feel that your location or organization optimizes the customer data you have? 25 percent said definitely. That's pretty good. Let's ignore the probabilities.


That leaves half of restaurants or restaurant chains saying nope, not very good. We have some ways to go. So we're pretty early in this journey. For everyone out there who doesn't feel confident about their data optimization, you're in good company.

Next up on page 10, we've got what percentage of your sales come from digital touchpoints? They're about 31 percent on average with people saying by 2025, so the end of two years, they would be up to 45 percent is what they're forecasting. But I want to highlight something interesting here on page 13, way down in the bottom. You'll see which of the following categories of customer data does your location or organization collect and store?


At the very bottom, 16 percent said customer data shared by third party aggregators. That's super interesting, because a lot of restaurants out there have been complaining that they don't get customer data from third party aggregators. But I think what this tells you, because this was a survey of both chains and independents, is that the chains are getting that data, and it's not a level playing field.


And when they say we've got, 30 or 45 percent or whatever digital touch points, and they're including in that third party, They can because they have the data that's coming from those third party aggregators.


Next up on page 18. Hi, Emily. That's a nice picture of Emily. Next up on page 18.

There is a question. What would you say the biggest challenges are in understanding and applying data that you collect? And it's basically a hot mess. They don't have the right people, the data doesn't talk to each other, the different tech companies don't talk to each other, they're not sure how to analyze it, their organization is siloed, their tools are hard to use.


It's not good. It's not good. Nobody has made this easy for restaurants to figure out how to use all this data. And it's like you often say, Carl, data might be the new oil and it might be super important, but we don't know how to use it.

Carl: Yeah, don't get me confused with the other British economists out there. I think in 2004, that was really attributed to that, as much as I would love to take the claim for that particular one.


Meredith: I didn't say you invented it. I just said you always say it. And then lastly I'll link together two things here on page 25 and 27.


In the past 12 months, which initiatives did your organization undertake after analyzing data? Top two answers. We changed menu prices, and we removed items from or added items to our menu. Half of all respondents in the survey. So not like super sophisticated things that people are doing after looking at the data, right?

And as you go through this entire list, There's not a lot on there that makes you go, wow, I could not do that if I didn't have the appropriate data. And then on page 27, this gets even more pronounced where they say, which key performance indicators do you monitor to gauge the success of your data driven strategies?


Very first one, food cost percentage. Average unit volume. These are just old school metrics. That's how you measure how well a restaurant's doing labor cost percentage. Not a huge big change to the things that we often talk about, which is using e commerce metrics. What's happening in the e commerce funnel? How are we measuring A/B testing? What is the LTV to CAC? But the industry really has not gotten there. And I know we just talked about this two weeks ago in our 2023 recap and 2024 forecast. But As important as these things are, they have not become standard in the industry.


Carl: Yeah, I think we'll get there. Part of the challenge is the data silos. That was also referenced in the report, right? It's just the fact that you have these different elements of data that are difficult to combine together. Maybe, maybe through having more of a consolidated tech stack, we'll end up with a situation where that becomes less of a concern.

 

Tipping first creates frustration for drivers too

Meredith: All right, our last question. You've titled it the Tik Tok Tip. Very cute. Tik Tok Tip First Predicament and I would like you to tell us about tipping first, and what has happened in our culture that we have gone from tipping last to tipping first.


Carl: The best way to start with this one Meredith, is to actually share a video.

Let me just bring this up here and for those that are, are watching us on YouTube, I will play the video for you to actually look at as well. But for those that are not, I will try and describe what's happening here because we have a Popeyes delivery that's ended up getting 261, 000 views on TikTok and counting.


And there's Tamera, who's basically featured this because she was capturing the delivery driver arrive, the DoorDash driver, through her ring doorbell.. And she's got a a delivery.


"Ignore it. You keep that." "Why?" "because I didn't see a tip on the app and I put a little card in there. So please keep that.

I'm sorry."

"No."

And so what you saw there was Tamera holding a, a bill of some kind to offer to the driver a tip. But the driver had put a what's called from Tamera's language, at least a nasty note, reminding that she should tip. The driver wrote on the note. "Lucky for you, I didn't bother the food. But next time consider tipping your driver."


And obviously, the customer had planned to tip in cash when the driver arrives, arrived rather. And you can see here that level of awkwardness where she kind of apologized saying, Oh, I've dropped a note in there. And of course, this isn't the first one of these that we've seen. There was a video last March, I think it was, where a customer who didn't get their food at all, you know, they turned up and they didn't even give $them food because they only tipped $8, so these things are always creating viral videos out there. Now, I wanted to talk about this, not because of TikTok videos so much, but more because of the fact that, last year DoorDash introduced this idea that if you fail to tip, and you perhaps tip a little bit less than what you would typically expect to tip.


You may expect a longer delivery time. That's basically saying the delivery driver is incentivized. By the tip, they're actually choosing their trips by the tip that has been placed unless they're part of the hourly paid trial, where they're trying out, of course, separately, where, of course, they have to go to whichever delivery is required.


Now, what I think is interesting about this is if you can think of a time based reward instead of actually where you're tipping in advance. So for example, Meredith, imagine if I get a delivery commitment where in 20 minutes, I pay a 20 minute fee that translates to a driver tip. But if I get the food in an hour, I pay a lower fee of some kind, or if I don't get my order in the delivery window, then much like we reported in the first book with Meituan on and the delivery insurance idea, and I think Grubhub trialled this, the insurance kicks in and I don't pay a fee at all.


Is there a way for us to get away from actually having to tip before the service happens? I can't think of anywhere else where we tip before we've actually received the service. Can you, I can't think of it at all. And so for me, I think it's worth exploring this whole challenge around tip fatigue. The fact that pickup orders over delivery continue to increase because the expense of delivery is increasing.


And because of the frustration around tips out there, I wonder whether we're going to get to a different type of payment system that could normalize the fees around performance and then post the delivery if the driver has created some form of great service, if they've been empowered to really create a better experience for the guest, then the guest is then given the opportunity to provide a further tip on top of that.


Meredith: It is interesting. Think about your Uber rides. Why would it be any different on Uber Eats? That is a very interesting cultural phenomenon.


Carl: It comes back, to what you were discussing earlier in question two, because if you don't have a mechanism whereby your drivers have been effectively compensated, then clearly we understand why the likes of DoorDash have created this mechanism in this way, because otherwise the drivers don't take the trips that they want to take, it's not creating necessarily a great guest experience. And the more of this that happens, especially in an environment where costs are becoming more obvious to consumers when it comes to delivery, the more you're going to see these viral videos going out, that are giving both DoorDash and Popeye's not the reputation they really want.


Okay, well look, that is it for this week's Digital Restaurant. As ever, we'd love to get your questions, your thoughts. Feel free to email us at info@thedigital.restaurant. If you've got any questions for Meredith or myself, or if you'd like to share your thoughts, please do so.

Write them in the comments below. We always like to read those and to get your thoughts about what we should perhaps cover on a future edition. But until next time, thanks for listening.


The Digital Restaurant Podcast is available for you to follow and subscribe wherever you listen to your podcasts. Watch us, rate us, and subscribe to The Digital Restaurant on YouTube, and follow along on all our social media digital restaurant channels. Thanks for listening.

 

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