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In this episode, we analyze the evolving restaurant industry, focusing on shifts in customer ordering habits, the rise of direct online ordering, and challenges such as inflated labor costs. Insights from a Bank of America report on increased technological investments are discussed, along with the impact of social media on promotional strategies across platforms like Facebook, Instagram, Twitter, and TikTok. Introducing the Rabbit R1 as a revolutionary technology, we explore its role in reshaping eateries through AI-driven customer interaction and operational efficiency, while also examining marketplace dynamics and the unique challenges faced by Meituan in the East.

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5. Tattle Reports that Delivery, though Improving, Still Is Not Satisfying Consumers

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

Meredith: I am very good, Carl. How are you?

Carl: I am great. I can't believe we're almost at the end of the first month of the year. The year is whizzing by. . what with the shorter days.

Meredith: One down, eleven to go.

Carl: I knowexactly. And as much as it might seem to some that it's been a rather quiet period of time when it comes to restaurant technology news, we have found some cracker articles to discuss this week. I think you'll agree, won't you?

Meredith: I think so. I mean, it's a slow news week in terms of things actually happening, but it was an interesting news week in terms of a lot of reports being put out.

Touch Bistro Report highlights customer ordering behavior changes

Carl: Absolutely. Well, let's get on with the first question. I believe the first one you're going to help us understand is the Touch Bistro report that came out that covered a number of things, including customer ordering behaviors.

Meredith: Touch Bistro put out a report, which FSR Magazine helpfully broke down in an article. Touch Bistro interviewed about 600 different full service restaurant owners, GMs, folks like that and got some good detail from them. They do this every year. And so they were also able to compare year over year what's changing in the full service restaurant industry. One of the things we're most interested in is what's going on with delivery and full service restaurants: 20 percent this year, which is down from 22 percent in 2022 and takeout still at 18%. That's a whopping 38 percent of sales that are off premise.

And remember, these are full service restaurants. So that's a pretty interesting statement. The report goes on to say that in terms of ordering behavior 36 percent said they host some kind of direct online ordering capability. That's up from 34 percent in 2022. Still some opportunity for full service restaurants to add that.

Consumers are using those channels to order so about 23 percent of their business today, the survey takers report flows through online ordering on average. I think full service restaurants feeling the need to become digitized just like everybody else.

But you know, it is a tricky year. We've continued to see some labor cost increases, although that is moderating a great deal.

Commodities price increases again, moderating, but still up. They asked the question, how do you combat this strain? And one of the top answers was reducing the number of technology providers. 30 percent of survey respondents said that they would reduce the number of technology providers. That was the fourth most common answer after the obvious stuff like reducing food costs.

So that goes back to the trend that we often talk about around the need for consolidation among all these tech providers that have innovated over the last few years and the need to create a much more holistic tech stack that can service these restaurants without them feeling the need to go out and get a SaaS fee here and a SaaS fee there and a SaaS fee here and a SaaS fee there. At the same time many of these restaurants, in fact, 46 percent of them said the top step they are taking to increase revenue is to add More off premise ordering options. 42 percent said they were introducing new technologies or changing existing tech providers.

So while they might be taking some away, they might be adding some as well. And I think this goes back to the trend that we often talk about around the need to get more out of technology and that while many restaurants made decisions In a bit of a hurry during the pandemic, you know, out of a state of extreme need.

Now that we can step back and a little bit more calmly determine what we need, we might be making some different decisions. And I think you certainly see that here in this report.

Carl: You forwarded me a Bank of America article about the amount of spending from the restaurant sector into technology.

And we've always thought it's about 2 to 4% of revenue. But what did this Bank of America report say?

Meredith: They said it had increased during the pandemic, now pre versus post pandemic, to 7 -10 % of gross revenue. Now, I have, I have a lot of questions. Like, are they including discounts on third party platforms?

Are they including Third party commissions in that? Are they including the IT team back at headquarters? It unclear. They did not define it, but it sounds like a very high number. And of course, most restaurants do not have room for 7 to 10 percent of their sales and their P&L to go toward technology.

So that was a very interesting factoid. I think we need to hear a little bit more from Bank of America before we go around quoting that one.

So then the last thing that I thought was really interesting here is Full service restaurants use of social media and if you want to bring up a chart on this one This chart shows social media platforms used for promotion by full service restaurants Facebook and Instagram being the most common at 81% and 74% respectively, but a surprising number on Twitter, 56% of full service restaurants using Twitter.

Still 31% using Snapchat and TikTok emerging at 26%. When asked why they use social media the biggest reason was cost. So on, general marketing. I think if you have a marketing service or materials, it can be very, very expensive. Whereas social media, you know, you can do it.

You can have your host do it. You can have your kid do it. Just put out things about the brand. It is perceived to be a much lower cost marketing channel.

What does the Rabbit R1 mean for restaurants?

Meredith: This question is for you. I know you love your gadgets at CES. There's one in particular that was launched there that caught your eye. And so let's talk a little bit about the Rabbit R1 and LAM and how they work together. Impact restaurants.

Carl: Yeah, the the Rabbit R1 was introduced at CES, which is the Consumer Electronics Show.

But while it's called the Consumer Electronics Show in many ways, It's an opportunity, I think, to be able to share with the world a potential type of technology that is going to be coming. You'll certainly see that in the car space, but this particular R1 device is actually going to be sold and it's going to be available on the shelves.

And so I wanted to share with you a few thoughts around this one because, and probably the best way for those watching us on YouTube is for me to play a little video, as always, so that you can actually have a look at it. And it's a phone size shape, device, but it's got built in AI and it responds to voice commands to perform various tasks, saving the user from multiple taps on a smartphone.

Carl: It features a microphone, a speaker, a camera and a screen. And there's no wake word like you might have with your, your Google device at home or Amazon Alexa or Siri. You just simply hold a button like a walkie talkie. Now, the founder described this in a very Apple orientated way as a solution for the complexity of smartphones and the litany of apps that you go through in having to use them.

The functionality is advanced, if you will, because without you having to find it on your phone, without having to maybe redownload the app or go through the steps of the process of the particular function of that app, the R1 does it all for you. So that's far simpler if you feel like you can just talk to what you want, as if you were speaking to your own personal assistant.

The example used during the presentation was if you were asking for an Uber or ordering food. And it was that that really triggered me to think, hmm, I wonder really what this means. So, for example, if I say, I order an Uber to the R1, it will know that I'm due home in 30 minutes and I'm somewhere else right now.

So I don't need to say order an Uber from point A to point B. Imagine what this could do in a food and restaurant context. Now the thesis of this is there's a shift from LLM, which is large language models, to LAM, which is large action models. . And I think that's particularly what I'd like to explore because I think it gives us a vignette of a potential future for AI and how it impacts our space, particularly in two areas, how we order food and also how we manage restaurants.

So for example, with its natural language processing, given the fact that it understands the context, it could streamline food ordering processes for customers. So you could say, "Order me a pizza with pepperoni and mushrooms from my favorite pizzeria". And the R1 could handle the rest. Understand the context, the preferences of the user.

And that would require some trust that it would get it right. But I think no one 20 years ago would have believed you'd jump into a stranger's car for a car journey or someone's home for a weekend vacation. So therefore, assuming trust is something that is established over time. But you see, I could see DoorDash, UberEats, GrubHub playing into that type of capability.

I could see it probably playing a role in-car software as well, where you can, you don't have access or you shouldn't be having access to using your phone. I guess the point is, is that if you've got known customer personalization, where that knowledge of who you are and your preferences is owned by you, as opposed to any one particular app, you've got a more balanced and user centered decision making structure.

On the restaurant management side, I see a function in what we described in our second book, The Path to Digital Maturity, right at the end in the Holistic Technology chapter, where we talk about this interdependently connected web of functionality that can best assimilate data in the moment and provide a recommended course of action.

That could apply to things like inventory reordering, team scheduling, weather adjusted volume demand or revenue management. So the example there could be a GM saying, adjust my team schedules, marketplace prices on inelastic items and inventory order levels based on the weather forecast and expected volumes this week.

And like that, it's done. That would cut out hours of time. Now, imagine it not even being done by a GM, Meredith. Imagine that same capability could be done by an area GM across the entire network. And I think that's really where AI will have a demonstrable and long lasting effect on the way in which we work over these next 30 years.

Now, of course, there's going to be a long period of building trust in the systemic capability, but that will come. So I'm not particularly bullish on the R1 itself. I can't see people need another device in their pocket, but it does raise an interesting thought that while the Apple phones are what, $700, $800 This device is something like $200.

And so how much do we really use our phones for phoning someone? I know you do. You like to have a phone call, but a lot of us use the apps, right? That exist on them. So if this thing could help us use our functional apps in a more efficient way. That capability could be really interesting and for the tech providers out there, it points out again that these ideas of open API is and just connecting one application to another is an outdated way of thinking and it's in software, really. where we need this kind of webbed interconnected architecture that enables multiple functions to be harnessed under just one core operating system. And I think that is the thing that the R1 sparks for me in terms of the opportunity in this space.

Meredith: I think what's so exciting about it is that it could level the playing field for first party ordering. Right now, I think Uber and DoorDash are kind of super apps of restaurants, if you will, and those lazy among us who cannot be bothered to have many different apps and go directly to different restaurants and remember all the passwords and et cetera, et cetera, it's much easier just to go to one and be able to get anything.

And even if we know in our heart of hearts that maybe it's a little more expensive or the restaurant's not making as much profit. It's just so much easier. We do it. And then maybe we make room for a few more apps on our phone for the restaurants that we go to most frequently, but then everyone else, we can't be bothered, right?

And if the rabbit could make it so that I could order directly from any restaurant, regardless of how often I go there, does that then replace my desire to have something like DoorDash or Uber? That sounds really exciting. But it does, of course, raise for me the question, what exactly is the economic model of this rabbit?

How do they charge and do they become a super app?

Carl: Right. And that's an important point. You said they become a super app because if the functionality exists, then why can't it just be an app? Why can't Google just replicate the same capability and put it as an app on the phone or an, an integral part of the operating system.

Meredith: Especially now with the new Google phone that's out that has a natural language processing built into it on device. Like, I don't know, maybe you don't need a separate device.

Carl: No, absolutely. And their model, by the way, is just the hardware cost of $200 there. I don't believe there is a subscription. I think you need a cellular connection, as you'd imagine.

But beyond that, there isn't any subscription cost beyond it.

Meredith: Interesting.

Should cities cap marketplace commissions?

Carl: All right, well, let's move on to our next question, [00:14:00] which is about The ongoing theme, I think it's fair to say, around the cities around the U.S. that are deliberating as to whether they should have a cap or not on delivery commissions.

What are your latest thoughts on this one?

Meredith: Dear Sherry Kimes, who is an emeritus professor at the Hotel School of Cornell, has written this article in QSR Magazine. She's quoting some study from a man named Michael Sullivan, who is an economics PhD talking about what happens when caps are in place.

It turns out it's not that surprising if a city puts a cap on commissions in place so that the third party marketplaces can't charge the restaurants as much, which seems like a well intentioned thing, so the restaurants can keep more of their food revenue. Well, guess what happens, Carl?

 You can imagine if you say to the marketplaces, "you can't charge the restaurants." What do you think the marketplaces do? Do you think they go, "I guess we'll just make less money." No, no, they take the money from somewhere else. Where do you think they take it from? The consumer. And what do you think happens when they take it from the consumer instead of the restaurant? price elasticity, all the basic things that you would expect, right? " We're not gonna charge restaurants as much. Instead, we're gonna charge a consumer more." Consumers order less, just as you would expect, just as you learned in class. This really points to the issue in delivery is not whether the restaurants are paying for it or the consumers paying for it. There is a cost to delivery. Someone has to pay for it, whether it's restaurant, consumer, driver or platform, it's got to come from somewhere and trying to hide it by charging the restaurant, which is how this all started out, led to a lot of adoption.

But it didn't make the restaurants very happy. Now that the restaurants are increasing prices, some cities are putting in place caps, the consumers are paying more for it. Guess what? Although they really value delivery, they don't value it that much. It'll be very interesting to see what happens as consumers are asked to foot the bill for more and more of delivery. Meanwhile, the only way that you can give consumers what they want, make this sustainable, is to lower the actual cost of doing the delivery. There's lots of folks working on this, whether it's my company Empower Delivery through the efficiency of the delivery network or someone like Coco Robotics with the little sidewalk robots doing the delivery, autonomous driving, drones.

Lots of people working on lots of different ways to reduce that cost. I bet when you find a way to reduce the cost to give something to consumers that they want, they're going to want a lot of it.

Meituan's Silver Economy Strategy

Meredith: All right, Carl. And now Meituan. Tell us about their silver sliver of growth. Was that a tongue twister that you snuck in there?

Carl: Yeah, I did. I thought, you know what, she's going to do it. Is she going to think it's a typo? But you succeeded. Congratulations. And it's all going to make sense.

I promise you. We haven't spoken about the giant marketplace in China called Meituan for a while, have we? Of course it's a beast of an organization benefits as we talked about in our first book from the low cost of labor that exists over in China and certainly a more digitally forward society and an environment where the food delivered is actually cheaper than the food in restaurants, which is

Meredith: Which is how it should be, right?

If you think about it, a restaurant is an experience with all these people and really nice real estate and a build out that should cost more. Right?

Carl: And that's why we talked about it in the first book, to say, look, when all of these things start to fall in place, then actually you get to a point where the ecosystem really does make sense for all parties.

One might argue, perhaps still doesn't work for the for labor, but with the concentration appetite for food delivery, if people are delivering many different trips per hour, then indeed, perhaps it does work out. Now, when we first wrote about them, they were seeing something like about $180 billion of revenue back in 2021.

And of course, the pandemic was a big part behind that. But their shares have dropped 80 percent since that peak back in 21. And why is that? Well, number of things, consumer spending has dropped given the wider economic challenges over there. But they've also had a bit of a competitive threat from the company behind TikTok.

Douyin, I think is their name. And that's, that they're the name of the company that represent TikTok in China. But Douyin has expanded their food delivery to 30 major cities, and now they've got 715 million daily active users using the TikTok functionality on a regular basis.

And of course, what do we always say, Meredith? We say, be where your customers are at, right? And if your customers are on apps like TikTok, and occasionally they can use that same app to be able to easily order food. You can see why Meituan see this as a particular challenge. Now, don't get me wrong.

Meituan still have a 70 percent market share, so they're not necessarily in dire straits, but they're not resting on their laurels either. The government has been applying quite a lot of pressure on technology companies in China, but there's one particular area where I think they've got some opportunity.

And that is the aging population in China. We all know that China also faces the crisis of a lot of people living for longer. And so therefore there's also a populace of people that are wanting food delivered, whether that be to their homes or in the old people's homes. It's called the silver economy.

So it's how the government over there is trying to support the silver economy with food delivery. Now, Meituan is fortunate because Douyin, if that's how you say it, have quite a large proportion of users out of that 750 million base that are younger, whereas because most of Meituan's transactions are done through the Ten cent chat feature, which is WeChat.

They've got something like 120 million users that are between the ages of 55 and 70 Meituan see this as a great opportunity for them to be able to target that particular segment and also gain favor with the government who's trying to deal with this challenge as well. So I think there's some really interesting mechanical changes that are happening that I think it's also interesting that as folks over here in the US start to get older. Does that open up new opportunities for different markets that perhaps aren't of the TikTok generation?

Tattle drives more focus on channel customer satisfaction

Carl: Okay last question this week, Meredith, is for you. We're back with another survey and we often talk about Tattle and the surveys that they do associated to, I don't know, like many billions, I think, of transactions across the course of last year. And they're focusing very much on consumer sentiment.

What do you have to share on this one?

Meredith: Tattle gives great feedback to restaurants and in a very detailed way so that you can see what the drivers are to satisfaction and dissatisfaction, and they aggregate the responses on very common things in order to share them in this annual report, which is what they've done here.

I'm going to have you pull up a few pages that were particularly of interest, and we will talk about those. The first one is guest satisfaction by ordering channel. What you're showing here on the screen is both 2023 and 2022. The answer is really not that different between the two years. So let's just talk about this year.

Dine in is doing great and diners are reporting that they are quite happy and that happiness is increasing. Nearly 95 percent of diners reporting satisfaction. The opposite end of the spectrum is delivery. And delivery has bounced around on the bottom here around 80 percent and is pretty consistent with prior year as well.

Delivery has less satisfaction than curbside, than takeout, and than drive thru. I'm guessing that's because of all of the myriad issues associated with having so many different people involved. We say in the very first book when there is a driver in between the restaurant and the consumer who is employed by no one in particular, things can go awry. And I think that is what we're seeing reflected here in the data that things do, in fact, go awry and it's hard to know even who is responsible for that state of awriness. Is it the courier? Is it the platform? Is it the restaurant? Is it just a bad system that has time elapsing in between the food being cooked and the consumer eating it? Really hard to say but a lot of dissatisfaction.

Next slide, please.

So here We're looking at delivery guest satisfaction, and guess what? This is exactly what we love about Tattle. On the prior page, we're speculating why it was that guest satisfaction was so low in delivery. And then here they go, and they drill down into the drivers.

Ordering process, meal packaging, speed of service, food quality, accuracy, and value. Now, good news the red dots, which represent 2023, are above the blue dots, which represent 2022 in every case. So delivery has improved on all of these dimensions. Most particularly on accuracy and on value. I'm guessing the value there is representative of the heavy discounting and promotional activity that's going on the third party marketplaces right now. But in general improving. However, what you do see is that the lowest areas of satisfaction are just as we speculated food quality. Not that good accuracy, not that good, and then also value. So there's something happening in between the restaurant cooking and the consumer receiving it that makes that channel the least preferred channel in terms of satisfaction.

When you compare that to the takeout scores also improving year over year but takeout overall is higher than delivery on each of these dimensions, which of course leads to that higher overall satisfaction score.

And then finally we have one here on guest satisfaction trend on value by ordering channel .And not surprising delivery here is the lowest one, given what we just talked about. But I think what is surprising is the upward trend that delivery is experiencing. So they really bottomed out and it looks like, I don't know, February, March of 2022 with a very low score on value compared to all of the other channels, and that has been improving pretty steadily ever since. Given what we know has been going on in delivery in the meantime, which is restaurants or increasing their prices on third party marketplaces. My guess is that the actual value for the money is not getting better, but because of the heavy promotional activity, the customer's perception of value for the money is. We also know that most of the orders on DoorDash are DashPass and on Uber are Uber One.

They, of course, Pay less because they're getting free delivery and probably forget about the subscription price that they've paid. So big improvement here from delivery, which I think will be very healthy for folks like Uber and DoorDash. But still underperforming compared to other channels.

Just a reminder, value is not about absolute price. Value is about what you get for what you pay. And so consumers generally say when you ask them that the convenience of delivery is incredibly valuable. It's not just the food. It's also the convenience. And I think what we're seeing here is the what you get for what you pay equation in that particular channel, even though convenience is valued, it's not valued enough to make up for the price that is charged. Those promotions are making it a little bit more palatable so that that channel is starting to be seen as a little bit more value.

Carl: Yeah. Interesting stuff. It's definitely worth going to Tattle's website and downloading that. We'll put the link below for you to check out because I suspect you could have spent half an hour talking through that one as well, right? There's plenty of good data points in there.

Meredith: Probably. You know how I love my data.

Carl: All right, well look, that is it for this week's Digital Restaurant. Asalways, thank you for joining us.

We always appreciate you joining us here every couple of Mondays. If you have any questions, any thoughts about what we've discussed today, whether you're going to be getting an R1 yourself to try out this LAM model, or whether you agree with some of the sentiments that Meredith has shared today from both the Touch Bistro and the Tattle reports, please leave your comments below.

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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