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THE DIGITAL RESTAURANT: June 05, 2023

The QR code is dead?, are Ghost Kitchens dying? And are Virtual Brands are on their last legs? All these headlines and more represent our thoughts and views on the world of restaurants, technology and off premise food in our round up of last week’s hot news stories - subscribe today to The Digital Restaurant and register at www.deliveringthedigitalrestaurant.com for more bonus content.



ARTICLES meNTIONED IN THIS EPISODE:






transcript

Carl: The QR code is dead. Our ghost kitchen's dying and our virtual brands on their last legs? That's all ahead on this week's Digital Restaurant.


Carl: The Digital Restaurant works like this. We're going to ask each other five questions about headlines that have caught our attention around the worlds of restaurants, off-premise and technology that in some way tie back to our book series Delivering the Digital Restaurant. Are you ready? Let's go.

Meredith: Okay, Carl, first question is for you. QR codes, we talk about 'em a lot. Are they dead?


Carl: You know, there, there has been a lot in the news recently, Meredith, about things dying off post pandemic, things that perhaps all seem the rage and are now being tossed aside as fleeting moments of innovation [00:01:00] that had their time and perhaps are now being sent to the retirement home of restaurant technologies.

And QR codes have certainly been part of this. Now I've seen this theme in some journalist considerations in recent weeks, and I'm a big fan of the writers out there and our friends in the industry press, and I know there's always a need for a story.

But innovation and tech just doesn't die like that unless it's a real doozy, I'd say. Now the, the New York Times, I think was the article that caught most people's attention cause they reported that the QR is indeed dead, that guests simply don't like it. They refer to a company in it called MustHaveMenus, which I haven't heard before.

But I think they provide physical menus for restaurants in various different formats. But they also provide QR codes that direct users to likely pdf menus, and of course, musthave menus have said that, well, since the pandemic is now in our rear view mirror, no one needs these things anymore because that's not their business model, right?

It's about printed menus. So shucks. No surprise that they say they've seen that utilization drop.

Meredith: So they have a clear point of view. Good.

Carl: [00:02:00] Yeah. Well, they quoted a restaurateur, in this article who says, "QR codes hinder communication and intimacy." They quote a server who says they "dehumanize the service experience" and impacts things like dessert ordering.

Meredith: also have a point of view. Yeah.

Carl: But here I think is where we lose the story of why we are where we are. QR codes as we know, were an emergency measure for many restaurants needing a sanitary measure of sorts to display a menu in the heat of the pandemic. And for many, a PDF was all they had to go by and all they could give to their guests that time.

But for the guest, the first impression was one of complete disillusionment. They were they were dehumanizing it. They were hindering communication. They certainly didn't make the guest or the restaurant operation any easier. But sometimes innovation starts out like that, right? Every time innovation pivots and it continuously adjusts a product in some way to try and improve the guest or restaurant experience, and sometimes both.

Kristin Hawley, who we love over at Expedite said "it's not that they hate the QR [00:03:00] code. It's that they hate the QR code experience." And then Steva n Premutico, who's the founder of Me&u. He and I were on a post together on LinkedIn and what he said made a lot of sense as well.

He said, "I hate QR codes. I refuse to use it when I can. It just adds more friction to an already high friction and tedious experience." But he calls that menu 2.0. And he thinks what he calls Menu 3.0 addresses a lot of those kind of issues about being able to order and pay through the same service, cause then orders can go direct through to the kitchen.

They allow you to easily add on items, split checks, provide updates on order progress, pay for your order, and let you leave when you want. Let's face it, you know, what's the fastest growing category right now? Well you might say digitally native restaurants, but one of the other ones, of course, is the fast casual segment.

And why do people like that? Cause they get to control their experience. They can pay early, they can get the administration part of the transaction out the way, and then they can eat, enjoy, and leave when they want. And you think about when things like the [00:04:00] car came into our lives, we didn't stop riding horses all of a sudden, overnight, the physical menu is going to be with us for a while.

But as digital menus become more and more effective, the need for customers to use and the need for restaurants to add more frequent additional cost of physical menus will lessen. And I think we're gonna get to a place where actually the experience gets even better. I could almost see Menu 4.0 where the face ID then profiles your loyalty points, buying habits, your nutritional profile, and where the QR code is, your kind of process to log in almost.

And that enables a more personalized experience. So, for me the QR code is not dead. It's evolving and the on-premise digital restaurant systems have a long way to go cause one thing's for sure, you don't see people not using their phones around the average restaurant. So if the customer continues using their phone, I think there's a good chance the QR code has some legs yet.

Meredith: Yeah, I totally agree. I totally agree. And you're just seeing so much innovation by companies like Up 'n Go and host of others who are making the QR code [00:05:00] experience better and better so that the overall restaurant experience gets better and better.

Carl: Okay, so if QR codes aren't dead, then what about these ghost kitchen things?

Meredith, what's going on there?

Meredith: Oh my gosh. I'm going to call May, 2023, the month when everyone decided that ghost kitchens and virtual brands were a pandemic thing and we should just throw the baby out with the bath water and forget all about it. And just, just like you said about innovation and QR codes, look, innovation is messy, right?

Nobody wakes up one day with a fully formed idea and goes, huh, it looks like this, right? Like we had to go through MySpace in order to get to Facebook; we had to go through the Palm in order to get to the iPhone. Like these things take time. And just because the first version, or one version, or even 10 versions of something doesn't work quite as planned doesn't mean it's not going to work totally.

So a number of articles came out in the last two weeks I think largely based [00:06:00] on Wendy's announcement that they were pulling back from Reef. And some posts from former nextbite employees saying they had been laid off on LinkedIn that caused the world to consider, wait a minute.

Are these things real? And in some ways of course those two, those two ideas get conflated a lot. We talk about this in our book that a ghost kitchen and a virtual brand really are different, right? Ghost Kitchen is the hardware, virtual brand is the software. Many of the articles have conflated the two. First, talking about ghost kitchens as a place, then talking about virtual brands that are happening in truly host kitchens, and very confusing.

The other news that came out in the last few weeks, of course, was that Uber and DoorDash were putting criteria around what qualified as a virtual brand and how those would show up on the platforms. All of these things together made people go, eh, I don't think they work. But I do think we've learned a lot in the last five years, and I [00:07:00] think we've learned a couple of super important things.

First, on the virtual brand front, I think we've learned that you can better utilize a kitchen. Doesn't have to be just one thing served at that thing's peak time. It could be lots of different things and it could be lots of different peak times maximizing that kitchen. And virtual brands really, really do help with that.

Second, I think we've learned that brands matter. So we see a lot of the virtual brands who are either building brands themselves from scratch or who are leveraging celebrity brands tend to do better than those that are kind of made up out of thin air. Third, we see that operations matter and it turns out that you have to consistently deliver great food to people or people will stop ordering it.

You know, Mike Grams at Taco Bell used to always say marketing brings 'em in; ops keeps 'em coming back. And I think that's good advice. If the operators of these virtual brands don't spend time on every single item, making sure it's going out [00:08:00] the door just as well as their base brands, they're not going to work. So I think we see performance from some of the larger, more sophisticated chains who have virtual brands who are able to put success routines into their training, those tend to work better. Operators who are leveraging either supply chain or equipment or both, those tend to work better in order to maintain that consistency. As we go forward, we will think, how do we use these lessons to make even better virtual brands?

Same thing on the Ghost Kitchen side. I think we've learned that yes, these places are more asset light. They are able to produce more food out of smaller square feet, and those things combined are really, really exciting and they're why we see Ghost Kitchens taking off in other countries who don't have the existing restaurant infrastructure that we do.

When you combine these two ideas, this is where I get so excited, and I know we've talked about it in both books, [00:09:00] but I will say it again. We have a ton of restaurant infrastructure here in the US, right? We have one restaurant for every 500 people. But is it the restaurant infrastructure that we want? Is it the restaurant infrastructure that we deserve? Are the brands that are relevant and modern going through that infrastructure today?

I would question that. We have a lot of people learning about health and wellness, food as identity, all the things that we talk about all the time that start shaping new brands. Is the right way for these new brands to roll out the old school way of brick and mortar after brick and mortar after brick and mortar? I don't think so. So I don't think they're done.

Carl: All right. Well, I guess with that in mind, maybe they're going to evolve into a completely new thing . Who knows what ghost Kitchens will be 10 years from now. But you're saying they're still gonna be around. I agree with you.

Before we move on to the next question, I have a favor to ask of our listeners. Maybe you'll listen to us on LinkedIn. Maybe on [00:10:00] YouTube or maybe you'll tune in to us through a podcast service. But if you have yet to subscribe, we would very much appreciate it if you could, and similarly if I can be doubly greedy, I would ask for you to give us a five star review.

Gives us a little bit of feedback, if you will, that you enjoy listening to us here on The Digital Restaurant and obviously helps us make sure that we're putting the right content out there. So if you wouldn't mind, click on the bell, click on subscribe, and tune in to us every couple of weeks when we come on air.

All right, back to you, Meredith.

Meredith: Well, just for a brief moment to ask you a question. Paytronix has released a new report on online ordering. It was chock full of insights. So tell us your favorites.

Carl: Oh, boy. We always love a, a little bit of data, don't we? You and I and let's do this. I'm not gonna go through the full 29 page report that you can see here.

But Paytronix released a report on online ordering every year full of various insights, and I wanted to touch on a few of them if I may. We'll start on page 12 because. You can see here it's saying inflation is [00:11:00] driving up the cost of dining out, which isn't anything new. We've been talking about that for, for quite a while.

But here in the data you can see that shift that they're reporting. But look at this one in the bottom left hand corner, Meredith. It says, average items per check in January of 2021 was 3.2. And in December of 2022 it was 3.2 as well. So people are typically still ordering a similar amount of items on their their purchases, which I think is kind of encouraging.

If we go then to the next page here, perhaps something less encouraging is seeing the average days between visits over time. You can see again through that same time period, a growth of about 2.3 days. So people are starting to visit less often and perhaps, I would argue, that is because also we're starting to see average feedback drop as well.

So we see a 0.2 drop between those kind of two years, which is very much in keeping with what we reported on last year, that the average customer is continuing to find that their delivery off-premise experiences are starting [00:12:00] to decline in some way, or, or perhaps there's more of a division between very good and average service, which is causing people to understand when to rate something a little less.

The report does touch on the fact that digital orders have gone to 25, 30% of the average sales mix, which is up from 10% in 2019. But one of the things I thought was also interesting in this was actually about first party. So let me go to page 16 here. And it says here that when you compare third party ordering to first party ordering, not only are you reducing the average days between visits from 43 to 33, your staff are getting extra tips, and the average item price is much higher as well.

Now, we've reported in recent weeks about the price disparity between third party and first party, where more often than not, there's at least a 15, 20% difference on a price on a third party channel to a first party. Well, if that's the case and the average items is still nearly $2 more, it tells you that customers, when they order through your first party platform, have [00:13:00] a higher propensity to spend more.

So I thought that was pretty encouraging. Last thing I'll share with you is a little bit about guest ratings. One of the things here, which I thought was interesting, lemme just go to page 22 is again, when you look at the delta here between someone that votes with three star versus five star, the percentage of guest returning dramatically changes as well.

An 18% swing in terms of the percentage of guest returning within 90 days is the difference between a three star review and a five star review. And a another way of looking at that same data is looking at the average days between visits. So again, that I think is particularly pertinent.

Carl: Question four. Panera are the latest to innovate on the drive-thru model. Tell us about what they're doing. What is exciting you about it? What does this mean for drive-thru??

Meredith: Yeah, so Panera has added the ability to mobile order ahead and then pick up through the drive-through lane, as have many folks.

The drive-through I think is an area that has not been touched in a long time. It has the science [00:14:00] around it that has been in place for 20, 30 years. And now everyone is trying to figure out how do I incorporate digital into my drive-through?

The good news is lots of experimentation. The bad news is we're stuck with a physical plant that we have for most brands, right? Most brands built out their drive-through fleet, largely between 1990 and say 2015. And during that great retail build out, as we created all these power centers and all these fast food places, they're kind of stuck with the sites that they have.

They can't add a second or third drive through lane for different modes. They are what they are. And they've trained their consumer on how to order through a box. And so suddenly not having a box is not really an option either. And so you end up with a lot of brands who do this mobile order ahead and then get in the same line as everybody else. But now you're stuck behind someone who's placed an order and you can't just go get yours.

It's tricky experience for the consumer. So I [00:15:00] think what will be interesting to see is, Who innovates first to a way that uses that existing physical plant, but uses it in a way that works well with digital?

Is the answer curbside, like what we showed with Wendy's doing that underground tunnel system? Is the answer people running out like Chick-fil-A did so much of during the pandemic? Is it something just blowing up the whole situation with the order point and saying, actually instead we're going to do everything mobile order head pickup, even if you didn't know that we did that and you don't have your phone with you? Or is it something even further ahead that we haven't really gotten to yet, that we're just starting to test. Like with AI voice ordering and the drive-through. So you're still talking to a box, but now you're talking directly to a computer.

And then carry that further out. If you're talking to a box, why not maybe talk to your car? I know you're a huge fan of different in-car ordering [00:16:00] mechanisms. So that could be a potential future as well. I think there's a lot here. A big idea, but I think we're yet to see exactly what the biggest idea is.

All right, finally, Carl Delivery has grown over 1300% since 2019. Holy cow must have grown off a very small base. Please tell us what that number means.

Carl: Yes Deleget have released a report. I wanted to share some stats and I'll get to that 1300%, one in a moment or two. But first of all, I wanted to go to this page here on page six of the report. There's lots of reports out this week, Meredith. First of all, beverage sales. Now, we haven't spoken about beverages for a while, and what this was showing was a representation of the average amount of beverages per transaction, which you can see has dropped year on year.

Maybe this is a reflection of the inflationary environment that we've spoken about, but again, it does represent an opportunity, I would argue, because you can see quite a sizable difference between the top 10% and the bottom 10% here. And [00:17:00] just really that representation of the percentage of sales as reported so, who knows, I think part of is recommended, as you can see in the bottom right corner here, where they say, track it, report it, incentivize your team around the opportunities around beverages.

And I think there's more to be done when it comes to online sales as well, whether that be, as we've talked about in the past with the Boba lids and being able to have drinks sealed appropriately or proprietary drinks. There's still an opportunity out there as I think is evident from this particular number.

Similarly when we go to this here, I was quite surprised I haven't seen a report like this for quite a while, which gives a representation of the sales by channel between 2019 all the way through to 2022 between mobile, kiosks, third party delivery, counter and drive-thru. And you'll see here that they're reporting a slight decline on drive-thru over the course of the last three years, which perhaps isn't a huge surprise because of the pandemic.

And of course we have started to see the counter service come back up. But clearly the third party delivery continues to grow and grow over those [00:18:00] last three, four years. But what I thought was also interesting was that mobile still is a relatively small amount of orders. It's 5% of orders here. And I think this is gonna be a really interesting one that we should keep an eye on in the next three to four years, because I think mobile orders indeed, are going to be a particularly pertinent part for people to order regardless of how they have the item fulfilled.

And that , goes back to what you were just describing with regards to drive-thru. And then have a look at this one here. Food and labor costs. So they're saying, according to QSR magazine, QSR menu prices rose 8% through the course of 2022. Average labor costs up 6%.

So you can see that the inflationary environment certainly is impacting margins, but what I thought was perhaps not the right way to display this was looking at food cost as a percentage of sales, and you have often said a lot about this one, Meredith, in the sense that sometimes we look at this as a negative number, so you'll see the bottom 10% here is positioned as 32%.

But in many ways if we reframe the overall business model for [00:19:00] restaurants, maybe the idea of actually putting more cost into the food, improving the quality of the food isn't such a bad thing. So I think, there's two different ways of looking at this. Clearly the labor cost of sales isn't a great number, and to be able to see that level of increase from 16.7 to 28.4 is, is quite significant over the course of the last few years.

And let's go back to this one here. The delivery channel has grown by over 1300% since 2019. And again, you can see that breakdown across each of the, the various different categories. Clearly, very much supported by the third party delivery aspect there.

Okay. So that's it for this week's digital restaurant. As ever, we'd love to hear from you about what you think of our opinions. Are ghost kitchens dead? Are the QR codes going to make a comeback? And what thoughts do you have on what you'd like us to cover on a future edition of the digital restaurant? But until next time, thank you 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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