Voice AI, Mobile pick up lanes and getting Phygital with the Tillster Report.
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.
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Carl: Voice ordering, Cloud Kitchens in a storm and getting phygital with the Tilster report. That's all ahead on this week's Digital Restaurant.
The Digital Restaurant works like this. We're going to ask each other five questions about five headlines that have caught our attention around the worlds of off premise technology and restaurants that in some way tie back to our book series Delivering the Digital Restaurant. Are you ready? Let's go.
Good morning, Meredith. How are you?
Meredith: I'm very good. How are you?
Carl: I'm doing well. We're in the middle of conference season again, flying in between various different locations. And I'm on my way to FSTEC this week. Had a great time last week with you over at the very first QSR evolution summit. We had fun over there.
Meredith: Oh my gosh, isn't that true? Lots and lots of conferences, but all a little bit different and the QSR evolution / NextGen summit was very good. I was very glad we went.
Carl: Just when we think we don't need another conference, another one comes along and surprises us.
Meredith: Different people go to each one and they each have their own personality. So it was a lot of fun.
Carl: This one in Atlanta, which I think drew a lot of new restaurant folks to the area, right? Because there's a lot of restaurant companies based in this part of the world. And I think Atlanta definitely brought some new folks that perhaps were fed up with a bit of Vegas, but who knows?
Meredith: Who could possibly be fed up with Vegas?
Carl: All right, well, let's get on with it. Question one this week is for you. Voice ordering is heating up a number of different players getting into this space. Can you tell us what you've been learning about voice ordering?
Meredith: Certainly there's a bunch of voice ordering going on already.
Of course, Presto and Huex and SoundHound working on voice ordering in the drive thru and have been for quite some time now. But the news this week was that DoorDash and Uber are both working on voice AI technologies. And then, not to be outdone, ChowNow the champion of the independent restaurant came out and said, we are partnering with SoundHound to do our voice ordering.
So quite a bit of news out there, and I think, number 1, this just reflects the broader trend of. We are all tired of typing with our thumbs, and it is much easier to talk into our phone and have our phone translate for text. So why not for orders? Also certainly safer if you are in the car and ordering on your way home for dinner.
Number 2, there's still a significant portion of orders that come into restaurants via phone. And so being able to capture those orders digitally helps save the labor on answering the phone and taking those orders is a great thing. And then you can see this evolving over time to get to that place that Noah Glass calls the digital entirety. It's a race. The race is on.
Okay. So, there's a cutesy little title out there called let's get phygital. Tell us what that means. Cause honestly it sounds a little dirty.
Carl: I thought you were going to do it at least in theme of a song, that question, Meredith.
Meredith: No. You know what? Olivia Newton John was my childhood hero.
Meredith: No question. I had a lot of outfits and I used to dress up like her constantly and dance around the living room. But not for this podcast. I'm sorry.
Carl: Not everyone knows that you are quite a hummer. I know you like to hum. And so maybe one day we'll get that onto the podcast, but not today.
Let me explain why we have the title. Let's get phygital because a few reasons Danny Klein came up with that term, at least in the article he was referencing in QSR where he was reporting on the Tilster report, which surveyed a thousand customers of QSRs and fast casual restaurants, and he covered a number of different things in it.
We'll put the link below, of course, as always, because I'd encourage every listener to have a a read of it because there's lots of good data in there. He kicked off talking about kiosks and Shake Shack and just saying that in Shake Shack at the end of Q2, they had 250 restaurants with kiosks, which had seen a 10 percent increase in average check.
Both through more items, but also through higher price products. And also they were mentioning things around higher LTO engagement and certainly helping people just have more time, I guess, to explore the menu, explore new items versus standing in line or speaking to a team member. They also mentioned a greater incidence of drink orders through kiosk orders, and that of course drives your margins up in Q2 margins were up 2.4% for Shake Shack. So. Interesting results from the particular company that he was referencing in the article. But the Tilster survey said that customers are really engaged with the kiosk . So they said a third of customers would like to have more kiosk experiences. They said that there really is a lack of feeling of being rushed, right?
So when you're using a kiosk, you don't feel the kind of people behind you trying to get to their order. And I think that is why 44 percent of customers said that is really one of the reasons why they would like to order more through a kiosk. And there is another category, which the report calls beeliners.
Those that like the speed and the convenience of tech on their terms. And supposedly 31 percent of folks prefer it because of speed. But they were also surprised. 59 percent of the respondees were surprised that they could personalize their order. And, this made me think because as a Brit, when I came over here and I sat down and had meals with folks like yourself and people would start telling me about all the different things that they wouldn't have on or, substitute this for that wasn't something I was used to.
I have to honestly say that. So perhaps these kiosks by providing that option allow customers to realize, well, actually, if you want to have it your way, we're gonna allow that to happen. Now, this kind of thing went on, there was a lot of different things on there. But what I did think was interesting is that about 86 percent of them expect that you are able to customize 71 percent of them expect you to be able to redeem your loyalty points or at least earn your points. 40 percent expect you have multiple language options or perhaps even access previous orders. And I was at a Taco Bell just this last weekend.
And I had to utilize their promotion, but I could only utilize the promotion through that app. I couldn't utilize it through their kiosk. So there's clearly some, way to go in terms of engaging the customer to give them more of a personalized experience. The Tillster report wasn't just on kiosks.
It talked about a number of different ways of engagement, mobile ordering. For example, and I think the story which we've reported on before around this in the sense that people do prefer to order through first party -that hasn't changed, but actually the differential to their preference on ordering first party to third party has even grown.
The report perhaps thinks that's to do with the pricing differentials that have existed out there. Also 'Bring to table' ordering really interesting. There are a lot of folks are saying 69 percent would like to be able to use that, but they'd like to use it if there were more exclusive discounts or promotions that were offered through it.
So maybe a way of being able to encourage more people to utilize that particular channel or even to be able to have order tracking. So you think of the Domino's pizza tracker, how many times have you sat in a restaurant wondering where your order is? Wouldn't it be awesome to be able to see through the engagement on your mobile ordering platform or the app to be able to see where the order is - even though you're sat 20 feet away from where it's being made. So lots of really fascinating things, Meredith, in the report. I encourage people to take a look.
Okay, look, before we go on to the third question we're going to another conference. We started talking about conferences today but we're going to a conference called Create over in Palm Springs in a few weeks, October 1st to 3rd at the Margaritaville Resort.
Tell us about it, Meredith. Why should people come and join us?
Meredith: Well, first of all, Palm Springs. I love Palm Springs. For anyone who is on the West Coast, it's super easy to get to an amazing place to be once you're there.
I know they're doing an investor summit for investors and those looking to fundraise up on top of San Jacinto mountain. It's beautiful. I think that will be really neat. So I'm probably probably overselling the location a little bit, but I do love it. So I think that will be good.
Carl: And there's some great people coming along as well.
Meredith: Yes. All of the conference content. Yes.
Carl: Yeah, exactly. Well, thanks again to Nations Restaurant News for putting that on. We're looking forward to doing a few special interviews. So more on that soon.
Okay. Question three. So Cloud Kitchens have been in the news. Unfortunately, a few people are losing their roles and a few locations are closing down. Tell us more.
Meredith: This is primarily a reflection of the interest rate environment. You have a business that is totally dependent on interest rates in order to make it work on low interest rates specifically. So for a refresher, the Cloud Kitchens business model was to purchase, not rent, but purchase older pieces of property, usually warehouses often in opportunity zones, things like that, refurbish those into multi kitchen suite set up.
And so they would have, 30 to 50 different kitchens all in these warehouses. And the amazing thing about doing that is in a very low interest rate environment, number one, you can get cheap money to do it, to buy what will become great real estate no matter what's in it. Because we're not making new real estate in cities. Newsflash. It's true.
But number two And I don't know if they were doing this, but it certainly happens in the rest of the restaurant industry. Once you've done that build out and you've made it worth more, you can actually do a sale lease back on the underlying property and kind of have the build out paid for and then just operate the business from there on out. So that happens a lot in restaurants. And that starts to break down a little bit when interest rates go up. Certainly the ability to purchase land breaks down a lot when the interest rates go up. So a lot of it is just a reflection of the environment that we're in. And that's very challenging.
Now, what's been interesting is there've been several LinkedIn posts about this that I'm sure you've seen Carl and the comments are fascinating to me because you've got half the people saying this real estate will always be Valuable no matter what. It's amazing. You know what they've bought in great places and half the people saying, we always knew this would never work.
It's like the naysayers and the, glass house full people. It's very interesting to see the divide. But you know, I think it is a challenged business model, right? It is putting independent restaurants who may or may not be digitally sophisticated into a relatively high rent environment where their sales are restricted to a single channel, that of delivery which is a pretty high cost channel because of all the fees . That kind of System, where you're relying on a bunch of different people -the landlord, possibly the brand, if it's a franchise then the third party delivery companies- there's just so many people putting their fingers into the pie that there's not a lot of pie left. Right? So it's not surprising when they say that typical capacity utilizations at about 50 percent according to sources quoted in this article in these facilities. So I think there is some challenge here.
As you know, I am a fan of the vertically integrated delivery kitchen, which I think makes much better use of the resources and doesn't have to quite so many fingers in the pie and therefore can be profitable, but it will be interesting to see if there are certain locations in which they're finding this does work, certain kinds of restaurants for whom this does work, certain ways of operating in which this does work and that they're just kind of trimming the pieces that they learned over time don't work as well.
Carl: The phrase that is getting used more and more these days is they are not dead, they are just in the second innings of a long game.
Meredith: Well, it is certainly true that we are still at the front end of digitization in restaurants and anyone who thinks that we've reached the pinnacle of digitization, man, you've got another think coming because we have years and years and years and years to go of making this much more refined model.
Okay, Carl, next question for you. Great article about big restaurant chains and how they're using AI, which is helpful for the rest of us as we hear about AI and how powerful it can be. And we wonder what should we be doing with it? It's kind of fun to copy the homework of other people.
Carl: You're right. Yeah. Joe Guscowski put this article out where he covered six different restaurant groups and how they're approaching the topic of AI today. And, a lot of them actually focused on inventory control. We we've talked about back of house a lot. This year, and it's only seems to be a focus in regards to this article. He featured Chipotle and PreciTaste.
And that monitors stock levels through sensors and traffic pattern forecast to tell the restaurants when to restock. We've talked about chippy in the past, of course, and, the robotic chip maker and pepper the customer chat bot. So Chipotle, of course, are doing a lot of things in this space.
But similarly, Yum, specifically Taco Bell and KFC, they were highlighted for their use of inventory control through recommended ordering levels and helping team members not have to go through the routine of that themselves and trying to address waste level improvements through that, of course, but also how they've invested in food prep automation through Dragontail systems.
I didn't know about Starbucks on this thing they've been working on since 2020 called Deep Brew, which in many ways is artificial intelligence across everything. So yes, it's focusing on inventory control as well. But it's also predicting staffing needs, preventative maintenance requirements based on equipment utilization.
Those forecasts are also being utilized for pricing decisions. And even helping at the customer level by providing more personalized tailored product recommendations. And this is similar to what iHOP doing, but I hop of partner with Google and the recommendations AI platform and the big query product they have so that they can utilize the customer's prior purchase history
to make more informed decisions on what they could potentially buy based on what they've purchased in the past. Dominos, of course, it wouldn't surprise you to hear that they were referenced in the article. They've been in the AI space since 2014. They came out with something called Dom back then, which is the voice assistant enabling easier
customer ordering -a little bit like our first story this week. And of course we've seen a lot of that appear in the drive thru sector. Only last week when we're at the QSR evolution summit, I was listening to Frances Allen, the CEO of Checkers & Rally's and she said they've deployed this in one of their locations and they've seen a 7 percent improvement in speed.
They've seen improvements in accuracy. Not necessarily an improvement in basket or tray value, but certainly improvements in the overall operation and White Castle were also referenced in this article. They've been doing stuff here as well. They're utilizing a company called SoundHound who have an awesome TikTok video out there, by the way, just to show how good they are at being able to pick up a variety of different changes in the order on different accents as well.
And they're rolling this out across a hundred of their locations next year. And they said that 90 percent of the time of the orders that are taken through that voice AI don't require any human involvement or adjustment. But no, there is still a human involved. And what drew my attention most to all of this, Meredith, was how Domino's are now even starting to prep orders before before the actual order on the customer side is even completed.
And then also dispatching to drivers before they've returned to the store So i'm not really quite sure how that works. But either way there weren't many mentions on labor savings, certainly about resource reallocation.
There wasn't anything mentioned yet, at least about how AI can be utilized for generative chat purposes on social media, perhaps even how in your world on the vertically integrated tech side can help harmoniously support all of these different data streams and forecasts across different functions within the operation.
So I think there's still a lot to come in this space, but a lot of the things coming together in certainly some of the bigger, more established digital restaurant chains out there.
Okay last one this week. Another theme that we've been talking about a lot. You are a big fan of the Chipotlane and now a lot of folks are doing something similar, what is that?
Meredith: Chick fil a has been testing it. Yes. And, I love this story because they are rolling it out nationally and they're putting it everywhere that they can. This mobile pick up lane. And what that tells me for a very purposeful company who does few things perfectly instead of a lot of things in a bit more I, I can't say that without swearing on a podcast.
Okay. Well, you know what I
Carl: mean? I think you can swear on a podcast if you want to. It's okay. We're not safe for kids
Meredith: anyway to see a company with the caliber of Chick-fil-A roll something out nationally means that it works. And I think that tells us that everyone should probably be doing this and taking it pretty seriously. I, of course, prefer the Chipotlane approach, where the only thing you can do is digitally order ahead and mobile pick up. The problem the rest of established QSRs have is they have an installed base with an order point and menu board and a pickup window, and they have a huge number of consumers who are trained in that behavior. And can you imagine if you were used to ordering at the order point? And looking at the menu board and you pulled up and they were like, did you place your order already?
You'd be like, no, but if you've never done it before, and suddenly you can, it's really easy. So Chipotle sort of has that advantage over the existing main line QSRs and so they have to be able to separate out these 2 lanes. 1 being drive through normal order point menu board pickup and the other being a mobile order headline, and I love the separation.
You know, we talk a lot in both books actually about how when you have processes that have different cycle times, if you try to put them together, they will cause one or the other to bottleneck behind it, and so I think that's great to separate them out. I think it will really add to the convenience for the consumer.
And I presume that's exactly what they found since they are putting them everywhere.
Carl: Yes, I suspect we're going to see plenty of more rollouts of this type of thing happening as restaurants continue to grow and change the drive thru strategy because it seems to be an area now where single drive thru lanes are going to be in the minority in a decade or two's time.
Meredith: If you can fit it. If you can fit it, it's, it's tight.
Carl: Absolutely. All right. Well, look, that is it for this week's Digital Restaurant. We'd love to hear from you. What do you agree with? What do you disagree with? What things are you seeing coming down the line on AI? Is your restaurant chain going to be following the same path as Chick fil a?
But if you have any comments or any thoughts as to what you'd like us to cover, on a future edition, then please let us know. But for this time, thanks for listening.
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