Helping Restaurants Avoid Physical Retail’s Pitfalls

Tal VinnikDigital Transformation, Restaurants

“I’m never going to ship a hamburger.”

In a new interview with PYMNTS, Bypass Co-Founder and CEO Brandon Lloyd recounted a story of an executive a decade ago who observed the rise of online retail but didn’t believe the restaurant industry would transform in the same way. He expected people would still line up at a register or wait at the drive-thru to place their order and get their food.

Though that executive was right about the industry not disrupted quite in the same way, it has transformed. Mobile payment and loyalty apps, order-ahead tech, and food delivery services like UberEats, GrubHub, PostMates and more have spread digital features throughout the restaurant world—including the shipment of burgers.

In each edition of the Restaurant Readiness Index, we’ve seen the increasing role of innovation at restaurants, but in our latest report, found a large gap between what consumers expect and what managers are comfortable with (or think customers want). 92 percent of customers, for example, find using an app to place an order to be a positive experience, but only 65 percent of fast casual and QSR managers agree.

To Lloyd, this calls up memories of when physical retail stores didn’t often align with the operations of their online counterparts—and when consumer expectations of digital retail began to outpace store manager capabilities.

Clunky implementation of both front-end and back-office technologies (e.g., ERP, supply chain, accounting, loyalty, labor), Lloyd said, has resulted from restaurants adding “bolt-on” technology to point-of-sale and other systems to meet rapidly increasing demand for the latest features. That’s lead to “downstream impacts for business, and not great ones,” far from the seamless experience both customers and operators want in 2019.

Download the Restaurant Readiness Index and learn more about the manager-consumer divide

“I am totally sympathetic with the restaurant manager and owner,” Lloyd said. “Everything has been built around taking orders via the cashier at the register, and that’s the way they’ve operated for the last 30-plus years.”

But to keep up with consumer demand for more digital options, and to be able to work with the different and expanding channels through which orders come in and products are delivered, a change is required in that longstanding process. “The first reaction is, ‘give me the simplest solution,’” he said of restaurant operators looking to innovate. That often creates issues with backend systems, including those that identify where revenue comes from. This not only creates “a solution that’s an island,” but the lack of progress creates its own “self-fulfilling process.”

Just as it was for retail overall, which is still figuring out how to link the physical and digital, getting away from that mindset will take years of work. “It’s a new way of doing business for decades to come.”
Another challenge is that restaurants—like airlines and hotels—are a high fixed-cost business, Lloyd pointed out. However, while two different customers may pay a different rate for a hotel room or plane seat (or the same customer on a different day) when you walk into a restaurant, you generally expect to pay the same price for the same menu item as anyone else.

There is a potential remedy for that: loyalty. According to the PYMNTS Restaurant Readiness Index, in fact, loyalty is one of the few things customers and managers agree on: about 80 percent of both customers and restaurant managers have positive views of loyalty programs. “Loyalty is a way to variably change your pricing,” Lloyd said, by using such factors as repeat customers and low- and high-traffic times of business to lure in new business via discounts and rewards.

Mobile and online will no longer be “treated as a separate business” as digital channels become more mainstream for an increasing number of restaurants, Lloyd said. That means that restaurants must narrow technology and innovation gaps or risk getting left behind. No doubt, the work to reach the ideal will be significant. After all, Lloyd noted, operators are “trying to put their business together again” to meet digital demands.