How Restaurant Chain Size Impacts Tech Innovations

Tal VinnikDigital Transformation, Operations & Management, Restaurants

From mobile payments to loyalty to kiosks, innovation at quick-serve (QSR) and fast casual restaurants varies dramatically across the US. Our Restaurant Readiness Index finds that the availability and preference of features differ by a number of factors including geography, age and income, but how much does the size of the chain matter?

Regardless of demographics, consumers overwhelmingly like restaurant innovations—81 percent reported positive experiences with new tech and 62 percent say that it makes them more inclined to visit QSRs in the future. Despite that, the latest Restaurant Readiness Index showed a wide gap between QSR managers and customers—92 percent of consumers, for example, say ordering from an app is a positive experience while only 65 percent of managers believe those same apps give customers a positive experience. In this deep dive from the report, we look at the role organization size has on how managers perceive technologies.

Download the full report on the divide between managers and consumers

When size matters

For the survey, we split chains into three groups: Small (those fewer than 2,000 locations, for example, Five Guys), Medium (between 2,000 and 5,000 locations, for example, Sonic Drive-In) and Large (more than 5,000 locations, for example, McDonald’s).

There is a technology gap among the groups, though not as wide as one might expect. Larger chains are more likely to have certain features than smaller ones, likely as a result of their greater means to invest in new tech (as well as incentivize franchises to adopt them). 21 percent of larger chains, for example, have kiosks compared to only five percent of smaller ones. The same goes for QSR-based apps—65 percent of larger chains offer them, compared to 42 percent and 31 percent of medium and small chains, respectively.

In other areas, smaller chains defy this pattern. In the case of third-party apps like UberEATS and GrubHub, a slightly greater number of small chains offer them than large ones (32 percent versus 30 percent). This likely reflects the fact that smaller chains are less apt to build their own apps, while also suggesting that third-party developers could be helping smaller chains stay technologically relevant.

Moving to payment methods, a similar pattern prevails. When it comes to mobile wallets, Apple Pay is now accepted at nearly 60 percent of large chains, compared to 41 percent and 26 percent of medium and small chains, respectively. Cash and cards are widely accepted at chains of all sizes.

Order up

When it comes to order pickup, it’s the drive-thru that most distinguishes large chains from their smaller counterparts. Managers at 40 percent of large QSRs say drive-thrus are the most used pickup method. This number is only 18 percent for small chains, where managers report that orders are retrieved in-store about 66 percent of the time. Notably, medium-sized chains lead the pack in more innovative — if less common — order pickup methods, such as delivery and curbside pickup.

There’s one innovation that is especially appealing to small QSRs: in-store pickup without waiting in line. More than 91 percent of managers at small locations like this method, compared to 85 percent of those at large ones. Bucking the trend, pickup without waiting in line is considerably more popular with managers than customers at small QSRs. This likely stems from the fact that smaller QSRs are more sensitive to the strain long lines place on limited resources.

The appeal and challenges of loyalty

Loyalty programs provide common ground between customers and managers: Nearly 80 percent of both groups report having positive experiences with them. According to our previous research, loyalty programs are compelling incentives for customers to increase their visits to QSRs.

But, as is the case with other innovations, the degree to which loyalty programs are offered and used varies considerably, and they are especially dependent upon chains’ sizes. Smaller brands are more likely to offer loyalty programs than larger ones, although large percentages of both small and large brands — 40 percent and 46 percent, respectively — don’t offer them.

Third-party loyalty programs, such as those offered by LevelUp and Fivestars, have made limited inroads at this stage. As with third-party ordering apps, loyalty services like these are considerably more likely to be used by smaller chains — 3 percent of small QSRs offer them, compared to 1.5 percent of larger ones.

While managers do have a positive outlook when it comes to loyalty programs, they do pose challenges, especially for smaller chains. Compared to larger QSRs, managers at smaller chains were slightly more likely to have negative perspectives on loyalty programs.

From managers’ perspectives, costs and complications are loyalty programs’ main drawbacks. More than 35 percent of large chains say loyalty programs hurt profits, as do more than 30 percent of smaller outlets. The larger concern for smaller-scale brands is that customers are reluctant to provide their personal information—nearly 36 percent of managers say this is a barrier. Those concerns are likely unwarranted when looking at brands like Starbucks who have tied 36 percent of sales to rewards and Panera, which has over 30 million members in its loyalty program, with over a billion dollars in annual revenue from their digital channels.

All of this suggests that managers would be well-served by overcoming these pain points, given how popular innovations like loyalty programs are with customers, the wealth of customer data they could provide, and additional revenue they can bring in. Many organizations may not have the $120 million that Panera invested for digital transformation lying around. But as we’ve seen with many smaller chains, they can rely upon third-party providers for features like online ordering and loyalty, anchored with a point-of-sale that brings those solutions together for an integrated ecosystem.

Download the December 2018 edition of the Restaurant Readiness Index for the full report into the divide between QSR and fast casual restaurant managers and consumers.