The Case for FOH Technology Investment

For quite a while now, off-premise sales growth has been getting the majority of the attention for restaurant enterprise management teams. Yet there is a stronger case for investment in FOH innovation vs. an exclusive focus on off-premise.
Do not confuse the meat for the gravy.

There are only a few levers outside food quality/menu that really move the needle for restaurants to drive EBITDA growth:

  • Improve dine-in guest service, which drives up Net Promoter Score, and increases return visits 
  • Improve off-premise service to drive more delivery
  • Spend money on marketing to drive guest visits
  • Cut costs on labor, food or overhead

In most restaurants, off-premise revenue is the fastest growing component of revenue, so a large proportion of bandwidth and effort goes into this. This has become an industry-wide trend, as restaurants battle to improve their delivery efforts. However, this is a siren song that often leads brands down the wrong path.

It is too risky to focus on off-premise at the expense of dine-in.

It is too risky to focus on off-premise at the expense of dine-in.

Greater than 80 percent of revenue, and more than 99 percent of overall ‘brand engagement time’ (the time spent engaging with the restaurants’ unique brand) happens at the dine-in experience for casual-dining brands. Not only is the dine-in experience worth more financially, it will ultimately make or break the relationship of the guest to the brand.

Yet remarkably, dine-in has been under-invested in from a technology and innovation perspective related to off-premise revenue.

There are three reasons why investing in dine-in experience demands ongoing and substantial reinvestment of resources, despite growth in off-premises business.

Leverage on Financial Impact 

Dine-in still represents the vast majority of revenue, 80 percent or more at many chains today.  As a result, any dine-in investment will have significantly more bottom line impact than alternatives since it is working against most of your current revenue stream. Consider that any off-premises investment has to be four times more productive than a similar on-premises initiative in order to deliver the same value.

Your core business is still on-premises and competition today is as fierce or fiercer than it has always been. So, you cannot afford to starve the core business by repurposing capital towards off-premises growth. If, by diverting capital you generate 20 percent growth in off-premises and suffer an in-house 10 percent decline, your top line revenue will actually decline by five percent.  It is more cost effective and lower risk to grow profitability through investment on both fronts, protecting your base and opening new long term opportunities simultaneously. 

Leverage on Competitive Differentiation

The growth of off-premise actually threatens to commoditize a restaurant’s brand. The switching costs between ‘Burger chains’ on DoorDash/GrubHub/UberEats is a matter of milliseconds and the brand interaction is minimal as well as transactional.  Over time this will reduce differentiation, and drive consumer ordering based on pricing rather than your unique experience.

Leverage on Brand Value

A dine-in experience is far more rich and immersive than an off-premise experience.  You have invested heavily over the long term to create a unique experience for your guests that they enjoy and that brings them back repeatedly over the long term. This relationship is essential to your long term survival.  In fact, most of your take-out business is driven by the brand, and the dine-out guests ordering are those who enjoy the dine-in brand as well.  Neglecting your brand and in-house dining could damage both on and off premises revenue and substantially weaken your position long term. 

This is the worst case that must be avoided regardless of the investment portfolio and priorities selected. Focus on FOH technology and innovation has EBITDA multiplier effects in several areas. Optimizing the dine-in experience with technology can also breed EBITDA benefits in unexpected areas.

Labor Cost and Overhead Reduction 

With 35 percent labor costs and growing, and turnover rates well over 100 percent a year, there is ample room to improve labor productivity and reduce management overhead.  Technology can help cut 300 basis points or more on costs, and help managers focus on higher value initiatives than constantly hiring and training new staff members.

Improved Marketing ROI by Capturing Guest Identity

 Restaurant enterprises spend a significant portion of their revenue (around 10 percent) on marketing. Yet this is a blunt instrument at best – casting an overly broad net with a cookie-cutter message has a mediocre conversion rate. If restaurants actually captured guest identity and preferences, they could significantly improve the ROI on their marketing spend and drive higher guest traffic.

Driving Average Check Without Sticker Shock

Restaurant companies would love to have higher Per-Person Averages but get concerned that it can be a short term strategy at best, due to sticker shock reducing repeat visits. FOH technology can help drive check average without turning off guests by (1) promoting upsells in unintrusive ways that are value-add to the guest, and (2) also helping guests discover new items they may not have tried before.