By Jonathan Marek, senior VP, Applied Predictive Technologies
Online ordering, now commonplace for retail, has also become a reality in the restaurant industry. Domino’s Pizza and Papa John’s now generate more than 45% of their sales from online orders. Meanwhile, Pizza Hut recently signed a deal with online video streaming service Hulu to allow viewers to order pizza without leaving the Hulu platform. Adding to the hype, online ordering service GrubHub – which now has around four million active users – recently raised nearly $200 million in an initial public offering. As more restaurants introduce online ordering capabilities, the industry will continue to test, and learn how this technological shift will change their businesses. In fact, in Applied Predictive Technologies’ annual survey of our restaurant customers, restaurants reported that online and mobile ordering comprised more than 30% of all operations tests.
For those restaurants that do not yet have an online ordering platform in place, the first decision-point for executives is whether to use a pre-established platform, develop their own system, or both. Platforms like GrubHub and Seamless have the potential to attract guests who otherwise may not have had a particular restaurant in their consideration set. However, these third-party platforms also charge significant commission on each order. Restaurants need to determine if working with third party providers generates sufficient incremental transactions to offset the lower margin per order (this question is very similar to the one restaurants face when deciding whether or not to leverage daily deal sites, such as Groupon).
Once restaurants decide which online ordering channels to use, the next step is to understand how these new methods of interacting with customers will impact their business. To this end, executives are beginning to ask a number of important questions:
How should labor strategies shift within the restaurant?
An influx of take-out or delivery orders will likely necessitate a labor shift within the restaurant. Restaurants should test various staffing models to see which ones result in increased order efficiency, guest satisfaction, and profits.
Should we offer delivery?
Delivery is a natural fit with online ordering and has the potential to increase frequency of customer transactions (i.e. a customer may choose one restaurant over another because it offers delivery). Beyond simply deciding whether to offer this service, delivery brings up a number of other testable questions, including what minimum check size should be required for free delivery and how to add or optimize staffing for delivery.
How can we increase check size?
The ability to upsell in-person is one of the most direct ways that a server can increase the profitability of each check. Restaurants should seek to recreate this same experience online. One of the key benefits of offering online ordering is the enhanced ability for restaurants to collect detailed data about their guests. Restaurants can use this data – in conjunction with advanced software platforms – to identify cross-sell opportunities. For example, if a guest normally buys a chicken sandwich and dessert, the restaurant can recommend that guest also purchase a soup or salad, increasing overall check size. In fact, Domino’s CEO, Patrick Doyle, has already suggested that online ordering is leading to larger checks (among other benefits, such as increased order accuracy). When analyzing changes in check size, restaurants should be sure to distinguish between online ordering causing larger checks and larger orders just being more likely to move online.
How can we improve guest loyalty?
Using guest data, restaurants can also leverage advanced analytics to increase the frequency of visits. Marketers can send promotional offers to guests who have not transacted recently (e.g. “20% off if you visit in the next five days”). Such targeted offers ensure that discounts lead to incremental visits instead of simply giving a discount to a guest that is likely to visit anyway. Similarly, menu teams can identify which items often bring guests back into the restaurant (these should be promoted) and which items are frequently purchased but do not encourage loyalty (these should be refined or cut).
Digital ordering and its related strategies – such as promotional offers and communication methods – provide an increased opportunity to rapidly improve performance by conducting scientific tests. Such tests will help executives confidently understand which strategies work, how they can be improved, and with which customer segment each strategy will work best.