What can restaurants learn from the Crowdstrike crisis?

How would your restaurant handle a massive global outage affecting millions of devices and services? On this episode of the Digital Restaurant, we dissect the recent CrowdStrike crisis, shedding light on how it exposed critical vulnerabilities across various industries, including restaurants. Learn how businesses like Starbucks took a proactive approach to turn a negative situation into a customer win by offering free coffee during the outages. We'll equip you with actionable strategies to prepare for IT failures, ensure vendor and system redundancy, and maintain robust communication to support your customers during such disruptions.

Next, we dive into California's Prop 22 and its significant impact on gig workers and companies like Uber, Lyft, and DoorDash. Discover the legislative complexities and what this means for the future of the gig economy. We also spotlight Bojangles' cutting-edge AI, Bo Linder, revolutionizing drive-thru service, and explore its potential future applications. Finally, we examine New York's Restaurant Reservation Anti-Piracy Act and its implications for the dining industry. Hear about the measures being implemented by restaurants and reservation platforms to combat unauthorized reservation sales and what this could mean for your next dining experience. Don't miss this comprehensive discussion that ties back to our book series, Delivering the Digital Restaurant.

Chapters

• 0:00 Digital Restaurant
• 8:41 Drive-Thru AI and Restaurant Bankruptcies
• 22:07 Restaurant Reservation Anti-Piracy Act

Transcript

Speaker 1: 0:00

Are restaurant bots stealing our reservations? Do we rely too much on third-party marketplaces, and what must restaurants learn from the recent CrowdStrike crisis? 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 headlines that affect the worlds of restaurants, off-premise and technology, but in some way tie back to our book series Delivering the Digital Restaurant. Are you ready? Let's go. Happy Monday, Meredith. How are you doing today?

Speaker 2: 0:45

I am doing very well, carl. How about you?

Speaker 1: 0:48

very well, thank you. I cannot believe we're almost into the month of august. It seems like this year is flying by, but uh, the restaurant news keeps on coming. Uh, plenty to cover this week, I think, indeed. All right, here we go.

Speaker 2: 1:01

I don't know how we can talk about anything this week other than CrowdStrike and the crazy outages that occurred last week. It was absolutely unbelievable For anyone who is affected. I am so sorry, but let's talk a little bit specifically about how it affects restaurants.

Speaker 1: 1:18

For those of you that weren't aware, july 19th at least according to Elon Musk, was the largest IT outage ever. It occurred at CrowdStrike, which is a leading cybersecurity firm, and it was triggered by a faulty software update which had global repercussions. I think they said 29,000 of their customers, potentially millions of devices, affected. Emergency services in some US states were affected, airlines had major impacts, with people being grounded for a number of days. We had places in Australia like the Commonwealth Bank that had significant transaction delays and systems failures, hospitals, healthcare professionals had challenges around patients being able to book their appointments, and then also TV channels that were shut down as well. So this was pretty significant and it wasn't a cyber attack. It was literally a software update which impacted those folks using a certain type of Microsoft platforms, which I think Meredith comes back to this point that I bring up to you very often, and that is why we should all be using Apple devices, and I'm glad to tell you that this is being recorded through Apple and their OS. So, thankfully, this is going to come live without, hopefully, any issues. If it has, then I'll eat my words next time. But you're asking about restaurants and of course, restaurants were also affected. Starbucks, I think, was the one that I saw was referenced most, at least in the news. They were impacted largely because of issues associated to their mobile ordering and payment systems, so much so that some locations actually had to resort to offering free coffee and an apology for the inconvenience that was caused.

Speaker 1: 2:58

So what does this really mean? I think the main thing for me that comes to light is just how reliant we are upon technology to run our businesses today. It just highlights the vulnerability of even well-established security systems. Restaurants are increasingly dependent on digital platforms for reservations, online orders, payment processing and, of course, have to prioritize cybersecurity. But in many ways, this is something which I think tells us how we also need to be mindful of being ready for things like this to happen again in the future. And, of course, the official term in big blue chip world is business continuity planning, or BCP for short, and restaurants really need to continue to plan for those potential IT failures.

Speaker 1: 3:40

Sometimes it will be a cyber attack, other times it will be like this, with the systems malfunction, and it's around the strategies that you need to have in place, not just from a technology perspective, but also in terms of enabling your operations teams of how to handle the such situations, how to handle if your POS system stops working? What are you going to do with regards to things like that when we are so reliant on digital forms of payment these days? I think there's another angle as well, in relation to vendor and system redundancy, in the sense that restaurants often rely on third parties for various aspects of their technology stack, from the point of sale to online ordering. And, of course, the crowd strike outage is a reminder of those risks of having over-reliance, a single vendor, and we've got a lot of folks these days trying to say well, there's only one solution. And for those people that try to hang their hats and say no, actually having specialists do special things is clearly an advantage in terms of diversifying your vendors no-transcript an all-in-one.

Speaker 1: 4:55

Well, apple is an operating system of sorts, but the thing is that when you have multiple different systems, those multiple different systems give you that exposure to potentially being attacked from different angles, right, so the opportunity is richer potentially for someone if they were trying to attack.

Speaker 2: 5:10

Yeah, I think that's true. I think actually, the more things you have, the more points of failure you could potentially have.

Speaker 1: 5:16

Yeah, that's it. But I mean, regardless of how many items you have in your tech stack, I do think it's important that you're asking your vendors the questions about what they do in these types of instances and the SLAs they actually have in place.

Speaker 2: 5:29

Scott was at a hotel last weekend and he said they'd literally busted out. Remember those old credit card things that you used to run manually? They busted those out. Is that the sound they make? Yeah, I worked in a department store, I did a lot, but they busted those out. I'm like how did they even have those? And how did they have that weird triplicate paper? Remember that pressure paper? Wow, that's some business continuity planning right there.

Speaker 1: 5:57

I remember when I was 16, having to fill out those things and I actually had to phone up someone to get approval for a certain payment. At times it was crazy. Anyway, you take me aside from the last couple of elements. Obviously, it's around communication, right, and so having that view as to how can you support your customers through this, I really think having Starbucks talk about giving customers a discount they had something come up on their Instagram page, for example, to say sorry for the outages that are occurring.

Speaker 1: 6:23

The point is that these things are not just an IT challenge. They are also about helping every part of your business be ready for something like this, and that includes everything from, obviously, your operations team all the way through to marketing and the folks that potentially have to deal with the clear up of such situations afterwards. The only other thing I'll mention is it does bring to light the importance of cloud. Most people are on the cloud these days, but cloud-based solutions certainly give that greater flexibility and resilience to enable folks to be able to respond to these issues much faster, and that means over-the-cloud updates in the sense of being able to produce fixes faster, versus those where you're on-premise, and those fixes certainly can take a bit longer to address. So, meredith, what do you think? What things would you say came to light for restaurants here? Because I didn't hear a huge amount of pain for the restaurant industry from this, but I do think it is a factor, given the fact we're becoming increasingly digitized, that we must take more note of it.

Speaker 2: 7:19

Yeah, for sure. It's a very important issue We've said it a lot thinking about how you manage all the sign-ons and permissions for the different employee levels and making sure that you have failover internet connection and all kinds of things that you really need to be thinking about Now. The great news about technology is that all of our lives are better and, as humans, we can get so much more done in less time because of it. The bad news is we're pretty dependent on it right.

Speaker 2: 7:45

It's like an extension of ourselves. It's a tool that we use to get things done, and if it goes awry it's tough, it's very tough.

Speaker 1: 7:52

Yeah, the last thing I'll mention about this is actually about the cybersecurity piece of it, the fact that this opened up doors then for folks to be able to take advantage of companies struggling. So, for example, can you imagine the amount of phishing emails that went through saying, oh, your email account has been compromised as a result of this and so therefore renew it? Through? Whatever the restaurant brand's name is, those folks are potentially using opportunities like this to then target your customers and say that they need to give their details away. So providing clarity in that communication that kind of stuff isn't happening in those instances is also going to provide some level of protection to those customers that might otherwise not know different. Okay, let's go to question two Latest news on Prop 22. This one has been bubbling on for a long while. Are we at the end of the Prop 22 debate?

Speaker 2: 8:46

I don't know, We'll see. It's a fascinating place out here in California and for those who don't live here, Prop 22 refers to a direct ballot measure where the voters of California said we define a delivery or ride share employee as a 1099 gig working employee. They are not W-2. And this Prop 22 bill was passed by direct ballot measure to basically supersede the law that the state of California passed, saying that in fact, all of these people were W-2 hourly workers. This is California. The actual legislature can pass one law and then the will of the people, via direct ballot, can pass a totally different law. And so we have these two competing laws. Then the first one was overturned in court and it was said oh, this one's actually not valid. Then you remember I don't know what was it about three podcasts ago we said oh, it's back, a higher court had said it is valid. Meanwhile Prop 22 had been dated and so it looked like the whole world had turned upside down and these companies were going to have to completely change their business models. And then finally, lo and behold, now that same court has said that Prop 22 is valid. So it's been very chaotic here in California. What was fascinating is it was funded to Uber, Lyft, Instacart and DoorDash.

Speaker 2: 10:10

The amazing thing about a direct ballot measure is that anyone who has deep pockets can convince voters to vote for anything. That is, to some extent, what happened here. The voters went for it. They said, yes, these people are gig workers, but in order to get it, they had to give a few things away. So the things they gave were a guaranteed hourly minimum, the ability to get health insurance reimbursed, but only under certain very extreme conditions that require a lot of hurdles to be met, background checks and a few other things. So it's like this halfway house. I think that probably is where we'll end up nationally, if I had to guess, Because you see laws like this coming up in all these different states and cities and, in the meantime, California trying to point the way.

Speaker 1: 10:55

It always seems to be California and New York that lead the way on a lot of these things, so it'll be interesting to see what follows now that it has seemed to be settled. Hi, carl, here Just to interrupt the show briefly to remind you that if you have yet to get your copy of either of the Delivering the Digital Restaurant books, now is the time to get one. If you head to thedigitalrestaurant, you're going to be able to get the best price available. You can also listen to both books with yours truly talking about them on Audible. You can get a copy of Amazon if you'd prefer to order through them, but if you haven't got the books yet, get them. They really are going to transform the way in which you look at the restaurant industry and the way in which technology is disrupting it.

Speaker 2: 11:37

All right, carl Bojangles, the popular favorite from the South. I spent some time there in the last few weeks while I was in Virginia, going all in on AI in the drive-thru. Is this real?

Speaker 1: 11:51

They are indeed going all in with AI on the drive-thru, I haven't been to a Bojangles and so I looked up a little bit about them. They were founded nearly 50 years ago and they've got, I think, something like 800 drive-thrus across the US, and, of course, california, new York, texas are the areas where they're trying to expand into. Auvs are around 2.2 million, so it's really interesting that they're growing, but also growing through drive-thrus, and have these aspirations to get to 1,000 restaurants in a few years. But the story is again about drive-through and AI and the fact they've introduced a new team member that they are affectionately calling Bo Linder. But it is not the traditional new team member, meredith, it is a voice bot that has been created by an Israeli company called High Auto, and this voice bot is being used in the drive-through at, I think, over 200 locations or so, as we've heard, with many others that are trying this. It's all about order taking. It's about upselling and trying to reduce the workload for human employees, allowing them to focus on other tasks.

Speaker 1: 12:51

The founder and CEO of HireAuth was quoted as saying in the article that we believe in technology that works alongside human capabilities. Our AI solution is designed to empower employees, not replace their skills and expertise. So here we are again with someone in the AI space saying don't worry, this isn't about taking jobs away, it's about reallocating. This is very much about, yes, the customer experience being better, but it's also about the employee experience. If employees can have a better experience, that can maybe even improve things like turnover and churn.

Speaker 1: 13:21

If you've ever been behind one of those drive-through radios, it's really difficult sometimes to be able to hear what someone is ordering, and that just creates an unnecessary level of stress. Now the good thing is that HiAuto have said that their system has boasted over 95% order accuracy, therefore, of course, improving that efficiency of ordering, but also it's enabling unique customer requests. What that means is that customers sometimes might have a particular question and most of the time it's been able to pick up and handle those requests through the system. It's only about 3% of times where it actually will re-divert the inquiry to an actual human to be able to handle it. So it's fascinating to me to continue to see the ways in which this voice AI is helping the drive-through channel.

Speaker 1: 14:08

But, like we said a couple of weeks ago when we last spoke about drive-through ordering in terms of in people's cars. I still wonder whether there's opportunity here for us to be able to bring this functionality into the cell phone itself, into the mobile ordering apps, being able to do that in a way that the customer is thinking about food, is thinking about heading to a restaurant, like Bojangles can actually order the interface using the interface of their cell phone or even their car, and the order is ready to be able to pick up, thereby perhaps improving the overall operational efficiency of the whole channel. So I think that's probably going to be the next space that we see how this capability set is going to be able to improve that overall channel. What do you think?

Speaker 2: 14:52

I think you're so right. Your phone already understands your voice quite well. Why are you waiting till you get all the way to the restaurant before AI is engaged?

Speaker 1: 15:00

Yeah, I think so. One thing I haven't seen yet is much about customer feedback about these things. Do they really sense that it is helping them? Is it kind of fun, novel, enjoyable? Do they really just purely care about the kind of efficacy of the order, making sure they're getting exactly what they're after?

Speaker 1: 15:16

At least from my experience, having not grown up in a world where drive-through has been common for me, I think speed is so important these days and it's getting even more important in a post-COVID world where people seem to be using the drive-through more often. When you're seeing these hugely long lanes of drive-through, you sometimes wonder is it faster for me just to go in and order? Quite honestly, if this kind of capability can not only just improve accuracy but speed, then I think it's going to be deployed by everyone that has a drive-through across their QSR. Okay, next question this week sad news about bankruptcy of one particular restaurant group and the article is featuring how it perhaps is a forewarning attributed to the risk of deploying too many eggs, should we say, in the third party delivery basket.

Speaker 2: 15:58

First of all, just a reminder that bankruptcy is a reorganization of liabilities, not necessarily like the business is going away. So this was bankruptcy of a company called One Table, which is both Tokaya and Tender Greens. Together those are two California brands. Tokaya Organica is a fantastic Mexican based here in Los Angeles, and Tender Greens, also very good, based here in Los Angeles. Two really good, forward-leaning nutrition and higher end flavor profile oriented companies. Really like both of them and it's a bummer, frankly, to see them go into bankruptcy protection. Now, I'm sure there are a lot of issues that are all conflated together to lead to this outcome, interest rates probably being a prime suspect, right. But what they blamed in their bankruptcy filings was super interesting. They blame the third parties and let's talk about how. The very first thing that came out was that Postmates had guaranteed the brand a $12 million revenue stream. They guaranteed the brand that they were going to get $12 million a year just through Postmates, which is a huge amount of money for a chain that has like 15 sites. That's almost a million dollars a site coming from Postmates. Sounds fantastic.

Speaker 2: 17:14

Well, a couple of things happened. First of all, uber bought Postmates and looked at that deal and said, well, this is bananas and turned it off. Well, that's pretty tough if you're used to getting $12 million in revenue and all of a sudden that just goes away. So Tokaya fought against that decision. Ultimately, they settled with Uber on they would give them $5 million guaranteed revenue stream. Well, that's still like a third of a million dollars a store right, it's still a lot of money. And in fact it turned out to be a lot of money both ways. It both meant a lot to Tokaya, but also was pretty hard for Uber to hit. So then Tokaya says what happened is that the third party marketplaces started to train their consumer to only buy Tokaya on discount, because in order to meet those minimums, of course, the platforms had to prioritize Tokaya in certain ways, make it seen by the consumer on the platform, so they would choose them, put up discounts, and that started to cause the consumer to expect to be able to get this brand on discount.

Speaker 2: 18:18

Now this is a premium brand, carl. I don't know if you've been there, but I'm guessing most of our listeners have not been there because it is more California in nature. So if you're a premium brand premium positioning, beautiful design in the restaurants, great quality of food and therefore your price is a little bit higher, but you're available for a discount on third party all the time. That's a pretty bad thing to train your consumer to expect. First of all, they're going to go to third party instead of coming directly into the restaurant or ordering first party, and then, second of all, even when they do order from you, they're going to think that they should get a deal. So all of a sudden, now Takaya is stuck in this doom loop of deal seeking consumers, which is never a good place to be.

Speaker 2: 19:05

What they said is, ultimately, third party platforms accounted for 30 to 40% of their revenue, which I think is actually fairly common among, in particular, fast casual restaurants, because they don't have a drive-thru, they're not easy to access, and so the easiest way to get them is via third-party delivery. They were paying 15 to 18% commission on those orders, so that's lower than list rates. So they're doing pretty well in terms of what they had negotiated. But between that and what they called four points in packaging for these orders, that is, eight and a half to 11.2 points on their P&O, that's a huge amount of money. That's the same amount as like occupancy. So they were in this place where they needed that revenue. They were addicted to that revenue, but the revenue was really low quality and if they were to get out of it they would lose the revenue. Not good, but if they keep doing it, it's costing them money. What is a brand to do when you're stuck in that position? And I think the answer that came out here is declare bankruptcy, reorganize your liabilities and figure out a new way forward. I hope that they do Again. Both of them fantastic brands.

Speaker 2: 20:17

The other thing I take from this that we hear from restaurants a lot girl is that getting consumers to switch from third party to first party is just really hard.

Speaker 2: 20:24

Even if the third parties are not doing all this discounting, it is really hard to get a consumer to switch because it's their preferred method. They're getting subsidized by their employer. Maybe they have free dash pass or Uber one or Grubhub plus. It's very difficult to compete with that, even if you have a really great system and a bunch of good promos and things like that. It's probably better to spend your time and effort and, frankly, advertising dollars cultivating your super loyal people and drive frequency among them and find more via lookalike marketing of those people, starting with first party and growing it, as opposed to starting with third party and then attempting to get them over first, because it seems like that becomes a bit of a hamster wheel. I was concerned when I saw this and honestly I think it's a bit of a canary in the coal mine. The restaurant industry should pay attention to what happens when you build your business on the foundation of someone else.

Speaker 1: 21:16

It's so true. And the point about discounted as well and creating that mindset of expectation I think that existed before marketplaces existed, in the sense that you have to be really balanced with your marketing strategy appropriately, and it's so competitive out there you can also understand why restaurants do it.

Speaker 2: 21:31

Final question for you Reservation bots, what Stealing your spot at restaurants Tell? Us about that.

Speaker 1: 21:39

Perfect question to finish up for the day. Reservation bots are these automated programs that are rapidly booking tables at sought-after restaurants, Often within seconds are the reservations becoming available? They're operated by services like Appointment Trader and CETA Marketplace. They capitalize on high demand for dining spots at popular venues and they're acquiring these reservations and reselling them at a premium, sometimes charging hundreds or even thousands of dollars. And, of course, this practice isn't just frustrating those diners that are trying to find a spot to go and eat out in. It's also impacting the restaurants as well, leading to potential no-shows and lost revenue.

Speaker 1: 22:19

In fact, I never thought I'd come up with this as a line, Meredith, but the New York state legislator has actually passed an act called the Restaurant Reservation Anti-Piracy Act. So there we go. Piracy is existing in the restaurant industry. Can you believe it? No surprise, it's the first of its kind in the US and it's prohibiting third-party services from selling reservations without a formal agreement with the restaurant. Now there's some inklings of what we had in the past here. Do you remember when we talked about the likes of Grubhub putting restaurants on their platform a few years back without the restaurants being aware of it? This has a similar kind of feel to it. Those that violate this new act are going to face up to $1,000 per incident, so quite a hefty charge. It's trying to curb the unauthorized sale of reservations and protect both the consumers and the restaurants.

Speaker 1: 23:07

What's happening now is that restaurants are having to almost have a very clear idea as to how to identify when a bot has made a reservation. That can come through somewhat strange email addresses with lots of numbers and letters on it, but not necessarily a name or a phone number that is coming from a spam account, or customers that perhaps don't respond to that confirmation message that you get when you leave a reservation on a telephone-based system or on a web-based system. The challenge that restaurants are running into here is that the experience of the guest is being made a little bit more lengthy as a result, or it's being made a little less convenient. One of the restaurants in the articles was a company called Raoul's in New York City, and they'd start charging a $50 fee per guest for no-shows, basically as a means to be able to avoid these bots from being able to make that reservation. But of course those $50 fees could deter a guest from even wanting to make the reservation in the first place.

Speaker 1: 24:08

So clearly there's a lot of things happening in this space with regards to this one, but it's also the reservation platforms like Resi and OpenSable that are having to take steps to counteract them. I think it's also the reservation platforms like Resi and OpenTable that are having to take steps to counteract them. I think it's those guys that really need to own this. How can they set up the necessary systems to deactivate those roguer accounts to block that bot traffic appropriately? I think that's what they're certainly trying to do.

Speaker 1: 24:30

The other thing is that the problem partly lies with restaurants and the reservation platforms, because if they hold back certain reservation slots for premium credit card holders or for members of exclusive clubs, they're exacerbating that issue by limiting availability to the general public. Typically, what happens is it's almost like a hotel you have a room block in a hotel, but here you have a reservation block, and so if restaurants are holding back more from the open tables, the resis or for the Amex cardholders, for example, then clearly they're limiting their availability for customers that might just phone them directly. And of course, the customers that phone them directly are the ones that actually don't come with a fee, and so therefore, they're almost inhibiting customers from that standpoint.

Speaker 2: 25:14

Yeah, a lot of stuff happening in this.

Speaker 1: 25:15

It's really interesting to keep an eye on it to see whether it's going to be an act that we see deployed in other states, but certainly New York has taken action. Hopefully reduces from being something that becomes a major issue in the months ahead.

Speaker 2: 25:29

In a way it's related to the last article that these restaurants are, in some form or fashion, super reliant on these other businesses where they have to pay a fee and they're getting into this vicious cycle where they need that revenue, so they pay the fee, but it messes up their other reservations where they don't have to pay a fee.

Speaker 1: 25:49

That's right. Maybe it comes back to all these different parties being involved in running a restaurant these days. The more parties, the more complexity in it makes it difficult A lot of people with their hand out.

Speaker 1: 25:59

Absolutely Well. What do you think? Are you guys going to be listening to us and thinking you know what we should do? $50 reservation fees as well? What thoughts do you have with regards to voice AI and drive-through? Is it something that your QSO organization is doing or thinking about? And what about Pride Strike? Is that something where your company has a BCP in place? Are you planning for the next one, because it probably won't be the last? Either way, we'd love to hear from you. Put your questions below. Let us know any thoughts that you've got on what you'd like Meredith and I to cover on a future edition. But until next time, thanks for listening. The Digital Restaurant Podcast is available for you to follow and subscribe. Wherever you listen to your podcasts, watch us, rate us and subscribe to the Digital Restaurant on YouTube and follow along on all our social media digital restaurant channels. Thanks for listening.