The Digital Restaurant
5 Headlines, 5 Opinions on the latest news on restaurants, tech, & off-premise growth
The Digital Restaurant
What will Brian Niccol take from Chipotle to Starbucks?
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What will Brian Nicol bring from Chipotle to Starbucks? What does Burger King's Walmart Plus partnership mean for first-party data? And how will DoorDash's happy hour deals impact restaurant profitability? 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? I'm so good. Carl. How are you doing today?
Speaker 2:I'm so good, carl, how are you?
Speaker 1:I am well, thank you. I'm over at the Prosper Conference this week. Have you been to that before?
Speaker 2:I have not, but I remember you went last year also and it was wonderful.
Speaker 1:Well, it wasn't until the hurricane last year?
Speaker 2:Well, yeah, I think it doesn't happen this time around.
Speaker 1:Yeah, I forgot about the hurricane. I had to look around for a bunker.
Speaker 2:It doesn't happen this time around.
Speaker 1:I forgot about the hurricane, I had to look around for a bunker. Yeah, good luck with that. I believe I've got three questions this week, which means you're going to be kicking us off with the first one.
Speaker 2:So Burger King and Walmart have teamed up. What are they doing? Is this another one of these restaurants that wants to roll out in Walmart stores?
Speaker 1:Well, it's a little different, but before we get to the Burger King piece, I think we need to recognize that most of these big partnerships, they often seem to come out about the marketplaces, right. In fact, the most recent one that Scott talked about recently perhaps the most impressive, I think came from DoorDash, which announced that the members of the DashPass subscription are going to get access to HBO's Max, their streaming service, which is, I think, about $240 a year, and, of course, the DashPass subscription currently costs about $96. That goes to show how big DashPass has become. Now an entire streaming platform is part of the DashPass program and just not the other way around. And, of course, this follows on from what Grubhub started earlier this summer with regard to their partnership with Amazon Prime.
Speaker 1:So I share those two with you, meredith, because what I love about this news is how there isn't a marketplace involved of sorts, in the sense that Burger King have developed this partnership with Walmart Plus. They're going to offer exclusive food discounts to members of Walmart Plus and it's going to allow them to have deals like a free Whopper or potentially a 25% daily discount on any Burger King digital orders, and it all comes through the Walmart app. So of course they've got this vast membership base at Walmart, and Burger King has seen that as a great opportunity to drive traffic, increase sales. We all know about the economic uncertainty where value is the name of the game this year, and these Walmart Plus members redeem offers through the app. So it's a win for them because it keeps that app front and center for the Walmart customers, obviously adding value to the Walmart customer, but if anything else, it also shows that the strategy is highlighting the importance of digital platforms, enhancing customer loyalty and engagement, and, of course, both are trying to capitalize on that synergy between retail and fast food.
Speaker 1:The only thing I've got a question on, though, is what does it mean for the Burger King app directly? Does this drive every Walmart customer away from using the Burger King app themselves? What does it mean for shared customer data? How can the data from utilizing the Walmart Plus app be tied back to Burger King for remarketing purposes? A lot of times we think about the app as just being an interface to get the better margins from first party, but you and I are always talking about the value that comes from the data. If that data just sits with Walmart, then Walmart can potentially just use this as a way of extending other offers to other food offerings that perhaps drive that value even better. So I don't think you're going to see McDonald's and Walmart Plus anytime soon, but maybe this is the first of other types of restaurant offerings that customers using the Walmart Plus app are going to have access to.
Speaker 2:So has nothing to do with the stores, first of all, is what I just learned from you and, second of all, for those people who don't know, walmart Plus is sort of like Amazon Prime, right.
Speaker 2:So it is similar to if a restaurant brand were to say for any Prime member, you get a discount, right. You're leveraging someone else's loyalty platform and leveraging those eyeballs that are somewhere else, and so instead of putting, say, an LTO on TV, you're giving a discount to. Hopefully, what is a whole new group of people might be some people that are already coming in that you're just giving discounts to, and I think we are in a time where consumers are starting to let us know that prices have gotten too high and they can't keep coming into restaurants at the same frequency that they have been, and there's probably only so many members of the Burger King app, so giving them discounts when they're already loyal probably doesn't help. And if you want to get to new people, your choices are basically like go on super expensive TV and give discounts to everyone, which is a lot, or maybe find one of these places where there's a lot of people and there's maybe some good overlap with your target customer, but it's not actually your existing loyalty member.
Speaker 1:I agree. The only thing is is that this is a daily discount, right? So if you're a loyal Burger King customer right now and I could get 25% off every single day, well, I'm going to go to the Walmart Plus app. I mean, it makes sense. It's not like it's a 5% discount. This is quite significant.
Speaker 2:Totally, and you know what Lisa Miller would say. She would say discounts specifically create disloyal customers and that the more brands do this, the more they create consumers who are just looking for a deal and will trade to whatever restaurant or platform gives them the best deal.
Speaker 1:Okay, second question. This week A great article we saw about batching and the fact that it sucks the time out of a delivery. Well, shucks, Meredith. What a surprise. I'm sure you have some views.
Speaker 2:You know I am not totally against batching. There was a really good quote from the Uber spokesperson who said Uber Eats sometimes batches orders. Quote to help keep delivery prices down and improve reliability for customers, enable couriers to earn more and prevent restaurants from becoming too congested. Batching can also help reduce the number of vehicles on the road. Okay, those all sound like pretty good things. Right, the driver earns more. I think what they mean on the reliability piece is probably for low tip orders that are less likely to be picked up by drivers. Being able to put them together with another higher tip order increases the likelihood that they get delivered in a timely manner. I mean, those all sound like reasonably decent ideas, right? I like the environment, having less cars on the road. That seems good. So I'm not totally against batching.
Speaker 2:The problem is, I think, the way in which the third parties tend to do batching, which is that they batch together orders that aren't necessarily ready at the same time, aren't necessarily coming from the same restaurant and, at least I've experienced I don't know if you have they aren't even going to my neighborhood. This is a weird thing about where I live Same zip code which probably, like the algorithm, was like oh, it's the same zip code. It's fine, but it was on the other side of a body of water so they literally had to drive like all the way around. It's like 15 minutes away and then drive all the way back Didn't make any sense. So I don't think the algorithms are super smart and I don't know that they're always taking into account what is best for the guest experience overall. It's not so much that batching is evil, it's that the way it's being done not so good. What this article is about is a new report that's coming out from InTouch Insights, called the Path to Third Party Excellence. I feel like that's an homage to our book.
Speaker 1:Path to Digital Maturity, don't you think?
Speaker 2:I think our friends in such need to reach out for a quote. What do you think? Probably so. This article by Joe Gaskowski was a preview to this report. They use secret shoppers to place 600 delivery orders and that's what this report is letting us know about. They said in every instance when batching was used it was a worse experience and in fact, on average, batched orders came 13 minutes longer than unbatched orders. That's quite a long period of time. And they were measuring temperature. In the case where an order was batched, it was under temp 23% of the time versus only 5% for normal delivery, which, honestly, both those numbers sound low to me. I would have guessed that they were higher, but a pretty significant difference. It's four, almost five times more likely to be under temp when it is batched and satisfaction overall was 79% for batched orders versus 89% for those that were unbatched. And they also found that, at least in their sample set of 600 orders, Uber Eats batched 19% of the time, DoorDash 12% of the time and Grubhub 5% of the time.
Speaker 1:That's less than I thought.
Speaker 2:It is less than I thought, but they don't say what part of the country they were in what time of day, like there's no other information, at least in the summary article, to figure out what that means.
Speaker 2:The other thing they noted is that consumers who want to opt out of this whole batching thing because it's a terrible situation, they can pay a priority delivery fee of $149 on Uber to make sure they don't get batched and $299 for DoorDash Express to make sure that they don't get batched on DoorDash. Now, as we've discussed before in the video Mr who's the Boss released on YouTube about how the internet is broken, which is one of my favorites, this is a classic move to try to drive to profitability. You take what is the expected experience no batching and you make that now a premium experience that you charge for by creating a worse experience batching beneath it. So it is definitely a move to try to get to profitability, to put all of these orders together and to try to make the economics somehow work Not a great consumer experience, at least in the way that they're doing it, and I am interested to see how many consumers are willing to pay that fee.
Speaker 1:It reminds me of airlines right. Once upon a time, we didn't have business class and first class and economy plus, and now, of course, you have these chances, and I was speaking to someone at Tesla the other day and they said supercharging Meredith is likely to become something which is true over time. So this business model we've seen before and it's no surprise to sit here too.
Speaker 2:Yeah, get consumers used to it, then start charging for it. I think that's true.
Speaker 1: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:Okay, DoorDash is offering bundles and happy hours. Talk about that.
Speaker 1:They're tackling the slumping restaurant traffic with two new discount initiatives lunch specials and happy hour. Their programs are designed to boost what they call off-peak demand, which is interesting given the fact the first item there was lunch specials and offering customers deep discounts. But to participate, restaurants must offer at least a percent discount on five or more menu items. Doordash argues that the strategy driven by restaurant feedback themselves is going to help attract more customers during these traditionally slow periods. Now you could argue that lunch for DoorDash perhaps is not as high a traffic as dinner. Right, so that I can understand from that perspective. But the other part of this is about how busy the overall restaurant is across all of its channels. So bear that in mind when we come back to talk about the economics in a moment or two. Now the afternoon period, the happy hour, which I believe is going to be between 2 and 5 pm, that I can understand. It's something which I talked about in my juicer days when we were thinking about dynamic pricing and in a way there's a bit of that in this whole discussion here. In fact, doordash has been testing this across a thousand different restaurants and they've seen during that happy hour period where five or more items have been reduced by 25, seeing a 33% increase in sales and during lunch specialss, about a 23% improvement Some decent level of volume. And I'm guessing that they have put that on some form of carousel to be able to get some additional attention. The question is, is it the carousel or is it the discount that's driving it? You know that's the other thing. How much does that truly impact the overall marketing efficacy? Does it need to have additional marketing spend for this to play into it, or is the discount itself enough to be able to garner enough attention?
Speaker 1:Certainly the restaurateur, clinton Gray III, that was quoted in the article of the Slim and Huskies brand. He said that they've noticed increased revenue during off-peak hours and it's helped balance labor costs and keeps his team engaged and busy. But he didn't mention whether the restaurant remains profitable under that discounted pricing structure. So profitability, I think, remains a main concern.
Speaker 1:Doordash suggests that higher order of volumes during these periods can offset the discounts because it allows restaurants to cover their fixed costs like labor and real estate. And why are they saying that? Well, they understand that restaurants have jacked their prices up already to make their desired margins and they are likely diminishing those margins further through marketing costs. However, if you assume the marketing cost is the 25% discount and just by being on this promotion your visibility is going to be higher, then perhaps you are getting eyeballs on your brand and the wash factor. The margin across the wider fixed costs may make sense. But you were also quoted in this article, meredith and per your own cautionary tale. You said customer perception matters and we have to be wary of something called low quality revenue.
Speaker 2:What do you mean by low quality revenue? So now you're bringing in a bunch of consumers who are paying a lower price and probably lower margin, therefore for your product and might be getting used to it. So now two problems ensue. One of these might be, as we just mentioned in our previous conversation, disloyal customers who are just shopping for deals. Which. Why do you want these people? If that's what they're doing, they're never going to come back to you. You're paying a bunch of money to get them. Doesn't make a lot of sense. But even worse, you might be training them to expect that price point.
Speaker 2:And if you remember what we talked about with Takaya, it's extremely problematic if consumers come to expect your price to be on discount and if they start to say I'm not going to buy it unless it is on discount. That makes it really really tough to charge the price that you need at other times of the day or whenever you're not running a discount on DoorDash. So that is concerning to me. And even more than that, I am concerned that what these restaurants are doing is taking a hit on their own P&L to help DoorDash drive orders during slow times. So I can see why DoorDash wants more orders during slow times to keep their drivers engaged and to get revenue at off-peak times that they're not normally getting it. That all makes sense to me, but somehow they're getting the restaurants to fund it. That doesn't seem good.
Speaker 1:It seems odd for sure, especially as it's accessible to every customer, right? It's not like it's a special kind of focused area to customers that perhaps are more driven by value-orientated offers. It's interesting. You raised the piece about the driver piece. They actually quoted a driver advocate named Sergio who pointed out that the heavily discounted orders often therefore come at a lower base price and therefore impact his tips.
Speaker 1:Therefore, from discouraging drivers from accepting those orders, I don't really buy that one as much. Quite honestly, I think keeping drivers busy with something to do is better than nothing to do. And of course, drivers have the choice of when they want to work, so a lot of them probably aren't available during that time period. So I think that is less of a concern for me on the driver side. But ultimately, I think the effectiveness of these programs is going to depend on how well restaurants can leverage the increased visibility on DoorDash, where they are perhaps featured in these special carousels, and on the offers tab, and whether the eventual fees of the services are going to make it worthwhile. I think if you are a restaurant considering taking up this option, I would only do it if you really are going to apply appropriate metrics and measurements to really track it to make sure that it makes sense in the long term for you.
Speaker 2:I know when you were quoting those numbers about the sales uplift versus the 25% discount. Someone smarter than me needs to figure out. Does that work out? I don't know. It seems like you'd want to see a pretty big uplift to give that big of a discount.
Speaker 1:I thought about doing the math. I was playing around with it before we went on air. But I thought about doing the math. I was playing around with it before we went on air. But numbers and just speaking would need to bring slides up and you'd have to get a whiteboard.
Speaker 2:Who could be bothered?
Speaker 1:Yeah, that's definitely one for you. Maybe we'll do that one next time, but before then let's move on to question four. Question four If one article has got people's attention over the last couple of weeks, it has been the news of a certain CEO leaving a certain Chipotle to an organization up in the Pacific Northwest by the name of Starbucks. Tell us, what do you think Brian is going to be able to bring to Starbucks that he learned over his time?
Speaker 2:These are two beloved brands Chipotle and Starbucks but even more so the name, brian Nickel, might be something that is causing everyone to be interested in this topic, and probably also the giant paycheck that he got and the private jet. Yeah, I think there's quite a few things that cause people to be interested in this topic, but as it relates to the digital restaurant podcast, um, what we are certainly interested in is will we do anything new digitally over at Starbucks? As you know, I think the whole team over at Chipotle has done just a fabulous job. I talk about them all the time and how much I love the Chipotle and all kinds of things that they have done over there. But if I had to boil down what I think Brian will do one, stuff with the brand, two, stuff with the experience and three, a little bit of tech. And I say that because at least here in the US, and I suspect in China as well, most of Starbucks problems to me boil down to a price that is too high relative to the experience in the store. The store has become very unpleasant to be in. It is certainly not premium, but it's also not very convenient either, and that's probably where we get into a little bit of tech there. At the end, that means that there's going to have to be a lot of branding work that's done, as well as improvements in the experience to make that price worth around the tech. Specifically, you know, I think the Chipotle app is actually based on the Starbucks app, so I don't think that you're going to see big changes to the app to make it better, but I do think the messaging associated with being in the loyalty program on the app is going to probably change a little bit.
Speaker 2:You and I went through and looked at all the emails that we've been getting from Chipotle and Starbucks over the last few months and we noticed that the messaging at Slate was much more brand oriented. It was about the team members, the food things that maybe you like, about the brand a supply chain, even less so about the points, whereas when we looked at the Starbucks emails we counted in just April I got 12 emails from Starbucks about ways that I could earn bonus points, which are effectively a discount for Starbucks. So they're trying to say to me yeah, we know, our price has gotten high, get some more points, get some more points. And that was literally the only tool they were using. I did get a birthday email from both Chipotle and Starbucks, which is very nice. Thank you very much. But only Chipotle did what you've talked about previously, the Chipotleversary, which is very personalized right and it was fun to read. It turns out I'm in the top 25% of all Chipotle loyalty.
Speaker 2:I was actually surprised it was that low, I thought I was going to be in the top 10% for sure. Maybe next year, maybe next year. I'm on team guac. I like things medium spicy, like. I have never seen anything come from Starbucks like that. It's literally just every other day. Get some points, get some points, get some points. Do this thing get some points, get bonus points, get triple points, get double points constantly.
Speaker 2:So I would guess that you'll see a bit more personalization, but even more so you'll see more brand messaging coming from Starbucks, both within the app and then in the notifications and emails. And then, finally, where do I see tech being inserted? Probably around operations and process. These stores are not pleasant to be in, and they're not pleasant to be in because in many ways, they've become e-commerce fulfillment centers, and the two streams really need to be separated, both in the drive-through, where, if I mobile order ahead, I'm behind someone who hasn't ordered yet and the line is terribly long. There's an opportunity to sort that out, to pull in, and in the store, where, if I try to go in there and sit and meet a friend, like which we all would I mean, look at us, we're wearing our Starbucks of the nineties colors mustard and ketchup. We this imagine it were the 1990s. Right now, girl, we would be like let's go meet at Starbucks and have a coffee Right.
Speaker 1:It was a good decade, to be fair.
Speaker 2:When was the last time you just went to Starbucks to meet someone to have a coffee?
Speaker 2:It's been a while to meet someone to have a coffee. It's been a while, yeah Right, nobody does it anymore because it's not a pleasant place to be, and if you were to do it, what you would find is that, in addition to being cold and loud, there are all these people just coming in grabbing coffee. Coming in I'm sorry they're not grabbing a coffee. They're grabbing all the different coffees that aren't theirs and then finding theirs and then walking out. It's not a good experience either for the e-commerce fulfillment people who are trying to get a quick, convenient coffee or the people who want to sit there. Those things really need to be separated out and you need some technology to do that. So if I were to see tech investments happening anywhere at Starbucks as a result of Brian making the move, it's going to be around that back of house fulfillment area where he and Scott Boatwright were pretty focused. At Chipotle too.
Speaker 1:So Starbucks streets, starbucks lane I mean, you know, chipotle lane, you're saying, is perhaps something, but you think that might be something that will change the entire design.
Speaker 2:That was the worst name I've ever heard. We're going to let Brian, who specializes in marketing, work on that one and keep you out of it.
Speaker 1:I wasn't suggesting that they should take it from me, Although if they do end up calling it Starbucks Street everyone, you heard it here first.
Speaker 2:That's right. That's right, and Kaba, they had a good queue too.
Speaker 1:It seems like they have all the makings of a great digital restaurant. Tell us why you think so. Well, it's funny we just talked about Chipotle and Starbucks in the sense of remember how we always say you need to have three elements to really have a good digital restaurant in place, in the sense of being able to have digital ordering, you need to have loyalty and you have to have payment. Well, in that sense, carver is moving in that direction quite firmly with its ability to become more digital. But it's far bigger than just those three elements. Let me just touch on some of the results. First of all, they were up 0.4% in Q2. Traffic was up nearly 10% year over year, and they've done all of that without raising menu prices, right, despite. They've got a bunch of locations in California and the minimum wage increased to $20, which took effect in April. They've maintained price parity, which I think is super important Restaurant margins and that, of course, is no doubt driven by some sales leverage as well. And they are projecting to open up another 57 stores this year. So very encouraging statistics. But what is it about Carver that is getting everyone so excited? Well, first of all, it's in the fast, casual space, right? So therefore, it's very much part of a movement that is seeing a lot of positive momentum. I think the food is very trendy. If you were to categorize Carver as Mediterranean, I don't think there's a hotter cuisine type right now than Mediterranean, quite honestly, and so I think part of that is because all of us these days watch these shows as attributed to health, and when you think of Mediterranean, you think of all the folks living over in Italy and Greece and how healthy they are, living long lives. Well, mediterranean food. You have that kind of a close affiliation to with Carver. They also are pretty big on sustainability, right. So you've got health, you've got sustainability, you've got trendy food, you've got a great digital app. You're in fast, casual, allowing that customization on your own terms, and then the food actually tastes pretty good.
Speaker 1:I go to carver probably more than any other chain, so I think for me, carver is your chipotle. It's that type of relationship and I like the, the simplicity of the menu, but also when I engage with the brand digitally. Amazing photography the colors just pop out the screen, especially on their app. I've had some challenges in the past which I've talked about operationally, but they're even designing their stores now. I don't think this exists across every location, but they're now increasingly having more digital make lines, just like what you were talking about with Chipotle, of course. So that is enabling the in-store experience to not be impacted by the off-premise orders that are coming in.
Speaker 1:So a lot of positive things that I think when you think about each of the chapters of our book where we talk about what are the hallmarks of great digital restaurants. They are on the third parties. They're doing those well. They're not completely beholden to them, but they've got something like 38, 39% digital orders now across their business, so that's a good, healthy proportion of digital orders. I suspect they want it to get higher, but they need that great first-party app experience to be able to do that. Now, as I understand it, they're probably going to roll out a new loyalty program towards the end of this year. The current one is okay, but it's a little bit like what we were just describing with Starbucks, in the sense that it's a bit more of a save up points and get discounts after a period of time. So it's okay, but it's not creating that kind of customized, personalized experience. And then the other thing, of course, is that they are willing to do their own delivery as well.
Speaker 1:One of the other things that I think a lot of the bigger chains sometimes miss out on is that they become quite corporatey.
Speaker 1:Let me bring up, for example, the Instagram here for Carver. When you look at this, meredith and I know we're not going to go into every single post it kind of looks a little more independent. You've got the great food pictures, but then you've got these texts, these different kind of images. You can see that some customers perhaps being represented, some quirky faces of folks I kind of like the character coming through on their social media profiles, and this exists across the likes of TikTok as well Facebook. So they have a clear marketing strategy to have their voice, which is resonating, I think, with the Gen Z populace as well. So, yeah, I am bullish Carver. If you haven't tried them out, you should check them out, because they're doing well, and I think the more they get into that loyalty space, the more they get into that customized ordering and marketing. I think we're going to see a better digital experience in years to come. What's your take on them?
Speaker 2:I think they're great. We often talk about them on our list of digital leaders.
Speaker 1:Great stuff. Well, look, we've covered a lot this week talked about discounts, bundles, batching my goodness, lots to cover, but what are your views? We'd love to hear from you. Do you think batching is impairing the delivery experience? And, if you're a Walmart Plus customer, are you going to be going to Burger King more often now as a result of those discounts? 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.
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