Outside Insights | September 2017 | By Guest Author

Mobile Ordering Races to a $38 Billion Future

Many leading quick-service restaurants are already seeing benefits in productivity and profitability from digital ordering.
Younger diners are all-in on mobile ordering. Is your business ready? flickr: Greg Clarke
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Orders placed via smartphone and mobile apps will become a $38 billion industry and make up nearly 11 percent of all quick-service restaurant sales by 2020, according to Business Insider Intelligence reports. Today, smartphone users are more comfortable with app-based purchases and digital payments of all kinds. More than 38 million Americans used some type of mobile payment in 2016, an eMarketer study found.

With more consumers seeking choices in how and where they order and purchase food, it is no wonder that 48 percent plan to add mobile technology in the future, according to a TD Bank survey at the 2017 NRA conference. Many leading quick-serves in the U.S. are already seeing benefits in productivity and profitability from digital ordering. Some pizza chains, for example, reported an 18 percent increase in customer spend from online/mobile orders vs. phone orders, according to the BI report.

While the digital-ordering trend is poised for significant growth, the journey hasn’t been seamless for many restaurants. Many were hesitant initially to adopt new technologies. Developing and installing the digital infrastructure, as well as training employees to incorporate digital ordering into their workflow, is complex and time-consuming. In recent years, some high-profile quick-service restaurants experienced well-publicized difficulties with mobile app development and delays in rolling out the process.

Despite these challenges, it has become clear that mobile apps and ordering and quick-serves are a winning combination. The near-term financial and efficiency benefits of adopting a digital ordering system far outweigh the set-up costs and associated technological challenges. 

For one, digital ordering applications present an opportunity for restaurants to insert themselves in a place where younger consumers spend hours each day: their smartphones. A recent Nielsen study found that millennials are the largest group of smartphone users—and they also are the generation that dines out most frequently, reports a Bankrate study on millennial dining habits. Millennials eat out five times per week on average, the study found. Based on these buying habits, restaurants that adopt mobile ordering and/or reward apps can anticipate continued appetite for their brand among tech-savvy millennials.

Increased Efficiency From the Kitchen to the Back Office

In addition to being a proven driver of sales, mobile ordering apps can streamline the processes in the kitchen and increase overall restaurant efficiency. As anyone in the quick-service business knows, time is money when it comes to fulfilling customer orders.

For example, avoiding drive-offs is paramount when lines at both the register and the drive-thru window back up at the same time, operators do not want the tremendous effort in time and money it took to get that customer to their location lost. Mobile or in-store kiosk orders can help solve this problem by eliminating the time it takes for consumers to place and receive food orders and creates efficiencies because fewer staff are needed to take payments and fill orders. Electronic orders drastically reduce the potential for lines and long wait times, and as a result, restaurants can serve more customers per hour and be more profitable.

Another perk of incorporating payment via digital tools like a kiosk or mobile app is minimizing a restaurant’s cumbersome and inefficient cash transactions. Even beyond daily concerns like counterfeit bills and incorrect register balances, trips to make bank deposits or armored car collections are disruptive and add expense. Migrating the customer base in a digital direction drastically reduces cash transactions and the need for more frequent cash collection.

Multi-app Integration and Digital Promotions Can Further Boost Sales

But digital payments do not simply exist to improve current systems; they open up a world of possibilities for restaurants to cooperate and integrate with other apps. Why not place an order via Alexa? Or develop a consumer rewards program that is available only for mobile app users? A digital system opens up virtually unlimited opportunities for innovative promotions and continuous improvement for restaurants. What's more, providing delivery options to clients helps meet the preferences of this fast-growing segment of quick-service customers who rely heavily on digital ordering.

Digital payments can also address challenges that may arise in the future. The possibility of a hike in the minimum wage will continue to be a consideration for quick-serves. With a potential wage increase on the horizon, the smartest thing restaurant owners can do is to make current employees as cost-efficient as possible. Incorporating digital order management into a restaurant’s workflow is a significant move in that direction.

As quick-service operators compete in a challenging market, they need every advantage they can find. Customers now expect fast, seamless and accurate ordering from their smartphones and tablets. Smartphone and digital integration has revolutionized virtually every industry and food service is no different. A rapid, but thoughtfully executed migration to a digital-payment system, is now essential for any quick-service operator to stay competitive.

Mark A. Wasilefsky is the head of the restaurant franchise financing group for TD Bank. Wasilesfky joined TD Bank in 2010 and has 20 years of commercial and investment banking experience as well as six years in corporate finance. In his role, Wasilefsky is responsible for overseeing TD Bank’s specialty restaurant lending team, focused on providing financing to franchisors, including McDonald's, Dunkin' Donuts, and Wendy's, throughout the bank’s Maine to Florida footprint.