Chains that embrace technology fare best in restaurant wars

Michael Halen and Jennifer BartashusBloomberg Intelligence analysts

Domino’s, Starbucks and Taco Bell are embracing technology to gain market share over rival restaurant chains that have been slower to adapt and independents that can’t afford to.

Quality mobile apps have fueled sales performance in the last several years, and new technologies including WiFi, beacon and mobile-marketing automation are creating new ways to engage customers.

The restaurant chains that figure out how to utilize these technologies first and most effectively stand to win the battle for consumer dollars.

Big data can help restaurants know their customers, boost sales

Accurately categorizing customers lets restaurants tailor marketing, menus, engagement technology, service and food to multiple customer types, maximizing sales and margins. Cutting edge technology allows chains to combine demographic and psychographic data with in-store behavior to create dynamic customer profiles.

This enables the chains to tailor discounts and offers to each consumer, while gaining accurate marketing attribution and ROIC measurement. Data-driven insights help ID and target these customer groups.

Targeted promotions can reduce reliance on discounts to frequent diners and market to their preferences instead. The programs can also help add visits during non-peak hours. Bloomin’, Brinker and Chipotle are using discounts to drive traffic, and sales and margins could benefit from targeted offers.

Bloomin’, Brinker & Chipotle Same-Store Sales

Restaurants save big bucks with data-driven changes to media mix

Thin profit margins keep restaurant advertising fairly lean, with most spending under 5% of sales. Accurate customer segmentation driven by data analysis can help chains target messages to generate higher sales lifts while holding or even lowering budgets.

A shift in advertising mix is also underway. Marketing via social media and YouTube can be effective and cost-efficient. Interactive games have become increasingly popular. Technology can help measure return on investment of specific campaigns.

Casual-dining chains such as Olive Garden and Ruby Tuesday still heavily favor traditional media ads, while Taco Bell, Jamba Juice, Chipotle and Denny’s have been faster to increase their mix of digital advertising via social media apps and YouTube.

Advertising Costs as a % of Revenue

Digital marketing funds may be next for restaurant franchisees

The cost of implementing and continually evolving customer-facing technology at restaurants has muted its use. Domino’s, Papa John’s and Pizza Hut have online order usage rates of over 50%. To drive usage, Pizza Hut franchisees contribute 10 cents an online order to a digital marketing fund, and Domino’s franchisees 21 cents.

This may be a strategy for other restaurants, such as Dunkin’ Donuts and Taco Bell, which have robust online order apps, and others looking to develop more capabilities.

Pizza Chain Franchisees Pay Digital Order Fee

High-quality mobile ordering apps fuel restaurant share gains

Several restaurant chains with high-quality mobile apps, including Domino’s, Starbucks and Taco Bell, gained market share in 2014 and 2015. The chains attracted customers, particularly millennials, with mobile ordering, mobile payment and/or loyalty programs that enhance the customer experience, boosting customer satisfaction scores.

Digital ordering has other benefits, including faster throughput inside the stores and higher average tickets for delivery orders as customers have easy access to the entire menu.

Domino’s, Starbucks & Taco Bell Same-Store Sales

Coffee, pizza chains may have easier time with mobile adoption

Most consumers are likely to keep just a few restaurant apps on their phones giving chains with a higher frequency of customer visits, including coffee and pizza, a greater likelihood of mobile app adoption than other restaurant types.

Heavy users of Starbucks and Dunkin’ visit the stores more than once a day and Domino’s customers eat pizza 22 times a year, with the chain capturing about half of that. Restaurants that generate fewer visits must get creative to entice customers to download and use their apps.

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