Do Restaurant Jobs Come Back, Or Will Merchants Use COVID As Opportunity to Better Leverage Technology?

There’s no hiding the truth: 2020 has been an epically bad year for the hospitality industry. Annus Horribilis without a doubt. While from August of 2020, the below graphic illustrates just how far behind the recovery the restaurant industry finds itself by absolute numbers:

We know it’s almost a year behind us now, but people might have forgotten the record economy (the real economy, not the one propped up by unfettered government spending / money-printing that’s pushed companies to trade at record multiples despite declining earnings) in Q1 of 2020. In those days labor was a hot-button issue and retailers across the board were losing employees to the gig economy (and other employers) competing in a shallow pool of hourly workers. 

Now that hourly employers have seriously thinned their ranks one should be asking the logical business question of what comes next. Do these employers rush back in and hire from the same fickle labor market or have they learned any lessons over the past nine months? Namely, as COVID has been a huge accelerant for brick and mortar technology adoption, have merchants given any thought to the notion that technology might materially alleviate the labor concerns many operators faced in early 2020?

That’s a far stretch for people who literally can’t read a contract to save their (business’) lives. But we enjoy stepping out of reality every now and again to discuss the rationalist’s perspective on matters. In this instance, let’s discuss the potential application of technology to cure some of those labor woes, which will be back upon us eventually (fingers crossed that it’s late 2021).

To us there is no bigger opportunity than what’s happening in the front of house (FOH). For the uninitiated, the FOH are all operations that persist beyond the kitchen (or in the case of retail, beyond the warehouse). Sure, sleek-looking back of house (BOH) robots are grabbing attention for the technoporn it is, but we would contend that FOH automation is much closer to reality. And FOH represents roughly half of all retail jobs, so it’s not exactly a de minimis part of a merchant’s operations, either. 

For starters, customers are walking around with the front of house (FOH) employee right in their pocket. Smartphone penetration is estimated to be 80% in the US and COVID has grandma comfortable with online ordering. From a CommerceHub survey in 2020,

Breaking interest in delivery down by age, the survey found that 49% of respondents over 50 who did not shop online said they are likely to subscribe to a delivery service post-pandemic.

There’s just no reason to avoid existing infrastructure as part of the customer convenience experience. There are about 1,000 ways to skin that cat, whether it’s a native app (a bad idea for anyone smaller than SBUX), a progressive web app, a QR code-to-menu interface, or all the iterations in between. 

What’s important to note is that a customer making an order on their own device lowers the number of labor hours needed to fulfill the customer’s desire. Instead of a FOH employee a customer can order from a piece of software that is always polite, always upsells, and can present visuals in a way an employee can’t. From our own data we see that the average ticket from a mobile device (particularly kiosk) is about 20% larger than an order keyed by an employee.  

Leveraging a consumer’s mobile device is a great opportunity in a lot of cases, but it doesn’t cover all of them. For the next FOH technology of interest we turn to kiosks, which up until COVID looked like a panacea for countless operations in the QSR and fast casual segments.

Kiosks, like ordering from a customer’s own device, bring a number of advantages. First there’s the potential reduction in labor. Sure, some brands will keep the labor for additional service, but ask any large brand and they’ll tell you that they’re absolutely considering the labor savings as part of their decision making on whether to install a kiosk. 

Second, there’s the increase in average check. Bite, a company that provides kiosks among a number of other digital experience services, provided us with a calculator from their own data to help size the ROI opportunities for operators. Bite examines the number of employee-hours saved, the increase in check size (averaged at about 20%), and the number of transactions expected to occur through a kiosk. For a business that does $1M in revenue, Bite finds both an increase of about $40,000 in sales, and a 25% rise in operating margin.

“The crux of what’s happening is the deconstruction of the guest experience and where the line between restaurants and guests has moved,” says Brandon Barton, CEO of Bite. “The digitization of the order has shifted from restaurant to guest. It’s not that those FOH positions will not be hired for as much as those FOH positions are being directly filled by willing guests, who appreciate the instant gratification of self-service.” 

Certainly the actions of the industry amidst the pandemic support Barton’s point. There is no shortage of Store of the Future plans (see here, here, and here) that are focusing on digital ordering, including Kiosk. It’s starting to become clear that restaurants need to operate more like ecommerce brands with a digital-first model. The move to ecommerce was clearly difficult for many retailers, spelling bankruptcy for those that didn’t reinvent themselves fast enough. The same will happen to restaurants: COVID pulled forward the inevitable.

And all of this starts to beg a different question: where does the POS live in all of this? POS has been the focus of attention in recent years because it’s sticky, at least as far as merchant acquiring is concerned, and that’s where all the money in the industry still resides. But as POS becomes more commoditized it would seem to us that the POS will be replaced with something more clearly aligned with business ROI: guest intelligence. We know it’s hard to fathom, but shelling out 4% of your topline for payments processing doesn’t drive dick for returns. Sorry payment bros. 

We’ll save the specifics for a later discussion, but contactless ordering and kiosks are well positioned to do perhaps the most important thing for brands: identify their guests in-store.