Restaurant Technology

A S U P P L E M E N T T O H O S P I T A L I T Y T E C H N O L O G Y

Rising IT budgets create opportunity for restaurant technology to shift from responding to leading the business

• FiFtEENth ANNUAL •• 2 0 1 4 • S I X T E E N T H A N N U A L •

• IT teams grapple with shifting historical focus from efficiency to innovation• From front- to back-of-house, next roll-outs focus on mobile and CRM• Intelligence and reporting capabilities remain a challenge• Plus, insight into the technology decision-making process

BUILdING POTENTIAL

PUBLISHERLenore O’[email protected]

EDITORIALEDITOR-IN-CHIEF Abigail A. [email protected] EDITOR Dorothy [email protected] EDITOR Tammy Mastroberte

EKN RESEARCHSVP RESEARCH & PRINCIPAL ANALyST Gaurav [email protected] STRATEGy Giri [email protected]. RESEARCH ANALyST Asheesh [email protected]

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CONTENTS[auThoR’s InTRoduCTIon]4 | Technology Investments Rise, Elevating stakes for IT LeadersKey research findings and trends from the 2014 Restaurant Technology Study indicate that technology spend-ing is on the rise. As projects shift from operational to experience-based, opportunity also emerges for res-taurant technology executives to shift from responding to the needs of the business, to leading the business.

[ChaPTER 1: TEChnoLogy BudgETs]6 | Tracking Restaurant Technology spendingIT budgets are on the rise, as both sales and the portion of revenue dedicated to IT increase. However res-taurant operators from all segments – QSR, family/casual and fine dining – still indicate that funds are insuf-ficient to meet growing demands. Restaurants also offer insight into the allocation of technology dollars in a variety of areas.

[ChaPTER 2: BusInEss sTRaTEgy]14 | Efficiency Trumps service & Innovation gap Widens Restaurants provide insights into the business goals and motivations behind IT initiatives. Efficiency remains a major driver. Findings also reveal that the gap between business and technology innovation is widening, as decision-makers struggle to keep up with changing perceptions.

[ChaPTER 3: FRonT-oF-housE]22 | Point-of-service Expands Beyond the Four WallsAs customer-centric technologies continue to grow in popularity, the lines between front- and back-of-house become increasingly blurred. Executives were asked to reveal what FOH solutions they are currently using or plan to use. Mobile payments, social CRM and tableside devices will spike in usage in the next two years.

[ChaPTER 4: BaCk-oF-housE]26 | Rounding-out a Robust Back-officeIn an industry that has leveraged IT primarily for business efficiency, many store-level and enterprise BOH systems are at maturity. The next wave of implementations will focus on giving mobile solutions to managers, improving CRM, and enhancing intelligence and reporting.

[ChaPTER 5: PayMEnT sECuRITy]29 | End of swipe-and-sign LoomsAs U.S. restaurants prepare for a new era of EMV chip-based cards, standards and security remain a top con-cern and PCI compliance is often a point for confusion. While merchants wait for EMV to become standard, many restaurants are leveraging – or plan to seek out – third parties for assistance in compliance efforts.

[METhodoLogy]30 | about the study

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Copyright © 2014 Hospitality Technology. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording or information storage and retrieval systems without permission in writing from the publishers. For article reprints & e-prints, please contact PARS International at (212) 221-9595, Fax: (212) 221-9195 or email: [email protected]. POSTMASTER: Please send address changes to HOSPITALITy TECHNOLOGy, P.O. BOX 261, LOWELL, MA 01853. PRINTED IN THE U.S.A.

www.htmagazi n e.com R e stau Rant tech noLogY stu dY 2014 « hospitaLitY tech noLogY « 3

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tABLE OF CONtENtS

Technology has long been lauded for its ability to make people work faster and smarter. Computers can crunch num-bers with absolute accuracy and speed. As computing power now shifts into the palms of consumers’ hands, technology is entering a new phase of utility.

Mobile devices have forever changed the way businesses engage with con-sumers. In the foodservice industry — where technology has historically been seen as a responder to the needs of the business and the service experience has remained largely untouched — that shift is just beginning to take shape.

Hospitality Technology has partnered with EKN Research, the market research arm of parent company Edgell Commu-nications, to produce this 16th annual Restaurant Technology Study. Results of the study indicate that planned proj-ects are transitioning from historically heavy back-office investments, to mobile rollouts for both managers and guests. Business strategies around the way IT decisions are made, however, have yet to evolve. There is opportunity now for CIOs to take a lead role in shaping the way that technology is perceived, and shift their teams from responder to influencer. Technology leaders will want to be seen not only for their ability to create efficien-cy, but also for their ability to innovate and shape the customer experience.

The $683.4 billion restaurant industry is projected to grow by 3.6% this year, according to the National Restaurant Association. Indeed, across all business

metrics measured in HT’s 2014 Restau-rant Technology Study — gross revenue, average guest check, guest counts, same store sales, and net profitability company-wide — the consensus is growth. Strong sales are transitioning into more technolo-gy. Results from this 2014 study show that investments in technology are increasing, and will continue to rise for the next sev-eral years. This aligns with Gartner’s fore-cast that IT spending across all industries, worldwide, will grow by 3.1% in 2014.

This year’s research suggests that the historical objectives of business ef-ficiency and employee productivity are still regarded as the top motivators, far outpacing customer-centric goals. How-ever, planned roll-outs show that a shift is taking place as new projects increas-ingly leverage mobile devices, integrated social media platforms, and customer re-lationship management. Indeed, Gartner predicts that by 2017, the CMO’s influ-ence over technology investments will be greater than that of the CIO.

Powering the business will always be a core objective of technology, and the latest wave of IT will have much to offer in that regard. There’s opportunity for technology leaders, however, to emerge beyond that classification. This is a criti-cal time for IT leaders to strengthen their involvement in the decision-making pro-cess, and become versed in new and expanding business objectives. The op-portunity now exists for CIOs to help lead the business, but there’s much work to be done. •

Technology Investments Rise, Elevating Stakes for IT Leaders Opportunity emerges for restaurant technology to shift from responding to leading the business

• Technology budgets are on the rise. By 2016, the number of res-taurants allocating ten percent or more of overall revenue to IT will grow from 11% (in 2014) to 16%.

• IT decision-making takes place pri-marily at corporate levels. However, less than half of restaurants polled use IT steering committees to make decisions.

• Despite enthusiasm for customer-facing technology, such as loyalty and guest services, technology in-vestments are still primarily moti-vated by business efficiency (68%) and employee productivity (59%).

• Hardware costs are dropping, free-

ing up investments in external ser-vice providers and networking.

• The largest portion of IT spending goes towards point-of-sale systems, accounting for 33% of the overall technology budget.

• Looking ahead, front-of-house in-vestment plans show that mobile solutions and integrated social me-dia tools are gaining momentum.

• Many back-of-house applications have become mainstream, and future implementations focus on making BOH systems accessible on a mobile device.

2014 StUdy highLightS:

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AUthOR’S iNtROdUCtiON

4 « Hospitality tecH nology « r e stau ra nt tecH nology stu dy 2014 www.Htmagaz i n e.com

abigail a. lorden, editor-in-chief,

Hospitality tecHnology

gaurav PantsVP Research & Principal analyst

eKn ReseaRcH

6 « hospitaLitY tech noLogY « R e stau Rant tech noLogY stu dY 2014 www.htmagazi n e.com

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Current Investment Levels (2014)

In 2014, the largestportion of restaurants

(44%) invest onepercent of revenue

on technology

In 2014, 11% of restaurants invest 10% or more ofrevenue in IT

By 2016, a thirdof restaurants (33%)

plan to invest just onepercent of revenue

in technology

By 2016, a growingnumber of restaurants

(16%) plan to invest 10%or more of revenue in IT

Projected Investment Levels (2016)

44%

11%

16%

4%

9%

16%

33%16%

9%

18%

11%

13%

IT Spend is one percent of revenue

IT Spend is two percent of revenue

IT Spend is three percent of revenue

IT Spend is four percent of revenue

IT Spend is five percent of revenue

IT Spend is ten percent or greater

Tracking Restaurant Technology Spending

proximately 44% of the restaurants in our study (Figure 1). By 2016, however, the 1% spending bracket is expected to shrink to 33%, when two-thirds (67%) of restaurants will spend 2% of revenue or more on technology. Looking more closely at 2014 investment levels, 45% of res-taurants spend somewhere between two and five percent of revenue on IT. Accounting for a small but growing portion of the market are the heavy IT investors, who spend 10% of revenue or more on IT. Currently 11% of our survey respondents are in this group,

Results from the 2014 Restaurant Technology Study indicate that res-taurant operators across all seg-ments — QSR, family/casual and fine dining — plan to increase their invest-ment in technology this year, and are projecting a continued increase in IT budgets through 2016. However, when asked to identify the top chal-lenge facing their departments, res-taurants still indicate that budgets are insufficient to meet growing de-mands for technology, particularly when it comes to R&D and innova-tion. And while there is plenty of in-dustry buzz around potential applica-tions for customer-facing technology, our research shows that the bulk of technology spending goes to point-of-sale (POS) and back-office solutions.

budgeT bReakdownMeasuring the overall IT budget as

a percentage of revenue, restaurant companies in this study are currently spending an average of 3.5% of to-tal revenue on technology projects, with fine dining spending the most compared to QSR and family/casual. Budgets are expected to increase in all segments by 2016, with IT spend-ing projected at an average of 4.8% of total revenue.

The largest investment group in our research is the 1% spenders (that is, those companies who allocate ap-proximately 1% of revenue to their IT budget), and they account for ap-

IT budgets are rising, but allocations reflect a historically heavy focus on maintaining the status quo

Technology Budgets: Percent of Revenue spent on TechnologyFigure 1:

ChAPtER 1: tEChNOLOgy BUdgEtS

Accounting for a small but growing portion of the market are the heavy IT investors, who spend 10% of revenue or more on technology.


but projecting out to 2016, a growing 16% put themselves in this largest in-vestment bracket.

Looking at technology investments at the corporate level, the average an-nual corporate IT budget for restau-

rants in 2014 is $1.32M, with a medi-an of $1.43M, and this includes QSR, casual/family and fine dining [Figure 2]. When looking at these numbers based on overall revenue, operators can get a better idea of where they

fall. For example, the average IT bud-get for a restaurant company with annual revenue of less than $50 mil-lion is $316,667 per year; conversely the average corporate IT budget is $2.5M for a company with more than $50 million in revenue. Also, the av-erage corporate IT budgets for both the family/casual ($1.78M) and the QSR ($1.43M) segments are much higher than IT budgets in fine dining restaurants ($763,750). This is due, in part, to the difference in company size across these industry sub-seg-ments. QSR and family/casual res-taurant companies can have upwards of hundreds of locations or more, and the top-grossing chains have revenue in the billions. Fine dining restaurant companies, by contrast, tend to have fewer locations, thereby requiring less overall IT spend.

seeking moRe innoVaTionThis year’s study also shows that the majority of IT spending goes to op-erational expenditures (or OpEx, at 63%). These include such line items as licensing, storage, hardware main-tenance, subscription fees for soft-ware-as-a-service (SaaS) and cloud computing, and so on. Capital expen-

• Current Distribution • Ideal Distribution

0

10

20

30

40

50

60

R&D and Innovation (spending reserved forIT solutions in testing

and/or R&D phase)

Maintaining Existing Systems

Developing New Systems (spending

reserved for the implementation of new IT solutions)

28%

33%

60%

50%

12%

17%

Figure 3: IT spend: Maintenance vs. InnovationRestaurants Rate Actual vs. Ideal Distribution of IT Budgets

Corporate Technology BudgetsFigure 2:

INDUSTRY AVERAGE(ALL SEGMENTS)

QsR Family/ casual Fine dining ReVenue < $50 million

ReVenue > $50 million

average $1,323,220 $1,430,000 $1,775,909 $763,750 $316,667 $2,520,714

median $1,430,000 $150,000 $350,000 $275,000 $60,000 $1,250,000

minimum $21,667 $40,000 $20,000 $5,000 $5,000 $40,000

maximum $7,833,333 $10,000,000 $11,000,000 $2,500,000 $2,500,000 $11,000,000

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to maintaining existing systems, and the additional funds would be split between new roll-outs and R&D.

With many technology suppliers now offering cloud-based solutions and SaaS, these may be options to reduce the amount spent on main-taining current systems. Another pos-sibility for reducing overhead is bet-ter integration, whereby less money would be spent on middleware. Since the majority of operators report an expected increase in overall budgets by 2016, the goal is to get closer to

ditures make up the balance at 37%. Operators reported the same mix last year, and this is also in line with both the hotel industry (HT’s 2014 Lodg-ing Technology Study) and the great-er retail industry (RIS News’ 2014 Store Systems Study).

To get a sense of how real-world allocations compare to an ideal sce-nario, HT asked operators to report on the distribution of their IT budgets across three major categories: main-taining existing systems; developing new systems (spending that is re-served for the implementation of new IT solutions); and R&D and innovation (spending reserved for IT solutions in testing and/or the R&D phase). Re-spondents were also asked to report what their ideal distribution would be across the three categories [Figure 3].

The consensus, when comparing the current distribution to the ideal,

shows operators would like to see less money spent on maintaining current systems (which is currently 60% of the budget), and more fund-ing allocated to rolling out new tech-nology, or to R&D. Right now, with the nature of technology, overhead is a big expense for restaurant op-erators, including upgrading software and hardware in order to maintain the business. This often takes pre-cedence over money allocated to in-novation. Restaurants indicate that ideal spending would allocate 50%

2014 2013 2012 2011

0 5 10 15 20 25 30 35 40

Other

Facilities

Network and Telecom

External Service Providers

Internal Personnel

Software

Hardware15%

30%25%

24%

24%20%

20%

23%

21%

37%18%

21%

21%

10%11%

15%

6%8%

11%15%

3%5%

9%10%

0%

0%

0%4%

allocation of IT Budget Figure 4:

Restaurants indicate that ideal spending would allocate 50% to maintaining existing systems, and remaining funds would be split between new roll-outs and R&D.

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ment in customer engagement, in-cluding customer relationship man-agement (CRM) and technology for powering loyalty programs. This cat-egory debuts fourth on the list at 12%, ahead of both networking and data security (at 10%) and kitchen technology investments (at 8%). However, it is still a relatively small portion of overall IT spend. Gart-ner has predicted that by 2017, the CMO’s spend for technology will be greater than that of the CIO. This re-tooling of IT budgets means that al-locations should begin to noticeably shift toward customer engagement and related initiatives. •

the ideal distribution, with more dol-lars allocated to new systems.

as haRdwaRe PRices dRoP, oPPoRTuniTies emeRgeHardware and software make up a large piece of the overall budget, together accounting for 45% of IT spend [Figure 4]. However, the cost of hardware continues to drop which should free up funding for other capi-tal improvements. Hardware budgets have dropped year-over-year, from 30% in 2012, to 24% in 2014.

The results from the last four years of this study point to a steady in-crease in leveraging external service providers. In 2011, only 10% of the budget went to this category, and in 2014 it has doubled to 20%. There’s also been consistent increase in bud-gets for networking and telecommuni-cations, which accounted for 6% of the budget in 2011, and is now at 15%. This is due to the growth in IP-enabled systems, plus increasing consumer demand for Wi-Fi when dining out.

A drop in payroll occurred three years ago, between 2011 and 2012, and is attributed to the impact of a sluggish economy. Since that time, budgets for internal personnel have remained consistent, fluctuating be-tween 18% and 21% of the overall budget for three straight years. Still, as businesses increasingly turn to outsourced, SaaS, and cloud-based solutions, there’s potential for shift in internal IT spend. In this year’s study, SaaS-based solutions account for 31% of total software spending, and approximately 6% of the technol-ogy budget overall.

When breaking down the budget by technology type [Figure 5], POS solutions take up the largest chunk at 33% of overall spend. This area includes any investments made in mobile/tableside POS, online order-ing, drive-thru, hostess, and reser-

vations/waitlist solutions. Store-level back-office solutions account for 16% of overall IT spend, which includes store inventory and menu management tools, store-level ac-counting, labor, and mobile devices for managers to use. Investments in enterprise solutions account for 13% of the budget. This category includes ERP, enterprise reporting, business intelligence and analytics, enterprise storage, email/intranet, enterprise inventory management, supply chain management, and financial and ac-counting software.

A new category was added to the survey this year to track IT’s invest-


0 5 10 15 20 25 30 35

Other

Physical Security

Kitchen Technology

Networking & Data Security

Customer Engagement

Enterprise Solutions

Store-level Back-Office Solutions

POS Solutions 33%

16%

13%

12%

10%

8%

7%

1%

IT spending by Technology Type Figure 5:

POS solutions take up the largest portion of technology spending at 33% of the overall IT budget.

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ChAPtER 2: BUSiNESS StRAtEgy

68%

0 10 20 30 40 50 60 70 80 90 100

Other

Social responsibility

Security / compliance

Revenue-generating opportunities

Cost-saving measures

Customer engagement / guest loyalty

Business efficiency

47%

38%

26%

23%

0%

0%

Employee productivity 59%

Enhanced guest service 33%

Competitive pressure 6%

Efficiency Trumps Service & Innovation Gap Widens

Technology suppliers are, how-ever, offering a variety of new tools and systems for engaging with and serving guests. Mobile solutions are creating efficiencies that will impact both the customer experience and operations. The restaurant industry has largely focused its IT in areas where business efficiency can be easily obtained and measured (such as replacing cash registers with POS, adding the ability to accept credit cards, and implementing accounting and time management solutions). Many of these types of technologies have reached market saturation and the next horizon for restaurants will

The decision to invest in technology is a complex one that involves not only measurable elements such as opera-tional goals and available resources, but also more ambiguous factors such as business culture and willing-ness to innovate. This research aims to provide context to the strategy be-hind how IT investment decisions are made. Overall trends indicate that IT has not yet broken free from its position as a responder to business goals. There is potential for IT to be a leader, however, as budgets increase and consumer-centric technology ini-tiatives creep into the spotlight.

business goals behind iTThis study asked respondents to evaluate and select their top three drivers for implementing technology from a list of nine possible choices, plus “other” [Figure 6]. “Business efficiency” remains the main driver of IT projects in 2014, with 68% of respondents selecting this option.

The second most popular choice was “employee productivity,” at 59%.

As an investment motivator, “cus-tomer engagement / loyalty” ranks third (47%) and “enhancing guest services” comes in fifth in our rank-ing (33%). This aligns with technol-ogy spending allocations outlined in Chapter 1, where customer en-gagement tools rank behind POS solutions, store-level back-office solutions, and enterprise solutions. These responses affirm that technol-ogy in the restaurant industry is still foremost implemented for its ability to improve core operational process-es, rather than the guest experience.

Technology is still primarily a reactor to business needs

What’s driving IT Projects in 2014Figure 6:

Technology in the restaurant industry is still foremost implemented for its ability to improve core operational processes.


mobile tools and Social CRM), and the concern that their organizations are not keeping up with competitors.

The gap is concerning. While busi-ness innovation could include menu or service changes, technology still plays a significant role in innovation for all industries. A quick look at who made Fast Company’s Top 10 for the “World’s Most Innovative Companies in 2014” shows Google, the most suc-cessful Internet company of our time; Xiaomi, for reinventing the smart-phone in the world’s largest mobile market, China; Dropbox, for becoming the everything-cloud and doubling its users from 100 to 200 million in one year; and Yelp, for finding new ways

tion. On the technology side, 62% of restaurants put themselves in one of those two brackets, and the remain-ing 38% classify their organizations as “distant followers,” or “reactors” to technology. This represents a 33-point gap between the two. When compared to last year’s responses for the same question, it appears that the gap has widened. Self-identified business innovation leaders/close followers were at 79%, and technol-ogy innovation leaders/close fol-lowers were at 70% (a 9-point gap). This widening may be attributed to the perception among IT leaders that technology has expanded rapidly into new service-delivery areas (such as

be to look at solutions like integrated Social CRM programs and mobile wallet (as will be detailed in Chapter 3). The challenge for restaurants’ technology teams will be to change the long-estab-lished tradition that sees IT as an op-erational tool rather than a service tool.

The innoVaTion gaPOne telling way to measure the per-ception of technology is through a company’s preferences towards in-novation. Restaurant executives were asked to evaluate their company’s preferences toward innovation from both a business perspective and a technology perspective, using four classifications: innovator/leader, close follower, distant follower, or re-actor [Figure 7].

The results confirm that restau-rant operators are still more comfort-able being business innovators than technology innovators. This year, 95% of respondents classified their organization as either a “leader” or “close follower” in business innova-

49%

Leader in Innovation

2014 2013

52%

22%

33%

Distant Follower

2014 2013

3%

10%

22% 23%

Close Follower

Business innovationmoves upstream withmore “close followers” in 2014 than 2013

2014 2013

46%

27%

40%37%

Technology innovation “reactors”are on the rise in 2014 vs. 2013

Reactor to Innovation

2014 2013

2%

12%

17%

8%

0

10

20

30

40

50

60

Restaurant Industry's Approach to Business Innovation

Restaurant Industry's Approach to Technology Innovation

Leader, Follower or Reactor?Restaurants Rate their Approach to Innovation in Business & Technology

Figure 7:

Results confirm that restaurant operators are still more comfortable being business innovators than technology innovators.

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rant location to the next. However, when coupled with the fact that IT steering committees are not widely used, this centralized approach to decision-making could be missing out on key input from innovation-minded franchisees and other stakeholders. Finally, most restaurant companies do not reference IT strategic planning in their mission statements (78%). The vast majority of IT strategy comes from the top down, and this is also

to bridge online and offline worlds. Technology has become inherent to innovation. Another benefit of being first with technology: the opportunity to shape solutions and set the bar for the experience, rather than adopting a product after the fact.

wheRe and how iT decisions aRe madeThe role of technology as a responder to the business rather than a leader is further evidenced by some of the IT decision-making processes in place. Despite the benefits of an IT steering committee, less than half of those surveyed (42%) use them. There is a positive trend in place, however: this practice has been slowly creeping up a few percentage points each year. IT steering committees were used by 31% of respondents in the 2010 study, 33% in 2011, 38% in 2012 and 41% last year. IT steering committees often include a group of employees in charge of monitoring and prioritizing major IT projects to ensure IT strategy is aligned with overall organizational goals. These committees typically in-clude representatives from all busi-

ness units impacted by the decisions, and offer transparency to IT projects so that different areas of the busi-ness can see their IT needs in the larger context of overall plans.

The bulk of decisions regarding technology are made at the corporate level (72%), either nationally or glob-ally, rather than the unit-level (23%) or by individual franchisees (5%). This method of decision-making en-sures consistency from one restau-

0 10 20 30 40 50 60 70 80

Outcome-based or ROI-linked services contracts

Use of Software-as-a-Service applications

External IT resources (contractors, outsourced resources etc.)

IT staff internal (full time employees)

Annual IT budget

Number of IT projects

Increase Stay the same Decrease

36%55%

9%

48%48%

3%

3%

25%70%

5%

31%58%

11%

38%61%

2%

21%76%

Planned Changes in IT strategy in 2014 vs. 2013Figure 8:

how IT decisions are Made

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72%oF decisions aRe made aT The coRPoRaTe leVel.

88% oF ResTauRanTs haVe a mission sTaTemenT.

33% ciTe enhancing guesT seRVice.

9% oF Those sTaTemenTs include a ReFeRence To Technology.

68% oF ResTauRanTs ciTe business eFFiciency as a ToP moTiVaToR FoR Technology.

42% oF ResTauRanTsuse an iT sTeeRingcommiTTee.


the expanding scope of technology.After the top two challenges of in-

sufficient budgets and unclear ROI, a variety of factors were ranked at a tie for third place. Among them, guests now expect greater technol-ogy than operators can keep pace with; their organizations are hugely resistant to change; and they strug-gle to migrate legacy systems (all at 33%). Rounding out the list of chal-lenges, a notable portion (31%) does not have sufficient IT talent in their internal team; 25% credit the tech-nology itself as insufficient to meet their needs, and 23% feel that their company philosophy does not em-brace innovation.

Although funding will improve in 2014, the strategies at play in IT decision-making suggest that res-taurant IT leaders need to focus on communication to overcome many of the remaining challenges. •

where an organization’s mission is established. The mission statement is a reflection of a company’s overall culture, and so far, restaurant com-panies have not embraced technol-ogy as part of that.

iT changes & challenges In analyzing the function of the IT de-partment and where it is heading in 2014, the overall sentiment is main-tenance of the status quo, as many operators report this year will be the same as 2013 [Figure 8]. At least half of all respondents indicate that 2014 will look very similar to 2013 in five of the six metrics measured: the number of IT projects; the number of full-time IT employees; their work with external resources; their use of SaaS; and their use of ROI-linked ser-vice contracts. The biggest changes planned are in annual IT budgets. One out of two study respondents re-port that IT budgets have increased in 2014 (further substantiated by the section on IT budgets in Chapter 1). To some extent, budget increases will go toward efforts of existing IT plans. It’s worth noting, however, that just over one-third of respondents (36%) do expect to add new IT projects in

2014. There’s ongoing evidence in the shift towards external resources, with 31% planning to increase the amount of work they do with contrac-tors/outsourced IT; and 38% adding to their use of SaaS applications.

Despite the increase in budgets evident in several areas of this re-search, the top challenge hindering IT performance is insufficient financial resources [Figure 9]. Interestingly, a new option added to this year’s sur-vey — difficulty in measuring return-on-investment [ROI] — ranked No. 2 in overall challenges. This shows technology executives are struggling to make a business case for IT with-out the ability to clearly prove a re-turn on the money spent, and could signal a need for the vendor com-munity to help operators find ways to solve this problem. It could also indicate that traditional methods of measuring ROI are no longer valid to

0 10 20 30 40 50 60

Other

We lack IT talent in our internal team

Guests expect greater technology than we can keep pace with

IT budgets are insufficient to keep pace with needed investments 58%

33%

31%

11%

It is difficult to measure ROI 53%

Migration from legacy systems

There is huge resistance to change in our organization 33%

33%

Our company philosophy does not embrace technology innovation

Technology itself is insufficient to meet our needs 25%

23%

Top Challenges Impacting IT PerformanceFigure 9:

One out of two study respondents report that IT budgets have increased in 2014.

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ChAPtER 3: FRONt-OF-hOUSE

Point-of-Service Expands Beyond the Four Walls

the technology is becoming standard; at 75% to 85% a technology is mature and beyond 85% it is saturated.

Point-of-sale (POS) solutions ac-count for the largest portion (33%) of restaurant technology budgets, and indeed these mission-critical tools are at market saturation (92% current install rates). Several other technolo-gies closely trail POS in current use rates: touch screens (85%), integrat-ed credit card swipe (77%), and inte-grated gift cards (76%). These mature technologies have become essential for restaurant operators to conduct

Traditional restaurant operations are split between front- and back-of-house environments. Technology is increasingly blurring that line, and at the same time the front-of-house (FOH) category is expanding to facili-tate customer interactions before a guest even enters the restaurant — tools like waitlist technology, online reservations, and mobile applica-tions. In this section, our research fo-cuses on these and a variety of other FOH applications to determine what’s become standard, what has hit mar-ket saturation, and which technolo-

gies will see an adoption spike over the next two years.

Survey respondents were pre-sented a variety of technologies and asked to indicate if they’re currently using the solution; or if they have plans to roll out a solution within ei-ther a one- or two-year time frame [Figure 10]. Our standard ranges for tracking technology adoption are as follows: for adoption rates that are at or below 15%, a technology is in early adoption; a technology is gain-ing momentum when adoption spans 15% to 50%; between 51% and 75%,

Mobile payments, Social CRM, and tableside devices projected to spike in next two years

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FULL SERVICE TECHNOLOGIES

POS Hardware 92%2%2%

5%

POS Software 5%92% 3%

Mobile Wallet (bill pay via customers’ mobile phone) 7% 30% 26% 38%

Integrated Credit Card Swipe into POS 77% 3% 3%16%

Wireless Credit Card Authorization 32% 17% 5% 47%

Social Media Activity integrated into POS and/or CRM Platform 23% 25% 25% 28%

Online Ordering 39% 15% 13% 34%

Gift Card Integration 76% 8% 10% 6%

Touch Screen 85% 6% 6% 2%

Digital Signage 39% 14% 14% 34%

Barcode Scanners 23% 23% 5% 49%

Biometrics Fingerprint Reader 13% 13%7% 67%

Near Field Communications (NFC) capability 5% 11% 16% 67%

Tableside Ordering Device (tablet, other hardware) 32% 9% 27% 32%

Tableside Payment Device (Mobile POS) 18% 14% 32% 36%

Table Management 45% 23% 5% 27%

eReservations 41% 14% 5% 41%

eWaitlist 36% 14% 5% 45%

• Currently using • Have plans to add in next 1 year Have plans to add in next 1-2 years • No plans

Take-out/Delivery System 41% 7% 10% 43%

Menu Labeling/Nutritional Information 32% 11% 21% 35%

Cloud-based POS 15% 8% 16% 61%

Energy Efficient POS 22% 12% 8% 58%

Front-of-house Technology: Current use & Plans for adoptionFigure 10 :


gies have become standard, there’s substantial activity planned. Table management technology, currently at 45% adoption rates, will be nearly mature across the full-service seg-ment (at 73%) by 2016. Tableside or-dering and payment represent areas of anticipated growth. Ordering de-vices are in use by 32% of full-service restaurants in our study and are pro-jected to hit 68% by 2016. Tableside payment solutions have an 18% in-use rating, and are projected to catch up to their ordering counterparts by 2016 with a 64% in-use rating.

Finally, although point-of-sale tech-nology has reached market satura-tion, cyclical upgrades take place every several years. As shown in Fig-ure 11, a large portion of restaurants across all market segments (46%) plan to replace their POS system within a two-year time frame. Another 30% will replace their POS in three or four years. Looking at prior replace-ment, very few restaurants hold onto a POS system for more than 8 years (about 8% in our study). •

business on a daily basis. The sur-vey also shows a group of technolo-gies expected to hit 50% adoption industry-wide in the next one to two years, specifically take-out/delivery systems, digital signage, and online ordering. The expanding role of the POS is evident in the growth planned for these technologies.

Planned gRowTh in cusTomeR-cenTRic TechnologyTwo additional technology areas stand out for their growth potential: integrated Social CRM programs, and mobile wallet. These technolo-gies also represent a break from the norm for IT priorities in that they are customer-centric in nature.

Social CRM measuring and moni-toring programs can aid restaurants in their elusive quest for ROI. For a growing portion of restaurants, a key objective is to link consumer interac-tions on social media with the brand’s formal CRM program (to record pref-erences and experiences) and/or to the POS (for reward earning and re-demption capabilities). This type of coveted functionality, in one form or the other, is currently in place for 23% of restaurants in our research. An additional 50% have plans to add this type of functionality over the next two years. By 2016 more restaurants are planning to have an integrated social media solution than digital sig-nage or take-out/delivery systems.

The other category poised for growth is mobile wallet. Mobile pay-ments are a rapidly evolving, emerg-ing technology. For the purposes of this research, we recognize mobile wallet to be an electronic currency account, held and accessible via a mobile phone, to store and transfer value. A very small percentage of res-taurants in our study (7%) currently have some type of mobile wallet so-lution available to their customers.

Roll-out plans are aggressive here, with 56% of respondents planning to add the capability within two years.

Anecdotal claims further substanti-ate restaurant operators’ interest in mobile and customer-centric technol-ogies. When asked, in an open-ended question, what technologies will have the greatest impact on the multi-unit restaurant industry in the next three to five years, many operators cited mobility overall, including mobile pay-ments and mobile ordering, as well as CRM systems.

Cloud-based POS roll-outs are still several years out. Currently 15% of res-taurants operate their POS system in the cloud, and an additional 24% plan to migrate to a cloud platform by 2016.

Full-seRVice ResTauRanTs seek Tableside ToolsWe further segmented the data to evaluate those technologies only ap-plicable to full-service restaurants, including table management, online reservations and tableside order-ing. While none of these technolo-

More than10 years

9-10 years7-8 years5-6 years3-4 years1-2 yearsWithina year

Last POS replacement Plan to replace POS

11%

10%

25%

25%

23%

23%

29%

20%

10%

7%5%

2%3%

7%

Pos Replacement TimelineFigure 11 :

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technologies that are on their way to standardization (between 51% and 75% adoption). In all, eight technolo-gies are in this bracket, including kitchen displays and management, labor screening and recruitment, and food safety and menu analysis tools, among others.

With many of these requisite BOH technologies already in place, the next frontier for back-office innova-tion will be mobility and customer re-lationship management (CRM). Com-ing in last place for current use, just 38% of restaurants put mobile de-vices in the hands of their managers. This is the largest growth area, how-ever, with one third planning a roll-out by 2016. As reporting functional-ity grows, mobile access to data and operational systems will allow man-agers to spend less time in the back office and more time of the floor. In

While excitement builds around the possibilities of customer-facing tech-nology to enhance the service experi-ence, restaurant operators are, by in large, using technology to power the business. In this section, the study examines current and planned use for a variety of back-office tools, in-cluding BOH systems at the store and kitchen level, as well as enterprise tools. Collectively, these areas ac-count for 37% of IT spend.

The back-office tools measured in this research span finance/account-ing solutions; inventory and menu management; labor management, screening and time/attendance; kitchen printers, displays and man-agement systems; among others. Technology roll-outs in these areas can offer substantial and sometimes quick returns via reduced operational costs and greater efficiency. In Janu-

ary, for example, a franchisee for the Atlanta-based Moe’s Southwest Grill (part of the FOCUS Brands group), reported lowering labor costs by 1.5 percent, and improving food costs an average of 1.5 to 2 percent across the chain after implementing back-office software. With technology projects un-der a microscope to identify ROI, these types of roll-outs gain support from both franchise owners and corporate financial gatekeepers, which explains why, in-part, 13 of the 15 technologies measured here have a 50% or higher adoption rate [Figure 12].

Five of the 15 technologies mea-sured have hit maturity (75% + adop-tion): accounting and financial soft-ware (90% install base); time and attendance (88%); labor manage-ment (80%); kitchen printers (80%); and inventory management software (79%). The next bracket contains

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Accounting/Financial Software 90% 10%

Food Safety Management Solution 59% 16% 7% 19%

Integrated Video / IP Video for Security 62% 10% 16% 12%

Kitchen Management 60% 9% 7% 24%

Menu Analysis 52% 16% 10% 22%

Inventory Management Software 79% 10%2%

9%

Time & Attendance 88%2%

5% 5%

Labor Management 80% 7% 3% 10%

Kitchen Printers 80%2%

19%

Mobile Device for Manager Use 38% 28% 5% 29%

Disaster Recovery Plan for Technology Systems 53% 16% 12% 19%

Customer Relationship Management System 47% 23% 9% 21%

Kitchen Displays 59% 8% 7% 25%

Labor Screening and Recruitment Tools 59% 14% 5% 22%

Company Intranet 57% 14% 9% 21%

• Currently using • Have plans to add in next 1 year Have plans to add in next 1-2 years • No plans

Back-of-house Technology: Current use & Plans for adoptionFigure 12 :

Rounding-out a Robust Back-OfficeOperators seek to give managers mobile access to data, boost up CRM, and improve intelligence

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items, analyze customer behavior, target promotions and more.

Current adoption rates for reporting and intelligence tools are behind that of other BOH systems, but there’s a good deal of activity anticipated. En-terprise reporting is the most-used technology on the list (55%). Real-time, web-based reporting systems are used by 45%, and an additional 39% are planning a roll-out. More sophisticated reporting technology, including enterprise management/enterprise resource planning (ERP) and BI systems are currently used by approximately one-third of those sur-veyed. BI systems will also see sig-nificant growth, with 34% planning a roll out. The holy grail of intelligence — Big Data — remains elusive. Just 21% of restaurants in the study have achieved this level of insight. Opera-tors are bullish in this capability, how-ever, and 39% anticipate rolling out Big Data capabilities by 2016.

By digging deeper into data, opera-tors can improve sales and the over-all bottom line. At the end of 2013, Pizza Hut reported a consistent sales growth of 5% and 12 times a return-on-investment using a behav-ioral intelligence tool that targeted campaigns to certain segments of its customer base. The chain was able to segment customers based on purchase tendencies, characteristics and behavioral indicators, helping the company predict future purchas-es, and target campaigns to a cus-tomer’s preferred time and channel, such as email or direct mail. •

February, L.A.-based Fatburger rolled out a mobile management app that, according to the company’s chief of operations, is giving managers the ability to take notes, see tasks, con-tact staff, and interact with guests more freely.

CRM is the other noticeable growth area, with 32% of restaurants plan-ning initiatives in this area between now and 2016. This aligns well with FOH technology plans, where social media is a target for CRM integration. When considered together, these two growth areas — CRM enhancements and mobile manager devices — point to an emerging trend in enhancing service. Technology suppliers are in-creasingly introducing apps for man-agers to tap into CRM systems via mobile devices, allowing them to re-spond quicker to guest ratings, com-ments and posts on social media. Social CRM systems are projected to grow from $1.91 billion in 2013 to $9.08 billion globally in 2018, ac-cording to a report by RnR Market Re-search.

dealing wiTh daTaFrom the front to the back of the house, as technology is creeping into every aspect of operations and customer engagement, information is piling up and at times becoming unwieldy. The amount of data now capable of being collected is stag-gering, and restaurants are seeking enhanced tools for reporting and in-telligence. To track this trend, this year’s study includes a detailed look at current and planned adoption for a variety of reporting and business intelligence (BI) tools [Figure 13]. BI and reporting solutions allow restau-rant operators to analyze data col-lected by POS, CRM, and back-office systems in order to spot trends and opportunities, segment top-selling

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Real-Time, Web-Based Reporting

Enterprise Reporting

Enterprise Management / EnterpriseResource Planning (ERP) Software

Business Intelligence System

Big Data 21% 23% 16% 40%

34% 31% 31%3%

36% 19% 10% 34%

55% 12% 7% 26%

45% 34% 5% 16%

• Currently using • Have plans to add in next 1 year • Have plans to add in next 1-2 years • No plans

Intelligence & Reporting adoption PlansFigure 13 :

Current adoption rates for reporting and intelligence tools are behind that of other BOH systems, but there’s a good deal of activity anticipated.

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www.htmagazi n e.com R e stau Rant tech noLogY stu dY 2014 « hospitaLitY tech noLogY « 29

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Maintain a policy that addresses informationsecurity for employees and contractors 72% 6% 4% 19%

Well-defined roadmap for EMV preparedness 26% 37% 9% 28%

Purchased breach protection / insurance 52% 19% 9% 20%

Managed services provider (outsourced)for PCI Compliance efforts

54% 13% 6% 28%

Detailed privacy policy regarding the useof customer information

59% 17% 24%

• Currently using • Have plans to add in next 1 year • Have plans to add in next 1-2 years • No plans

Point to Point Encryption (P2PE) 43% 25% 8% 25%

Tokenization at the card swipe 36% 21% 9% 34%

specific components of PCI DSS com-pared to the overall 86% compliance rating. For example, only 72% report that their organization maintains a policy that addresses information se-curity for employees and contractors (item 12 of the PCI DSS).

With payment security an ongoing process and a moving target, restau-rants are leveraging third parties for assistance. More than half of those surveyed outsource their PCI compli-ance efforts (54%), and nearly as many (52%) have purchased some form of breach protection or insurance.

Respondents were further asked about their organizations’ use of to-kenization and point-to-point encryp-tion (P2PE). Though not a require-ment of PCI DSS, these technologies can reduce scope by shrinking the footprint where cardholder data is located throughout the organization. Approximately 43% use P2PE and 33% plan to add the technology by 2016. Tokenization is used by 36%, and an additional 30% have future implementation plans.

The food service industry, with its fragmented technology, has his-torically been a target for card data theft. The sunset for swipe cards will be a welcome improvement. EMV preparedness is on restaurants’ radar, with 70% of those surveyed agreeing that it is important to have a well-defined roadmap for EMV pre-paredness. When asked about their organization’s current approach to preparing, however, just 26% report having some form of road-map in place; likely due to the lack of a stan-dard. An additional 37% will make this a priority in the year ahead. With debate ongoing at the top, merchants remain in a holding pattern.•

The U.S. payment industry is in a period of transition. October 2015 will mark the end of swipe-and-sign. While card brands are committed to swapping mag-strip for EMV chip-based cards, the standard for au-thentication remains under debate. At the Smart Card Alliance Payment Summit in February 2014, represen-tatives from Visa, Discover, Ameri-can Express and major retailers dis-cussed whether signature capture or PIN would be a better solution for the U.S. payments industry.

While PIN authentication is consid-ered the more secure option, there’s concern that Americans, who tend to have a variety of credit cards, would struggle to manage multiple PINs. “If the consumer doesn’t want to memo-rize all those numbers, they might choose the same PIN for each card,” said Randy Vanderhoof, executive di-rector of the nonprofit Smart Card Al-liance. “Using one PIN to protect 10 different cards in your wallet now ex-

poses you to the potential for increased fraud.” A representative from Visa not-ed that implementing PINs for credit cards would be too complex and be-lieves in keeping the same verification methods that consumers use today. Discover, meanwhile, highly advocated online PIN for brick-and-mortar retail-ers to take fraud out of the system. A representative for Walmart argued for the elimination of signature noting that, “you cannot argue that signature is more secure than PIN.”

While merchants wait for EMV to become standard, compliance with PCI DSS (Payment Card Industry Data Security Standard) remains the bell-wether for securing transactions. When asked if their organizations are PCI compliant, 86% of those restau-rants in this survey said yes. How-ever, it is also evident that confusion remains over what it means to be PCI compliant. As with previous years, the 2014 survey shows a discrepancy when breaking down compliance with

Payment security Plans for adoptionFigure 14 :

End of Swipe-and-Sign LoomsAs restaurants wait on EMV, many look to reduce their scope and outsource expertise for PCI compliance

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ChAPtER 5: PAymENt SECURity

The 2014 ResTauRanT Technology sTudy is the 16th consecutive execu-tion of this annual research, published by Hospitality Technology magazine. The study draws on the expertise of restaurant professionals who are opt-in email subscribers to Hospitality Technology magazine.

The 2014 survey was set up as an online questionnaire and distributed during November 2013 to restaurant executives via personalized e-mails. Respondents reported that their respective organizations manage and/or own more than 30,250 restaurants, with representation spanning both quick-service (55%) and full-service (45%). The respondent pool’s breadth of operations spans global corporations (17%), national brands (38%), and regional chains (45%). Non-franchised restaurant operators account for 38% of respondents; 45% are franchisors; and 17% are franchisees.

In terms of annual revenue, 38% of respondents work for companies with earnings of less than $50 million; 17% have annual revenue of between $50 million and $99 million; 30% are between $100 million and $499 million; 6% are between $500 million and $999 million; and 9% have annual revenue of $1 billion or more.

Respondents’ job functions span a variety of areas, with the largest portion being information systems/technology management (41%). An additional 15% are in corporate management, and 15% are restaurant own-ers. The remaining 29% include a diverse mix of professionals in financial management, sales and marketing, and operations roles.

In cases where respondents were allowed to select multiple responses to a question, total percentages will exceed 100%. In cases of single-select response options, results were rounded to the nearest whole number and will equal 100%, +/- 1%.

Hospitality Technology is published by Edgell Communications. Research support was provided by ENK Research, a division of Edgell Communications.


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