One of the oldest rules of business is that the customer is king/queen/non-hereditary head of state. And they need to feel like this in every interaction with your brand. While this can be true everywhere, there are few industries where this is more important than restaurants and hospitality.
That's why we spoke to Seth Temko, CMO of restaurant tech company PAR Tech, to share how technology is being used to ensure fantastic end-to-end customer experiences.
Not in the restaurant biz? No worries, Seth has plenty of insights into how applying tech in innovative ways can yield extremely interesting results.
Originally an episode of CMO Convo, so you're free to give it a listen, or have a read of what we discussed below.
Introducing Seth Temko and PAR Tech
Hi, Seth. Welcome to CMO Convo. How're you doing today?
I'm doing well. Thank you for having me.
Thank you for joining us. It's going to be a very interesting conversation because we'll be talking about marketing the unified experience. Before we dive into that, Seth, maybe you can tell us a bit about yourself, PAR Tech, and why we're talking about the subject today.
Of course. I'm the CMO of PAR Technology, which is primarily a restaurant technology company. It's been around for over 40 years and actually invented the restaurant point of sale (POS) system, which we would call a smart register today.
Surprisingly, POS wasn't originally the core business; PAR was founded as a government services business. It just happened that some family members of the founders owned three McDonald's restaurants. This was back in the days when people would manually figure out how much you owed, and the owner of those locations was like, “This is crazy! They can’t do math. They don't collect the right money. They give away too much change. Help, help help!”
In literally a weekend, they created the first prototype, which had push buttons with a pre-programmed representation of the menu and a hardened steel case, durable enough for restaurant environments.
Then other McDonald's franchisees started picking it up, and McDonald's corporate said, “What's this thing we heard about?” and the whole chain adopted it. Later, McDonald's went huge and international, and in pretty short order PAR technology became a public company. That's the hardware story.
Flash forward to today and we do over $100 million of SaaS revenue, and we're quickly evolving what we offer. We've done a series of acquisitions, including Brink point of sale, which does enterprise POS technologies; we have many big brands using that. We also purchased Restaurant Magic for the Data Central product, which does COGS, labor, scheduling, and everything on the ops side of the business.
A couple of years ago, we acquired the leading restaurant loyalty company, Punch. And just a month ago, we acquired a great technology company out of Europe called MENU. That's digital ordering dispatch for third-party entities where you intake the orders, inject them in the POS, get the kitchen working on the food, and then get it into the customer's hands.
What we're working on now is how to take all these different technologies, which are great standalone products, and unify them to create a more customer-centric experience. When I say customer, I'm talking about our operators. They help us define what is best for their customers, the diners.
Sometimes there's confusion in the space. If you're a big franchise system, you own your brand, and your brand is vital to your business. It's not our role as a technology company to tell you what is best for your diners or your brand. It’s our job to listen closely and provide guidance and feedback and be responsive to the experience that they want to create.
If we look at it in a nutshell, the unified experience is about creating consistency across all the various touchpoints. That’s important because a brand is a bank of experiences that lives in people's minds, and we make deposits and withdrawals from this bank all the time as businesses. And that’s not just our products, but how we serve, how we bill, how we contract, how we support, how we innovate, how we communicate, and how we educate.
So those are our direct touchpoints, and then, of course, we have indirect touchpoints. That’s reputation, dark social, NPS, trade show conversations, and comments on social – they’re all part of that brand-building exercise. I would say, as a CMO, you can't lose sight of the customer.
Another thing that I've been advocating for a lot at PAR is the idea that marketing is not the keeper of the brand; we're just a shepherd. We keep our eyes on the entire flock of touchpoints, but every employee in the business is the keeper of the brand. If they have direct or indirect customer interaction, if they don't think about the customer first, we tend to be led astray.
The demands of today’s restaurant industry
Let's get a bit of context about what your customers are looking for right now. What are you hearing from them and how are you responding to that?
It depends on the customer. We have different personas for the roles that we work with, based on the products they buy from us.
If we take our loyalty platforms as an example, we have 200 million US citizens in one of the programs that our platform supports, and by the end of the year, we'll be powering 50 of the top 100 US franchise brands with our loyalty programs. Now, rewards are one thing, but you need to promote your brand and keep it on the shortlist of considerations when someone's hungry.
Customers today in a restaurant want to interact with a brand the way they choose to, and that can change from day to day. In the past, you'd have a persona and track it to the in-store purchase and then to the drive-thru. Now, that persona is more complex. Maybe it’s a parent that picks up the kids from sports practice, and their needs at that time are distinctly different from their needs on a Friday night when everyone's on the couch and they want to relax.
So how do you provide a consistently positive experience? How do you turn hungry to happy? It’s a very simple phrase, but it’s a big and complex equation today, in part because COVID was such a big accelerator in creating different ways for people to order and interact.
Thinking back to 20 years ago, when I was involved with a lot of startups and fundraising, there were relatively few venture capitalists that wanted to invest in restaurant tech – there were so many larger and more exciting industries. Flash forward to today, and roughly a third of every global restaurant dollar is spent in the United States. It's a trillion-dollar industry.
Probably seven or eight years ago, I started tracking investment trends for restaurant technology, and there was this massive amount of dollars pouring in, compounded every year.
We’ve also seen the rise of third-party delivery and delivery of every sort, as well as digital ordering. Certainly, the trend was increasing, but the restaurant industry is traditionally considered a laggard in technology adoption. Still, there definitely was adoption.
Typically, those that had more money would spend more. In the hospitality industry in general, though, when times are good, they don't invest, but when their backs are against the wall, they invest a lot of money. I saw that with 9/11, I saw it with the Great Recession, and I'm seeing it now with COVID.
During COVID, the ability to directly interact through either a drive-thru window or a counter to get food was turned upside down. There was a big scramble to figure out what to do and how this experience needed to shift. That had a cascade impact. That's the customer interface side of things, but at the same time, we had labor disruption.
A restaurant is a just-in-time real-time order manufacturing process to get something hot and delicious (you hope) into someone's hands, and kitchens only have so much capacity. However, if that process gets too extended, then you stock out and lose money. If you don't have the employees, your capacity to manufacture gets reduced, so it causes a lot of issues.
Coming back to tech adoption, there are direct channels, there are indirect channels, and then there are mega tech companies trying to figure out how to get involved as well. That's been a larger challenge.
Amazon Restaurants was tried and shuttered after about a six-year period. Google now has some direct hooks in ordering through their maps application, and that’s their first foray into the industry. All these environments are changing, and the number of options and ways to order is significantly different.
That changes the loyalty side too. You need to get your customers coming back, but if they’re ordering through a third party, you may not even know they are. Ironically, that means restaurants are back to stapling notes on a bag to try to get customers to sign up for a loyalty scheme or a promotion and divert that relationship between the third party and the diner back to the diner and the restaurant.
In the restaurant industry, marketers, operators, people in charge of finance, and CEOs are asking how to maintain direct relationships with customers. It’s a huge and very important challenge. Then there are also questions of how to get customers coming back and how to get them to try new things or increase their average order size. Big challenges.
In QSR – we call them quick service restaurants because no one in the industry likes to hear about fast foods – in fast casual, and in casual tableside dining, labor is still a massive and critical issue too. You can turn on all these new order channels, but at the end of the day, if the kitchen fails, the restaurant fails. It doesn't matter what new digital technologies we come out with; that is a challenge that exists.
In the meantime, you have MrBeast, a huge influencer, who goes and opens virtual kitchens during the COVID period. Strategically, it was a great time to do that – people were bored at home and seeking different ways to entertain themselves, so he created new relationships with his brand. I haven't tried the MrBeast burger, but it's got to be pretty good because they've done very well.
They've just opened their first physical location, and there were 10,000 people there for it. We have our Brink POS system in there, and we know they did phenomenal business on their opening day and have done pretty consistently ever since.
I look at all this, and I go, wow, how can you be a restaurant operator? How do you deal with all this? So we're trying to show that we can make decision-making simple. Simplification is amplification, so if you can reduce the number of vendors you’re dealing with that’s going to give you a boost.
Of course, we hope that people choose our technology stack, but we’re trying to be complete and yet completely open. We know that in enterprises there are certain technologies that businesses become dependent on or that are highly integrated into the back office or financial systems. You could be a CIO who knows that if you remove a certain system you’ll have 40 people storming your office to string you up.
These are all real considerations, but if you can reduce your vendors, you reduce your costs and your complexities. That's true across all industries, right?
At the same time, it is difficult if you need to move fast. Think of going through a selection process, finding a vendor, contracting, and getting that connected to your in-store systems. Then you need to make that work across all your customer experiences and touchpoints – the booth, the kiosk, the counter experience, the drive-thru, the social media order, the third-party order, the website order, the loyalty app, and we go on and on. It seems like it doesn't end.
Even with all this going on, you can’t lose sight of the core. If technology becomes a distraction from the delivery of “hungry to happy,” stop, rethink, and reorganize. Maybe the tech’s not as important as you think it is.
Maintaining customer relationships in an irrational industry
One of the challenges of creating a unified experience in the restaurant industry in particular is that the choice you make about where to eat is a very irrational one. It might not even have anything to do with the food. You might just like going to a restaurant because you like the cutlery, the decor, or the music they play.
How do you provide a connection between the brand and the customer that maintains that relationship, despite it being an irrational choice?
There are two branches you need to think about. There's hungry to happy – that's about the diner – and there’s passion to success – that's about the operators and the brands.
Let’s start with your existing customers. They have expectations of their dining experience, so one of the first things that will negatively impact your brand is to disappoint. Maybe you're out of a particular food item. That’s not great. I think customers will forgive a steak that was served medium-rare and not medium, as long as you correct it. Most customers don't forgive poor service. If we look at fast casual or tableside especially, those kinds of things are important.
The whole idea of QSR and scalability is expectations being consistently met. A Big Mac on the east coast of the US is the same as a Big Mac on the west coast and it's the same experience you'll get in Mexico City. Of course, now there are global variations on some of those items, but that idea of consistent quality remains.
Decades ago, when McDonald's opened in Russia after the Soviet Union collapsed, they had to create their own bun manufacturing facility because they couldn't source buns that met their quality expectations locally.
That's just bread-and-butter table stakes. You need to make sure you’re meeting your customers’ expectations. Then the question is, how do you elevate that? How do you make it a better experience?
I'm big into agile and testing before scaling anything in a marketing program or operations. Sure, you can try different menu items, but what about your music, for example? Is it annoying people? Is it acceptable? Is there something different that's better? Or should you just take your music away?
For a while, I thought Starbucks was going to become a music label. It seemed like everything in Starbucks was about selling CDs and featuring artists, then they pulled back from that and got back to the core. That's when the founder came back as a CEO, and they said, “Let's get back to beverages.” Then they expanded to light dining fare, which just skyrocketed their revenue, and it was such a no-brainer, considering the size of their operations.
We've been talking about the customer experience, but if we talk about a unified experience, I like to think of it as bookends, and in the middle is the customer. You have to zero in on what aspect of the customer experience you want to unify and make better. It could be a unified data experience, for example.
In the case of us serving restaurants, we could ask if they want to build a unified employee experience, a unified operator experience, or a unified diner experience. From there, we double-click into the areas of need and look at where they can innovate and provide better service overall.
It all works together. If your employees are frustrated and you're understaffed, chances are your customers are going to feel that impact. Your operators and your financials are going to suffer because of that.
People come to us as a multi-product technology company, and it’s like the old joke – “Hey doctor, my elbow hurts when I move my arm,” and the doctor says, “Well, stop moving your arm then.” Obviously, we can't do that, but when we start looking at it, we realize, holy cow, you have other issues. You're walking sideways and only using your right arm because your left arm is tied to your side because of the systems or technologies of the past.
I think technology is like that. When it's new and it serves its purpose, it's a sail that propels your brand and operations forward. However, technology is moving so quickly, and the latest technologies always have the advantage over prior technologies. They let you leverage the newest and the best, so a leading technology can go from being a sail to an anchor.
The technologies are starting to have to work together in more and different ways. Once again, that's getting to you having multiple vendors, which brings all this complexity. It’s simple math. If I have seven different products from seven different vendors, I have 49 possible points of failure. Then if we take cascade failures into account, we go beyond 49.
When you simplify, you get less risk. You're getting better contracts and you have fewer points of failure. It puts a burden of reconciliation and resolution on just a few vendors, so you typically get a resolution faster.
And then you have passion to success. How do you turn all that energy and drive into a business that doesn’t just satisfy the customer but retains employees? I think brands are realizing that technology truly should be part of the brand strategy. It can give benefits that lift the whole company.
Today, I don't think there are many marketing departments where you can’t look at operational efficiency and impact. The restaurant industry has such tight profit margins, so you're looking for repetition. To scale, you have to look at operational impact. It's really interesting for just menus. Menu hacking is a thing with customers.
The rise of menu hacking
Can you explain a bit more about menu hacking for those who’ve not heard the term before?
There's a thing going on in various social channels about Chipotle. I hope they've plugged this hole because I certainly don't want to multiply this. Let's say a burrito is $8, but you can get three tacos for $3. People have figured out that you can add enough free extras to get the equivalent volume and calorie count from your $3 tacos as from an $8 burrito. It's not the same experience as a burrito, but it’s close. They share that knowledge, and that's a menu hack.
Of course, the brand never intended that to happen, and you have to handle it quite subtly if you don’t want 50,000 people calling you rude on social media. The brand is usually to blame there, regardless of the circumstances.
Now, a smart brand may turn menu hacking into almost a kind of Easter egg. They could purposefully drop hints about it but have a scaling limit. It can even become part of the strategy to tap into people’s enthusiasm for finding secret bargains.
Other brands have tapped into secret menu items. If you ask for one of these items, the server grunts that it’s in the back. You can make it playful and make it part of the brand.
Do you think that could be an angle for virtualization in the restaurant tech industry – that gamification of looking for deals?
It could be. It all depends. There are a lot of ramifications to deals and deal-making. Certainly, restaurants are no strangers to loss leaders that get people in the door, but the challenge, especially for QSR, is if millions of people do that loss leader at scale, what’s the impact?
That gets down to franchising systems. The franchise holder has a percentage of gross revenues and depending on their profitability and what franchise it is, they could be the equivalent of an equal partner to the people who are running that restaurant.
But there's a key differentiation: if you own the restaurant, you're based on your profits, but the brand gets the top-line revenue. That has caused, for different franchise systems, periodic conflict and controversy.
I’m not going to name names, but certain operators are complaining that the decision to provide a sandwich at the same price for 20 years can’t possibly have taken inflation into account. That's legitimate. Inflation is the big ugly beast in pretty much every industry right now.
There's a lot of balancing of these offers. Technology companies can help by giving a unified view of real-time data that informs your decision to extend a program or terminate it early (as long as you haven't made promises to the customer around it). It can even give you insights into aspects of the menu that you weren’t aware of.
I know statistical experts who can look at a menu, examine regions, and say, “You can charge 12 cents more for a medium combo. It won’t lose you any customers and, because you have X thousand stores, it will generate a million dollars.”
Some might question whether that’s fair to the customer, and the answer is you're always looking for equilibrium. If a business cannot be profitable, it cannot serve the customer. I think sometimes when people talk about consumer rights and what's good for the consumer, it has to be good for everybody. That's what a free economy is about. That's what free market systems are about.
Competition means that, typically, certain brands don't get away with something that people say is wrong or imbalanced. There's so much competition in the restaurant industry that nobody has the absolute upper hand, whether that be in independent restaurants or restaurant franchise groups.
Technology and the psychology of buying
That competition is why it's so important to build up brand loyalty through a unified experience. If customers are loyal to a brand, they'll accept certain changes that they might be marginally unhappy with, like say, the cost of their favorite menu item going up by $1. If it’s a brand they don't have that sense of loyalty to and they see that burger’s gone up in price, they'll go to a different burger chain where it's cheaper, surely?
Yeah, absolutely. There's a psychology to buying, of course, and I've done a fair amount of research into it. You can segment your customer and look at why people are buying and then focus on your most profitable customers. If you serve your most profitable customers first, it's much easier to then extend the same practices to other customers as well.
With certain technologies, when you remove a person, people order more. As an example, the average ticket size when people order at a kiosk is typically at least 15% higher than if someone orders at a counter. It has to do with dessert and portion size.
If there’s a skinny teenager asking if you want to supersize and you’re not necessarily the perfect physical specimen, you might be like, “Hmm… No.” But at a kiosk, you may click yes, because it's only X dollars more and you want that value.
There are similar behaviors online. Where it gets complicated is if you order an $8 item and get a $6 delivery charge, a $1.95 convenience fee, and a $2.50 charge for your small volume order. During COVID, people were happier to go with that to support their local restaurants, but I think now they’re taking a much more critical look. Once again, it becomes a complex balance between profitability, experience, and expectations.
One thing we're going to be launching next year is order throttling. The kitchen only has so much capacity, and that's if you're fully staffed. We've helped some brands like Tropical Smoothie understand their critical needs so that they're staffed to the right levels – not overstaffed or understaffed; they get it just right. That means they can serve more smoothies per hour – a real metric they go by that feeds their operational metrics and financial results.
But what happens when you have the capacity to do 100 orders per hour, but three people haven’t shown up for their shift? You can't do 100 orders. You literally can't, yet ordering channels are blind to the capacity and any prior orders in the kitchen. We're working hard to resolve that, so that not only can customers be kept informed, but you can also dictate which channels are the business’ priority.
There was a scramble to allow orders through apps, websites, drive-thrus, third-party platforms, kiosks, and on and on. But what happens when it's six o'clock on a Friday night and everybody wants pizza? Boom, you're flooded with orders. The kitchen is overwhelmed, your employees are stressed out, and your customers are becoming unhappy fans.
They ordered from you because they have a relationship with you and they want to turn hungry to happy, but during these busy periods, most technologies are struggling to set expectations.
We're looking to shift that. Imagine it’s Friday night, and you're going out for dinner with a friend. If you go to a table service restaurant with no reservations at prime time, you have one simple question: how long is the wait? Then they tell you a time, and you say “Okay,” or, “Nah, let's go somewhere else.” We're working to make that possible on other ordering channels through restaurant technology.
The next step is to refine that to a point where the kitchen’s volume and capacity inform the customer’s expected wait time. Also, as the order is working through the process, you could have notifications to keep the customer updated, reset expectations, and maybe even surprise and delight: “Hey, good news! Your food is going to be ready 10 minutes early.”
I think it’s amazing to be able to do something that you could only previously have done in person in a table service restaurant, at scale, affordably, and in a digital format
The future of restaurants
That leads us neatly to our next question, Seth. What is the future of these unified marketing experiences? What’s on the horizon that we need to start preparing for now, and what kind of foundations need to be in place to hit the ground running with these new technologies?
The fundamentals of the restaurant industry and the customer journey within it are going to stay the same. You have a menu, the customer orders their food, the kitchen prepares it, and one way or another the food gets into the customer’s hands. Ultimately, that has not changed, and the layer of technology needs to address that. It doesn't matter what direction the final state of the technology is going in.
The reason I bring that up is that we now have to look at how we unify the technology involved in these journeys. How does it get ported? What is the system of truth? Where does data truth lie?
I have this debate with other restaurant technology nerds like myself, and I'm asking why we even have a fixed-price menu anymore. Why couldn't the digital menu be particular to you or me? I'm going to talk about big data, so this becomes somewhat controversial, but if you can determine my income level by zip code or using Google data, why couldn't you use that information to tailor a menu?
We talk about freedom a lot in the US. We like free and we like freedom. If you say freedom is choice, well, you can have too much choice, and it can be overwhelming. A simple solution, if you have my loyalty ID and you know my past orders, is to offer those items first.
Oh, and by the way, instead of just a pre-programmed reward system, maybe I'm less concerned about getting something for free and I would just like to cut the line every once in a while. I want the Disney FastPass experience. How about every 10th time I order a pizza, I get to jump the 30-minute wait?
Getting back to demographics, what about the ability to pay? Whole segments of your customers have different priorities. We talked about value and those hacking value to get the most calories for the least money. And then there are those who have different priorities; we've seen a shift towards eating more healthily, which people are typically willing to pay more for.
I was just warning about how high the surcharges for online ordering and delivery may be, but then there's the converse. If it's super convenient, I may be willing to pay more, and I may be in a position to pay more. If restaurants can use data to differentiate the experience based on people's backgrounds, preferences, and desires, why not seek to do that?
I would argue that if you do that, you're probably going to see your average ticket size go up. You'll probably see the frequency of purchases increase, and your total lifetime value will go up too.
Another area that all customer-facing technologies need to explore more is how to use voice analysis and video analysis for innovation. I'll give you an example: drive-thrus. For QSR, the drive-thru generates the majority of revenue at the physical location. In-store dining has consistently decreased, while drive-thru has increased for decades.
You have to think about drive-thru not just as ordering and picking up at a window, but maybe ordering on an app and picking up at a window, and there are tons of variations on this. Once again, COVID accelerated all the ideas for possible paths from hungry to happy.
So how do you create drive-thrus? Well, drive-thrus are all about speed of service, so the more vehicles you can get through in a given day, the higher your revenue and profitability.
We acquired a product called Techknow earlier this year, and it offers a couple of ways to track the speed of service. We do gamification between local stores – “Hey, the Irving location isn't gonna fail to the Addison location, right? Come on team! We can beat them!” That stuff works with human psychology and also gives you insights into the business.
But typically, you're making big holes in the pavement and putting in pressure sensors, then you can measure variations in contact and track your customer numbers and wait times. There are AI companies using video to track the same things.
That can also make you aware of cheating. How do you cheat with that? You ask the customer to please pull forward and wait on the side, and once they’re past the sensors, the system considers the order complete, even if the food isn’t in the customer’s hands yet. We also see staff grabbing a tablet and wading through the line – trying to line bust, essentially. Sometimes it's legitimate because your drive-thru is not built for the volume of customers it’s seeing.
Cameras need to be aware of all of this, as well as the people pulling up, turning around, and driving away. Then you can see that the drive-thru queue is too long and you can start to understand uses and traffic patterns better.
The new restaurant concepts look very different from buildings built just five or 10 years ago. Taco Bell is moving to test a restaurant resembling a kitchen on stilts with four lanes underneath and a kind of tube that will lower platters of food. I don't think I ever would have predicted anything like that, but this is the way the industry is going.
I've seen other brands like Portillo's Hot Dogs, a Chicago chain with excellent fare, testing kitchens with four drive-thru lanes. The first big innovation was going from one drive-thru lane to two. Chipotle has pickup-only lanes for customers who order on the app. Now we're looking at two order and pickup lanes and two lanes for just pickup. They're also doing dedicated lanes or windows for just third-party delivery now. It’s all very different.
The parking lot is the hot area of innovation for a lot of QSR restaurants now. How will we manage that? Well, I think AI and video can provide a lot of operational knowledge and awareness to allow for improvements and a great hungry-to-happy service.
These developments sound exciting and very different from what we've been used to in restaurants. And, importantly, it sounds like it's all about keeping the experience consistent, unified, and customer-centric. Seth, thank you very much for revealing those insights and for joining us today.
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