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Ghost Kitchens, AI and POS Systems: Restaurant Tech Providers Predict Top 2020 Trends

In late 2019, Hudson Riehle from the National Restaurant Association said we were at a tipping point in the restaurant industry, pointing to the emergence of “essentially a new business model.”

In a nutshell, that means a majority of consumers, especially younger consumers, now prefer to eat their restaurant meals somewhere other than an actual restaurant, whether that be via drive-thru, delivery, takeout, or whatever.  

So, what comes on the other side of this tipping point? According to industry technology providers (in many cases, disruptors), the major narratives for 2020 include even more delivery, ghost kitchens, a more sophisticated point-of-sale system and artificial intelligence.  

Delivery

Delivery in particular had a breakout year in 2019 and, in fact, over a third of adults in the U.S. and half of millennials are more likely to order food for delivery compared with just two years ago. 

“Restaurant delivery has gone national. From New York City to Edinburgh, Indiana, 80% of Americans can now order food delivery,” said Toby Espinosa, DoorDash’s VP of business development. 

Indeed, nearly every zip code is now serviced by at least two delivery companies, a change facilitated by more brands signing multi-delivery vendor deals vs. exclusive deals. In July, for example, McDonald’s added DoorDash to its roster, ending its two-year exclusive partnership with Uber Eats.  

“Customers have clearly benefited because it has increased the options for both consumers and for brands. Customers now have far more delivery options at their fingertips and, in turn, brands can use these delivery marketplaces as new customer-acquisition channels,” said Shyam Rao, CEO of Punchh. 

Consumers will continue gravitating toward delivery, specifically third-party delivery from the likes of DoorDash, Uber Eats, Grubhub and Postmates. In 2022, third-party sales are expected to compose 70% of all delivery, up from 37% in 2016. 

Alex Canter, co-founder/CEO of Ordermark, said this market would continue to evolve and innovate with the services they provide and the markets they serve.

“Although there will be some consolidation in the market and it will eventually rationalize, we are still in the very early stages of market maturation,” he said.

Espinosa provided a glimpse of this forecast, noting that DoorDash would continue to focus on incremental selection with new restaurant brands and virtual concepts, and will also launch new products to complement its core marketplace delivery offering.

“At DoorDash, we will double down on our suite of merchant-first services designed to generate value to our partners,” he said.  

 


 

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Ghost kitchens

Driven largely by this increasing demand for delivery, ghost kitchens (also known as virtual or cloud kitchens) also had a breakout year in 2019, generating deep-pocketed investments and earning buy-in from heavy hitters like Chick-fil-A, McDonald’s and Rachael Ray. With significantly lower real-estate and menu-innovation costs, ghost kitchens are expected to continue their momentum.   

“In 2019, we saw an increasingly tight labor market keep a lot of restaurant owners up at night, whose low profit margins leave little room to increase wages. At the same time, the explosion of off-premise dining forced restaurants to weigh the pros and cons of accepting delivery orders. These factors drove the most notable trend in the industry–the rise of cloud kitchens,” said Arman Narang, co-founder of POS provider Toast. “This is a trend we’ll continue to see for businesses who want to keep up with the demands of online delivery and stay ahead in the changing market without greater investment.” 

Canter agrees. “The growth of virtual kitchens is outpacing our projections, and I expect this to continue as the rise of millennial consumers continues to drive innovation and demand for off-premise dining options,” he said. 

Last-mile delivery supremacy has become a major advantage and, as such, not only have ghost kitchens gone mainstream, but mobile kitchens are emerging, as well. Take Zume, for example, which teamed up with &pizza in 2019 to grow the concept’s footprint through Zume’s mobile-kitchen fleet. Pizza Hut also unveiled a “mobile pizza factory” prototype late last year.

“As consumers increasingly rely on food delivery, new methods for getting food closer to the end customer have evolved. Mobile kitchens can be moved to where customer demand is highest and meet changing consumer preferences,” said Alex Garden, CEO and chairman of Zume Inc.  

Direct-to-consumer relationship

Delivery and ghost kitchens are mutually benefiting from the increasing desire for off-premise dining, but at risk with such a demand is the erosion of restaurant brands’ direct relationship with their customers. Who controls customer data, the third-party delivery aggregate or the restaurant, for example? What if the food is compromised when it’s delivered? How much are operators willing to compromise their thin margins for high delivery commission fees?

Because of these risks, Noah Glass, founder and CEO of Olo, said more restaurant brands are focusing on driving traffic directly to their native sites.

“I expect restaurants industry-wide to double down on their direct-digital channels by offering delivery through their apps and websites and maintaining their direct relationship with their most loyal customers, rather than redirecting customers from the restaurant website to a delivery marketplace, where they lose the customer relationship and pay a significant commission cost,” Glass said. 

One of the simplest ways to do this, he adds, is to include a non-compete contractual requirement barring third-party vendors from bidding on brand keywords in online search so that the third-party doesn’t “steal” inbound traffic from the restaurant. 

“Between third-party delivery, ghost kitchens and growing competition, it’s becoming more apparent just how important it is for brands to connect directly with customers via a brand’s owned channels, where brands own the customer experience from the order to the service,” said Dennis Becker, CEO of Mobivity. “At times it feels like [third-party delivery] is a deal with the devil, so we help clients understand how to utilize their owned channels to deliver complete value to customer that transcends the convenience of delivery alone.” 

Mobivity is doing this through its Offer Management solution, which provides brands with the ability to measure return on marketing spend for each channel, for example.

“When brands are able to understand their return on marketing, they quickly see that their owned channels deliver the greatest increases in customer frequency and spend at the lowest cost,” Becker said. “We expect to see the world’s largest restaurant brands double down on their mobile messaging and other owned media channels in 2020.” 

Artificial intelligence

When McDonald’s acquired artificial intelligence company Dynamic Yield for $300 million in March, the industry started paying more attention to what, exactly, AI can do for business. Andrew Robbins, CEO of Paytronix, predicts AI will emerge as “a real and powerful tool” for marketers in 2020, noting that the dataset feeding AI enables companies to predict consumer behavior and nudge them with highly targeted, personal offers. 

“In this way, brands can look beyond broad programs and enable a level of one-to-one automation that has never before been possible, keeping customers coming back and learning from their behavior,” Robbins said. 

Because of these more-personalized experiences, he predicts an increase in subscription services, like what Burger King did this year with coffee and KFC with chicken wings.  

Rao adds that AI could even eventually outperform human marketers. 

“In 2020, AI will be more user-friendly than ever, further accelerating its widespread adoption. Because of this, we’ll see that most campaigns will be powered by AI in 2020,” he said.

AI will also continue to get more sophisticated, eventually enabling features like facial recognition for ordering (see: KFC China). 

Integrated POS systems

Though delivery, ghost kitchens and artificial intelligence dominated industry headlines in 2019 and carry plenty of momentum into the New Year, another major trend has been simmering: the evolution of the point-of-sale system from a payments terminal into an all-in-one system that manages multiple tasks like business intelligence, inventory management and payroll. It’s why Lavu acquired MenuDrive in 2019, and why Toast integrated with Olo, and Tray with Ordermark, for example. 

“The POS system has evolved into an operations hub. The online ordering and delivery space in particular was important because POS providers increased software offerings to help restaurants avoid costly third-party fees,” said Saleem Khatri, CEO of Lavu. 

Khatri said this type of integration — including payments, order management, data analytics and marketing — will be some of the biggest software asks from restaurants in 2020. 

Toast will use its latest round of funding to invest heavily in research and development throughout the next five years to meet these demands. For co-founder Aman Narang, that means pouring over $1 billion into both software and hardware designed specifically for the restaurant space.

“The industry is constantly evolving as new trends like a tough labor market and the emergence of new ‘pop-up’ environments take shape. They present a whole new set of challenges and restaurants need to operate efficiently to survive,” Narang said. “As we enter the next decade, restaurants will prioritize investing in technology that helps them recruit and retain talent while streamlining their operations.” 

This evolution toward a one-stop shop via the POS system is intriguing investors — Toast secured a $250 million round of funding in 2019 — and is also driving material growth. The restaurant-POS market is expected to surpass $22 billion by 2025. 

The POS systems that integrate digital ordering will perhaps have the biggest advantage. Digital ordering is on a staggering trajectory, growing by 23% over the past four years and expected to continue at a double-digit clip through 2020. Such growth is why companies like Olo and Ordermark are securing major funding rounds and why restaurant partners are more willing than ever to add, and prioritize, digital ordering.  

“Companies that invest in the right technologies will be rewarded with vitality and growth, not only in the next year, but well into the future,” Robbins said. 

 


 

This article was written by Alicia Kelso from Forbes and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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