Making
Magic
Happen
Tech budgets are increasing, with integration, mobile transactions, and digital engagement leading the way.
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Academic partner
By Robert Firpo-Cappiello, Editor-in-Chief, Hospitality Technology and Jungsun (Sunny) Kim, Ph.D., Associate Professor, William F. Harrah College of Hospitality, University of Nevada, Las Vegas
LS Retail
Adentro
Elavon
When Hospitality Technology began surveying restaurant operators
for our 24th annual technology study, last December, we immediately noticed a change from last year: an uptick in the response rate, greater enthusiasm for emerging technologies, and a significant
reported increase in spending.
Our hypothesis: The magic is back.
By Robert Firpo-Cappiello, Editor-in-Chief, Hospitality Technology and Jungsun (Sunny) Kim, Ph.D., Associate Professor, William F. Harrah College of Hospitality, University of Nevada, Las Vegas
—National Restaurant Association
The best way to summarize restaurant tech’s 2022 financial outlook is: There’s room for improvement. And, our data suggests, there is also rising enthusiasm and commitment to making it happen.
The bad news, which isn’t really news at all, is that 2021 spending was tight. Most respondents (47 percent) reported that their organization's overall IT budget for 2021 was 1 percent to 1.99 percent of their total annual revenue, followed by less than .99 percent (21 percent of respondents), 2 percent to 2.99 percent (13 percent of respondents), and 3 percent to 3.99 percent
(8 percent of respondents).
The weighted average of IT budget percentage in 2021 is 1.97 percent, which is slightly lower than that of the previous year. This finding indicates that companies' overall IT budgets were slightly lower than that of the previous year, and this likely represents decreased revenue due to the pandemic, resulting in a decrease
in IT-related expenses to increase profits or minimize losses.
After two years of disruption, we’re not the only ones expressing cautious optimism for our industry. The National Restaurant Association’s 2022 State of the Restaurant Industry forecasts the foodservice industry will reach $898 billion in sales this year. To be sure, adjusted for the significant rate of inflation, that’s still down by around 11 percent compared with pre-pandemic sales. But the upward trend is most welcome, with NRA also projecting the foodservice workforce to grow by 400,000 jobs in 2022.
Here, our 2022 Restaurant Technology Study: Making Magic Happen delivers data-driven insights for a restaurant industry navigating health and safety, rising costs, supply delays and shortages, and hiring and retention challenges.
Despite tight budgets
and uncertainty, the restaurant industry is
still enthusiastic and committed to implementing innovative technology.
KEY TAKEAWAYS
Challenges such as legacy and integration, labor, and lack of data analytics maturity are holding many restaurants back.
As auto technology becomes even more integrated into drivers’ lives, there are opportunities for restaurants to reach customers in transit, with in-car ordering, offers, upsells, and deals.
We continue to see widespread adoption
of mobile transactions, including ordering
and payment, the development of mobile apps, and the ability to preview menus and nutritional information.
Guests expect magic — not just fabulous new tastes and dining experiences, but all the ways in which behind-the-scenes technology makes it all seem effortless.
The foodservice industry will reach
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WHO WE SURVEYED
Respondents to this year’s study represent more than 53,000 restaurant locations across the U.S. 59 percent of respondents identified their restaurants as full-service, 50 percent answered quick-service/fast-casual, and 7 percent selected restaurant management firm — with some selecting more than one of the three categories. The ownership models of respondents’ companies include independent/non-franchised restaurant operator (65 percent), franchisor (28 percent), and franchisee (7 percent).
Respondents are IT decision makers and gatekeepers.
When asked to identify their roles, respondents reported their primary
job function as IT/Technology (41 percent), owner/operator
(28 percent), corporate (17 percent), marketing and digital
(9 percent), and restaurant operations (5 percent).
Restaurants participating in our study represent more than
$7.7 billion in annual revenue, with 9 percent reporting 2021 revenue
of $1 billion+, 6 percent reporting $500 - $900 million, 9 percent
reporting $100 - $499 million, 26 percent reporting $50 - $99 million,
and 50 percent reporting under $50 million.
(Percentage of revenue spent on IT)
Restaurant IT Budgets Remain Tight
The average restaurant IT budget in 2021 was just 1.97% of revenue, slightly down from 2% in 2020.
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Looking at how restaurants allocated
IT budgets over the past year, we see
a heavy emphasis on maintaining existing solutions, the top category
at 65 percent, up from 54 percent the year before — not surprising, given tight budgets and uncertainty throughout most of calendar 2021
and a desire to get the most out of existing assets. Rolling out and implementing new solutions was next, at 25 percent (down from 31 percent the year before), with research and development holding steady year-over-year at a modest 10 percent.
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Allocation of IT Budgets
Maintaining existing solutions
65%
Research & Development
10%
Rolling out and implementing
new solutions
25%
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But here is where things start to look up: An extraordinary 72 percent of restaurants report that their IT budget will increase in 2022, including 22 percent reporting that they plan to increase their IT budget by more than 10 percent.
of restaurant IT budgets will increase in 2022.
Only 26 percent report that their budget
will not change, and only 2 percent report that their budget will decrease. In Strategy (page TK) and Investments (page TK), we take a deep dive into where those extra
IT dollars may be deployed.
FINANCIAL OUTLOOK
As noted above, a significant majority of restaurants plan to increase IT budgets in 2022. Our survey digs
into some of the strategic goals and related factors that may be fueling budget increases.
How restaurant brands perceive themselves in relation to their peers can have an impact on goals and investments. It is noteworthy that only 7 percent of operators rate themselves as leaders when it comes to overall technology innovation, with 44 percent rating themselves early adopters — leaving nearly half of respondents feeling they are either late adopters or laggards.
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We see a similar breakdown when respondents were asked to rate themselves on other factors: In regard to using technology to aid COVID-19 safety and general cleaning practices, 59 percent rate themselves as leaders or close followers.
Regarding use of data/analytics,
50 percent rate themselves as a leader (13 percent) or early adopter (37 percent), which is slightly higher than the percentage from the previous year’s survey, 46 percent.
How Restaurants Rate Their Overall
Technology Compared With Competitors
Innovator
Early Adopter
Late Adopter
Laggard
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But in order to gain more insight into restaurants’ data/analytics strategies, we asked respondents to rate the effectiveness of their own strategies in several key areas. That data delivers a sobering snapshot of what we believe is one of restaurants’ most critical initiatives — leveraging a variety of data to help make predictions that can enhance everything from customer satisfaction to inventory, pricing, and workforce. Data/analytics areas that restaurants consider very or extremely effective include food safety and quality, menu performance, website metrics, and promotions. But there is no area of data/analytics where more than half of operators report that high level of effectiveness. Perhaps most significantly, only 19 percent of restaurants consider their strategy for customer insights — arguably the most essential component of a data strategy — to be very or extremely effective.
Restaurants Rate the Effectiveness
of Their Data/Analytics Strategy
(Percentage of respondents answering very or extremely effective)
Food quality/safety
Menu performance
Website analytics (e.g., traffic and log-ins)
Promotions
Pricing optimization
Social media analytics
Inventory/supply chain
Workforce hiring, training, and retention
Guest-check analytics (e.g., upselling)
Customer insights (e.g., profiling/analysis)
Employee productivity
Sales and service prediction/optimization
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We asked respondents to identify their top three strategic goals for 2022. The top two responses, improving digital customer engagement and improving business analytics, reflect restaurants’ ongoing efforts to bring customers into the digital ecosystem and gain insights into expectations and habits. While improving digital customer engagement also ranked number one on last year‘s strategic goals, improving business analytics has risen in importance significantly — no doubt reflecting the attitudes demonstrated in the data table titled Restaurants Rate the Effectiveness of Their Data/Analytics Strategy (page TK). Improving employee productivity and retention has also risen significantly as a top strategic goal, as restaurants face the most serious hiring and retention challenges in a generation.
of restaurants consider their data/analytics strategy for customer insights to be very or extremely effective.
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(Restaurants were asked to identify their three top strategic goals)
Top Strategic Goals for Tech Investment
in 2022
Improve digital customer engagement
Improve business analytics
Improve employee productivity and retention
Reduce costs
Support revenue-generating opportunities
Improve eCommerce/Omni-Channel
Enhance payment & data security
Increase and drive off-premise business
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As a counterbalance to strategic goals, we also asked respondents to identify their top three IT challenges. The top answer, difficulty integrating with legacy systems, speaks to a number of challenges, including tight budgets and the desire to leverage existing assets to the extent possible. This is a refrain we have heard all year: Legacy and integration challenges are holding us back. Other top challenges identified by operators are really part of the same problem: lack of sufficient budget and lack of skilled technology resources.
Difficulty measuring ROI for technology was ranked a top challenge by 37 percent of respondents. We believe the industry is evolving toward a more expensive view of technology, one that views tech initiatives not as a cost center but as a revenue generator.
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(Restaurants were asked to identify their top three IT challenges)
Top Challenges Facing Restaurant IT Departments
Difficulty integrating with legacy systems
Lack of sufficient IT budget
Lack of skilled technology resources in-house
Difficulty in measuring ROI for technology
Rising Customer expectations for technology
Security & privacy concerns with adoption of new technology
Impact of COVID-19
“We believe the industry is evolving toward a more expensive view of technology, one that views tech initiatives not as a cost center but as a revenue generator.”
of restaurants consider their data/analytics strategy for customer insights to be very
or extremely effective.
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We begin our exploration of 2022 investments with off-prem solutions. Over the past two years, drive-thru, curbside pick-up, and delivery have soared to the top of restaurant tech’s to-do list. For many brands, the pivot to off-prem became not only a lifeline during the height of the pandemic but also a catalyst for extraordinary growth in the digital space, including contactless transactions, mobile ordering and payments, and digital engagement and data/analytics. As health and safety concerns appear to be returning back to pre-pandemic levels, we surveyed restaurant operators about their off-prem plans. The most heavily adopted solution is online ordering for pick up, but our data suggests that a significant chunk of restaurants, 13 percent, are adding for the first time. The ranking of off-prem solutions looks very much like our data from a year ago, with solutions such as third-party delivery, curbside, and ghost kitchens remaining essential to growth. An exception is the rise of in-car ordering — as auto technology becomes even more integrated into drivers’ lives, there are opportunities for restaurants to reach customers in transit, with offers, upsells, and deals.
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“Top strategic goals reflect restaurants’ ongoing efforts to bring customers into the digital ecosystem and gain insights into expectations and habits.”
(Percentage of restaurants who have adopted or plan to adopt)
Off-Prem Investments
Online ordering for pickup (13% adding for the first time)
Third-party delivery partnerships (6% adding for the first time)
Curbside pickup (13% adding for the first time)
Catering sales (8% adding for the first time)
In-house delivery, also known as owned or native delivery (4% adding for the first time)
Ghost Kitchens (15% adding for the first time)
Drive-thru (2% adding for the first time)
In-car ordering, i.e., ordering food using a platform pre-loaded in cars (6% adding for the first time)
of restaurants have either adopted
or plan to adopt online ordering.
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We also asked restaurants to report on their adoption of tech features that HT’s 2021 Customer Engagement Technology Study suggests are preferred or expected by restaurant guests. Free Wi-Fi, a favorite among consumers and topping our list, has been adopted by most restaurants at this point. More noteworthy is the widespread adoption of mobile transactions, including ordering and payment, the development of mobile apps, and the ability to preview menus and nutritional information — and renewed enthusiasm for QR codes to access menus and other information.
Free Wi-Fi (4% plan to add for the first time)
Ability for customers to pay via mobile device (24% plan to add for the first time)
Ability for customers to preview menus & nutritional information (7% plan to add for the first time)
Ability for customers to order via mobile device (19% plan to add for the first time)
Your restaurant offers an alternative to a paper/physical menu (9% plan to add for the first time)
Cashless tipping options (13% plan to add for the first time)
Your restaurant has a mobile app (19% plan to add for the first time)
QR codes are provided at the table to access menus via acustomer’s mobile device (19% plan to add for the first time)
(Percentage of restaurants that have adopted, or plan to add)
Adoption of Tech Features That Customers Demand
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Finally, we ask restaurant operators about plans to change tech suppliers in the coming year. Data around this topic can often be a bellwether of the industry at large, and this year is no exception. As we noted above, challenges such as legacy and integration, labor, and lack of data analytics maturity are holding many restaurants back. In this final data table, we see plans to change tech suppliers in point-of-sale, workforce management, analytics, and much more.
It is worth noting that even a small percentage of restaurants switching suppliers represents potential millions in investment.
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POS
Inventory Management
Workforce Management
Payment Security
Kitchen Management
Networking
Business Analytics
Kitchen display systems
Contactless payment
Accounting Systems
Server handheld tablets (i.e., Mobile POS)
System Integration
Reservations/Wait Time Systems
CRM/Loyalty
Mobile Printing
Restaurants Planning to Change Tech Suppliers in 2022
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This year’s data suggests that, despite enduring budgetary pain points, the restaurant industry recognizes that customers expect magic — not just fabulous new tastes and dining experiences, but all the ways in which behind-the-scenes technology makes it all seem effortless. Magic is that satisfying intersection of reliability and wow that keeps us coming back for more.
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KEY TAKEAWAY
WHO WE SURVEYED
in sales in 2022.
Strategy
Investments
READ MORE...
