Restaurants and Institutions

Chris Muller

The “Leapfrogging” of Restaurant Technology by Outside Innovators
October 30, 2007

Michael Fitzgerald begins his article, “Making Fast Food Even Faster” in the Oct. 28 issue of The New York Times with this statement: “Fast food is a slow sell for new technologies.” He then describes an array of new technological advances, many of them in use by other industries for many years, which the restaurant industry is very reluctant to adopt.

Let me suggest a reason why this is true.

Since the early 1950s, leaders across the restaurant industry, not just the segment unavoidably called “fast food,” have worked with the perspective that labor is cheap and technology is expensive. Ironically, this perspective came about because of the enormous technological changes ushered in by innovators such as Ray Kroc and Fred Turner in the early McDonald’s system.

The lesson for the industry is what the New York Times article really points out “between the lines”: Technology innovation in the restaurant business comes from people who are usually not from the restaurant business, but are outsiders looking for a competitive advantage.

This is because, as Fitzgerald notes, “the market is also risk-averse.” He credits Technomic President Ron Paul with observing that traditionally there are “low-tech, low-cost alternatives” for speeding up service (translation: throw labor at the problem). According to Fitzgerald, Roger C. Matthews Jr., who heads Goldman Sachs Group’s restaurant division, says that the main budget priorities of the industry are food quality and restaurant image with “new technology a distant third.”

There are numerous examples of restaurant outsiders leaping ahead of the status quo because they had new ideas for enhancing speed, quality and image. Here are two obvious ones that should serve as a “heads up” for those reluctant to adapt and change.

1. McDonald’s founder Ray Kroc, a salesman who was not constrained by being a risk-averse restaurant executive, redefined restaurant productivity by using technologies applied from other industries to speed up service.

2. Starbucks Chairman Howard Schultz, a retailer who was also not constrained by being an industry insider, applied back office supply chain technologies to radically change visible customer service quality.

For both innovators, technology was a low-cost means to leapfrog over existing competitors, with the unanticipated result of also changing the image of the restaurant industry.

Adopting cutting edge technology for a start-up business model is often easier, and far less costly, than trying to play catch-up once an application is widely available. Far too often it is the innovators from outside the industry who see a new technology as the foundation for jumping ahead of the existing market thereby creating a substantial competitive advantage for their businesses.

On the other hand, applying an innovative technology to an existing business model usually requires a large investment because changing the way things are done through new systems and equipment is expensive. Such a large investment requires a commitment to forward, long-term thinking because capital resources must show a positive future return in order to be obtained.

When decision-makers are risk-averse, foreseeing the need for technological change and acting to secure long term investment to implement them are not always encouraged behaviors.

One last but obvious lesson: those companies that don’t adopt new technologies are usually the ones which don’t survive.

Posted by Chris Muller on October 30, 2007 | Comments (0)