How Technology Impacts Restaurant Profit Margin

Operating a viable restaurant business is a balancing act. You must find ways to keep revenues coming in with an enticing menu and memorable dining experiences while controlling costs and protecting the bottom line. Many restaurant operators use the 30/30/30/10 rule as a guide: 30% of costs for food, 30 % for overhead, and 30% for the labor. The remaining 10% is the restaurant’s profit margin. However, Restaurant365 reports that many businesses fall short. Full-service restaurants only average between 3 – 5% profit, and fast casual restaurants do a little better, averaging between 6 – 9% profit. Furthermore, with already slim margins, rising costs for food, labor, rent, utilities, and more make it even more challenging to stay in business.

Restaurants are also facing the challenge of evolving consumer behaviors. According to the National Restaurant Association 2022 State of the Restaurant Industry Report, diners would like to see restaurants incorporate more technology into their businesses. Consumers, who expanded their use of technology during the pandemic, want to see restaurants use tech to improve customer service, make ordering and payment easier, provide information about foods, and enhance the speed and convenience of service.

The report also states that more than 80% of restaurant operators are turning to technology to overcome those challenges and gain a competitive advantage.

How Technology Can Improve Your Restaurant Profit Margin

Restaurant IT solutions are available for both the front- and back-of-house, allowing restaurant operators to create profitable operations through digital transformation. Crazy Bowls and Wraps reports a 38% increase in average ticket; it’s clear that there are benefits to ramping your technology in QSR.

Streamlining and automating processes with the following technology solutions helps operators find the critical balance between providing loyalty-building customer experiences and maximizing restaurant profit margin.

Kiosks

Self-service kiosk adoption is increasingly common in the quick service restaurant (QSR) segment. However, all types of restaurants contribute to a 6.9% CAGR in the kiosk market, projected from 2021 to 2028, as they digitally transform their operations. For example, Yum Brand’s Q3 2022 earnings call included news that KFC’s kiosk sales grew more than 40% year over year and now represent 6% of sales – even though only 15% of its restaurants have kiosks.

• Increased revenuesKiosks give customers more control. They can take their time, review the menu at their own pace, and order exactly what they want. Customers can also order without judgment, choosing to “supersize” if they wish without employees or other customers hearing them. Additionally, kiosks upsell consistently. The outcome is higher average orders. PYMNTS reports that order size can increase by as much as 30%.
• Happier customersConsumers prefer self-service options. About 84% of Gen Z and 82% of millennials choose restaurants with self-service options over restaurants that don’t offer this convenience. Additionally, 74% of consumers will likely use them at QSRs and fast-food restaurants.

POS Systems

While point of sale (POS) systems allow restaurants to take orders and payments, they can also help restaurants control costs and increase sales. With the visibility POS systems provide into operations, restaurant operators can pinpoint sources of waste and loss. POS systems can also reveal ways to increase restaurant profit margins. Some POS system features that help improve the bottom line include:

• Inventory managementThe USDA’s Economic Research Service estimates that 31% of food waste occurs at the retail and consumer level. A POS system’s inventory management features keep restaurant operators apprised of stock levels to avoid over-ordering, reducing mistakes and overstocking by 17%. Inventory management software also provides information about aging stock so chefs can use it rather than waste it. Inventory management capabilities also allow restaurants to track their food purchasing trends and costs to make informed decisions about when to order and which vendors to use to get the best prices.
• Access controlThe National Restaurant Association (NRA) reports that 75% of inventory shortages are due to employee theft, and QSRs can lose up to 7% of sales because of employee theft. Restaurant POS systems require employees to log in using a smart card, passcode, or fingerprint scan. This capability ensures that only authorized people can access the system and open the cash drawer. Furthermore, it keeps a log of employees who used the system and their transactions. If losses occur during a shift, operators can trace them back to specific employees – and this capability alone can prevent employee theft.
• Order takingPaper-based order-taking processes can lead to errors. Illegible handwriting will result in the kitchen preparing the wrong items, and the kitchen staff can misplace or lose paper tickets. Entering orders into a POS system increases order accuracy, mainly if customers can confirm them on a screen or display. Additionally, the POS system immediately communicates orders to the kitchen, ensuring that no orders (and revenues) are lost and no food is wasted. With employee training and well-planned processes, tech can help restaurants achieve their goals of 98% order accuracy or higher.
• Online orderingPaytronix research reveals that 33% of restaurant orders are now placed online. Restaurants can accept orders through third-party services like Grubhub, Door Dash, and Uber Eats. However, fees for those services can eat into the restaurant’s profit margin. An alternative strategy is integrating an online ordering platform with the POS system to accept orders directly. It eliminates those fees and allows the restaurant to control the entire customer experience.

Touchscreen Menus

Transitioning from paper menus to touchscreen menus enhances customer experiences with engaging images and enticing specials to boost revenues, and it can also help reduce operating costs and improve restaurant profit margins in several ways, for example:

• Eliminating costs of paper menusRestaurants that use paper menus pay for printing and shipping each time a menu changes. Energy-efficient interactive menus will reduce the costs of displaying menu items for customers. Savings add up quickly. For example, if printing a menu costs $200, a business with 10 locations and 12 menu changes each year can save $24,000 annually.
• UpsellingInteractive menus are much like kiosks, where the guest may learn more about menu items in detail; they see all the available customizations and tend to add on and customize more. These menu’s also reliably offering complementary items and may use AI to share what others that order this item add on. This leads to a significant increase in order size, which goes straight to the restaurant’s bottom line.
• Easily rotate offer contentInteractive menus give restaurants agility that printed menus cannot. They can easily change content to promote seasonal offers, quickly change course to improve customer experiences, and even boost sales of items so foods don’t go to waste. Restaurant operators can also pivot quickly when a menu item sells out, reducing the disappointment of the customers asking for something that is unavailable. This flexibility gives restaurants more control of costs and the experiences they offer.

Kitchen Display Systems

Many restaurants that digitalized their processes began by taking orders on the POS system and sending them to kitchen printers. However, printers in the kitchen have a downside. The hot, humid environment needs to be more technology-friendly, and printed orders can become lost or smudged, leading to errors. Also, orders that involve work at different prep stations are difficult to coordinate. A kitchen display system (KDS) overcomes these challenges, improves front-of-house (FOH) and back-of-house (BOH) communications, and saves time and money by:

• Improving speed and efficiencyWith a KDS, the kitchen immediately receives orders, and all prep stations receive the necessary information. The KDS can provide directions to staff, and it also prioritizes dishes so orders are completed at the same time. Overall, the FOH and BOH operate more efficiently, which may ease some of the challenges created by the restaurant labor shortage, which exceeded 1.4 million accommodation and food service workers in September 2022. It also helps an operation minimize training time for new hires, thereby improving the restaurant’s profit margin.
• Optimizing FoH and BoH operationsA KDS collects data on ordering and food prep processes. Operators can use this data to evaluate the time it takes to prepare certain items and, in turn, their profitability. KDS data will also reveal bottlenecks and give managers the information they need to refine processes. KDS systems can even help manage inventory with integrated scales for each menu item configuration; input on-hand inventory and watch your KDS calculate usage and re-order times. Greater efficiency leads to lower costs and a healthier bottom line.

Mobile POS

Experience is key to 96% of consumers as they make purchasing decisions, so delighting customers is essential to operate a thriving restaurant. Taking point-of-sale functionality to customers to the table or car side in the drive-thru line enhances customer experiences with speed and personalization:

• Service speedTraditional FOH operations require servers to walk back and forth to a POS terminal four or five times. They take an order and enter it at the terminal. They walk back to enter additional drinks or desserts. When it’s time to present the check, they go to the terminal to print the bill. Then, they return to run the payment card and print a receipt. When the customer adds a tip and signs, the server returns to the terminal to complete the sale. Equipping servers with mobile POS solutions eliminates those steps and the extra time they take. Servers have POS functionality at the table or drive-thru queue to enter orders and accept payments. The impact of restaurant tableside ordering and payment on a restaurant’s profit margin can be significant. Mobile POS can result in 15-20% faster table turnover time, which allows more seatings during a shift. Although the cost savings will vary, restaurant operators can use a labor cost calculator to estimate how much a mobile POS solution can save.
• Personalized serviceMobile POS solutions also benefit restaurants by capturing more data. Servers can build customer histories, noting their seating preferences, birthday or anniversary, and other information that can make future dining experiences more memorable. Servers can also easily enroll customers in the restaurant’s loyalty program, enabling more engagement and enhanced experiences and increasing repeat visits and average order sizes. Additionally, operators can use this restaurant’s customer data to tailor messaging and promotions to increase traffic and improve marketing ROI.

Evolve and Thrive

The 2020s decade has ushered in significant challenges, including COVID-19 dining room closures, new operating mandates, and changing customer preferences. Additionally, sales in 2020 fell below forecasts by $240 billion across the industry, requiring businesses to adapt their operations so that they could continue to operate and still have a positive bottom line. Technology, from advanced POS systems and digital menu boards to KDS, self-service kiosks, and mobile POS, is the foundation of many new operating strategies. Assess your operation and evaluate how you can use these solutions to digitally transform your restaurant, gain an all-important competitive edge, and increase your restaurant’s profit margin.