Video transcript

Stephen Sheldon: At William Blair we’ve had strong long-running research coverage of the restaurant sector by consumer analyst Sharon Zackfia, and earlier this year we expanded our technology research coverage to include some of the leading technology vendors supporting the restaurant landscape. We think there are many positive tailwinds underway in the restaurant technology landscape that should support strong double-digit growth for the sector over the medium-term.

Consumers spend significant amounts on restaurants in the U.S., which was approaching $900 billion annually pre-pandemic. While the pandemic weighed on total restaurant spend over the last year, it caused more of this spend to shift towards digital channels for ordering and delivery from relatively low levels before, and some of this adoption appears like it could last beyond the pandemic with consumers now more fully aware of the convenience of ordering through digital channels. With a large area of spend, and with low operating margins for many restaurant operators, even small improvements in either top-line growth or efficiency can have a multiplier effect on restaurant profit, which is one of the big opportunities for the technology providers. The current technology ecosystem in the restaurant industry is highly fragmented, with many point solution providers only focusing on one small portion of the value chain.

Over the next few years, we believe that restaurants are likely to focus much more on efficiency and incorporating insights from data and analytics into decision making, which will also drive demand higher for end-to-end solutions that are able to piece many datasets together that have been more-or-less siloed before. The current hiring challenges in the restaurant ecosystem are one example. In our view, these hiring challenges could drive more operators to consider incorporating tools like AI to better forecast demand, predict optimal staffing to handle varying levels of demand throughout the day or week, and to increase the probability of a positive guest experience by pulling in as much data as possible about each consumer at the very beginning of the interaction. We have also seen some restaurant concepts use their suite of technology solutions as part of the recruiting pitch to service workers, with an ability to make more money working for a concept that provides better guest experiences through technology. Another example is the increasing price and variability of ingredient costs in the supply chain, and if restaurant operators do not have good grasp of the underlying changes in these costs in real time, then they may miss an opportunity to tweak the menu to better manage unit economics.

Real-time insights are crucial in this industry with so many decisions being made in real time, and we believe cloud-based solutions are exponentially better at providing real-time insights than the legacy on-premise solutions. So we see a lot of opportunities for the technology players across this industry.

And we’re seeing new concepts that will rely almost entirely on technology, including virtual brands that utilize ghost kitchens to serve customers digitally without a physical restaurant footprint for consumers. So overall, we expect restaurant technology as a category to see significant growth in the coming years, and it should be a fun to watch the players in this ecosystem capitalize on these trends.