The R&D Tax Credit Aspects of Restaurant Technology
Restaurant-Technology
National restaurant chains are being
confronted by higher food costs, changing customer
preferences, mandated increases in hourly and manager overtime
pay, and increased competition. These trends have driven the
implementation of an unprecedented level of new technologies
in the restaurant industry including mobile ordering,
innovative service models, advances in restaurant automation,
and much more.
The present article
discusses the latest trends in restaurant technology as well
as the R&D tax credit opportunity available for companies
innovating in this industry.
The Research &
Development Tax Credit
Enacted in 1981, the Federal Research and
Development (R&D) Tax Credit allows a credit of up to 13
percent of eligible spending for new and improved products and
processes. Qualified research must meet the following four
criteria:
- New or improved products,
processes, or software
- Technological in nature
- Elimination of uncertainty
- Process of experimentation
Eligible costs include
employee wages, cost of supplies, cost of testing, contract
research expenses, and costs associated with developing
a patent. On December 18, 2015, President Obama signed the
bill making the R&D Tax Credit permanent. Beginning in
2016, the R&D credit can be used to offset Alternative
Minimum tax and startup businesses can utilize the credit
against up to $250,000 per year in payroll taxes.
Mobile Restaurant Apps
Mobile technology is being used by food
chains to create apps that enable customers to place orders
from their smartphones. Mobile apps have many advantages
besides just being another way for businesses to differentiate
themselves from their competitors.
Mobile apps allow
restaurant chains to become more interconnected in their
customer's lives. A mobile restaurant app residing on a
customer's phone not only allows the customer to order
remotely, it also acts as a free daily advertisement.
Americans on average spend 162 minutes a day on their
smartphones; 86% percent of this time is spent using
apps. The likelihood is high that at some point in the
day customers will see an app icon of a food chain on their
phone. 
Strategically timed,
promotional push notifications can also be used to increase
sales generated by mobile ordering apps. Using push
notifications, promotions can be sent right before lunch to
increase mid-day sales or they could be used to convince
parents on their commute home from work to pick up some take
out for the family.
Mobile apps promote
improved in-store customer service, giving customers multiple
ways to order and leading to shorter lines in restaurants.
Since customers associate shorter wait times with better
customer service, this translates to an increased probability
of customers returning to restaurants and therefore increased
sales overtime.
Mobile apps also
facilitate the development of delivery services. Fast food
franchises like Mc Donald's, Burger King, and Taco Bell are
well established, however they have, for the most part,
forfeited the opportunity to generate revenue from delivery
services. Currently, mom and pop-owned restaurants dominate
the food delivery market, but mobile technology looks to
change this dynamic.
Nation’s Restaurant News reports:
“The rate of adoption
for traditional loyalty programs is about 5 percent to 12
percent. For mobile payment combined with loyalty
programs, the adoption range increases to 18 percent to 28
percent. Put mobile payment together with order-ahead
capability and a loyalty program and that range climbs again
to between 15 percent and 35 percent."
Adding delivery services
to these loyalty programs will likely increase adoption rates
further.
Mobile apps and ordering
is important for national restaurant chains to stay
competitive, however some details still need to be ironed out.
One problem with mobile restaurant apps is they take up memory
on customers’ phones. If users want to download the app
for all their favorite restaurants, their smartphone may soon
become cluttered.
Moving forward, it will
be important to develop high-quality restaurant mobile apps
that take up very little memory. This means that restaurants
will have to implement cloud technologies and might even have
to collaborate to create an app that houses all the individual
food chains’ apps.
Innovations in Service
Models
National food chains know that managing
restaurants is a science that requires skill, efficiency, and
precision; that is why they are always researching and
developing ways to improve their service models.
One innovative service
model is upstream ordering. Having customers wait for extended
periods is not only poor customer service, it is also costly.
The more customers a restaurant can serve in an hour the more
sales they can make. Upstream ordering works by taking
customer's orders while they are on line as opposed to when
they reach the cash register. Once the customer order is
taken, it is sent to the kitchen to be prepared. The customer
then pays at the register when they get to the front of the
line.
Chick-fil-A is
just one example of a national restaurant chain that has
implemented upstream ordering. It took Chick-fil-A two years
to develop their upstream ordering process. Initial testing of
Chick-fil-A’s upstream ordering determined that the time it
took from when an order was placed to when an order was
delivered was reduced by more than half.
Another trend that will
have profound effects in the restaurant industry is the use of
tablet technology. Restaurants are now using tablets as a way
to improve the customer experience while simultaneously
increasing sales. Restaurants are affixing tablets to tables
so that customers can pay for their meal without waiting for
their busy server. It is all too common for diners to wait for
excessive amounts of times for their server when they are done
with their meal and are ready to pay. All this waiting adds up
which turns into bad customer service. This waiting also
steals time from new customers that could have been sitting
down and spending money.
E la Carte, based
in Redwood City, CA, is capitalizing on this fact. Their
Presto tablet allows for tableside self-checkout which can
reduce the average diner’s stay by 7 minutes. The Presto
tablet also has the ability to suggest items to order. This
feature can translate to a 10% sale increase. The impact
that tablets will have in the national food chain industry is
huge. Chili’s and Applebee’s combined have installed 170,000
tablets in their restaurants this past year.
Tablets will also help
restaurants in a time when food allergies are on the rise and
people are looking to make healthy food choices. Restaurants
will be able to put their entire menus on these tablets, as
well as the nutrition facts and ingredients of their menu
items. There will be no more scenarios of customers asking
their servers if there is a certain ingredient in a menu item,
only to be met back with a blank stare and a response of "I
don't know, let me ask someone. I'll be right back."
Listing ingredients will
also help restaurants attract new vegan customers. Many vegans
will not eat somewhere unless they are 100% percent sure of
what products were used to prepare their meal.
Another important aspect
of tablet use is it allows the customer's credit card to never
leave their side which will reduce the likelihood of credit
card fraud.
The integration of
tablet technology into the restaurant industry not only
provides increased efficiency and profitability for restaurant
owners, it also provides superior customer service and
security.
Restaurant Automation
Self-serve kiosks are also being
implemented at large food courts, including airport food
courts and many restaurants. Implementing self-serve
technology decreases business expenses, reduces human error,
and is therefore more efficient.
In recent years, the
menu at fast food establishments has expanded tremendously, in
an attempt to attract a wider customer base. The problem now
is that the menus are more complex and, therefore, require
more time to train employees on how to cook meals. The
complexity of these items also contributes to longer prep
times and mistakes in the kitchen. This then creates the need
to hire more workers in order to maintain customer service
standards. Expanding the menu also requires a wider array of
ingredients which requires more storage space and more
frequent deliveries if extra storage space is unavailable.
Automation and increased efficiency seem to be the only way to
overcome the dynamics of larger menus.
Eastsa, a fully
automated restaurant in San Francisco fully embodies the trend
of automation. Diners can utilize one-touch iPad
ordering and moments later it is ready and waiting in glass
compartments. There is only one worker involved in front house
operations, with the sole job of aiding customer iPad
use. This innovative business model tackles increasing
labor costs, while simultaneously offering customers a novel
experience.
Momentum Machines,
another San Francisco start-up, is developing a device that
will be able to shape hamburgers from freshly ground meat and
then grill them to order. The machine can also toast buns,
slice, and add fresh ingredients. This burger making device
can produce 360 hamburgers per hour.
Software Opportunities
Big data analytics is rapidly changing the
way national fast food chains make decisions. Data from a
restaurant’s POS, marketing, accounting, and inventory systems
hold the key to making insightful decisions that can lead to
success.
Data analytics can help
improve any aspect of the restaurant business, even
drive-through performance in real-time. Data analytics can be
used to strategically determine which items to display on the
digital menu board. When lines are 
long, the board can
display items that can be quickly prepared. When lines are
short, the menu board can display higher margin items that may
take longer to prepare but are more profitable.
Starbucks uses the
insights from big data analytics and software to determine
future store locations by analyzing location-based data and
demographics to determine the optimal place to open new stores
without hurting sales of other Starbucks locations. McDonald’s
also uses data analytics to optimize equipment, process
layout, and staffing of restaurants. National food chains
should not be asking if they should be using big data
analytics, they question is how to implement data analytics
more strategically than their competitors.
Cloud technology is also
drastically changing the way national food chains are doing
business. Cloud technology is allowing executives of these
food chains to look at the real-time performance of their
stores internationally from any web-enabled device. This
amount of control enables executives to see which stores are
performing poorly and take action to turn a potentially poor
sales day around by flooding the areas where those stores
operate promotions. Cloud technology also promises easier
Payment Card Industry (PCI) compliance and, less IT
management.
Implementing new food
cost management software is another way that national food
chains can increase efficiency. Restaurants in different parts
of the country have very different food cost structures, which
makes it hard to determine which stores are doing a poor job
managing their food costs. For example, one store in South
Carolina may get a better price from a local food vendor than
a store in New York. This does not necessarily mean that the
South Carolina store is doing a better job of managing cost
than the New York store.
The only way to
determine which store is doing a better job of managing cost
is to compare their actual food cost against their theoretical
food cost. Actual food cost is the cost to produce all the
meals for a given period. This includes costs associated with
breakage, shrinkage, and waste. Theoretical food cost is what
the cost should have been to produce all the meals for a given
period, essentially how much the ingredients cost for each
recipe.
The development of
software that can produce food cost variance reports is one of
the best ways food chains can keep track of stores performance
and potentially save millions. This software allows national
food chains to improve upon one of their biggest expenses.
Food Waste Reduction
Food waste reduction is very important for
national food chains, especially for branches operating in
cities where rent is extremely high. It is costly to
store large amounts of garbage while waiting for trash pick-up
services to come. Many new systems are being used by food
chains to combat this problem.
BioHitech America’s
Eco-Safe Digester is one technology being used by restaurants
to reduce food waste. Through combining moisture, heat, and
oxygen, this machine aids microorganisms to break down food
waste into water. The Eco-Safe Digester prevents 70 million
pounds of waste from ever reaching landfills and in doing so,
saves $3 million a year in waste hauling.
Software also helping
restaurants with food waste reduction. LeanPath’s Zap
system allows restaurants and food service operations to track
and reduce their food waste using tablets. The software
features immediate text message alerts of excessive food waste
in real-time. Managers can use the Zap system to keep track of
what products need to be ordered and which products are being
over ordered, which allows restaurants to be proactive and not
reactive when it comes to food waste.
Energy Efficiency
Equipment
EPA statistics state that “restaurants can
use up to 2.5 times more energy per square foot than other
commercial buildings.” Taking into account that 3-8% of
food chain total operation expenses are due to energy costs,
upgrading equipment can greatly decrease these expenses. A 10%
or greater reduction in energy costs can translate to a 4%
increase in net profit margins.
Developing an energy
management system can be an economical way to decrease energy
costs. Restaurants are in a position where they can
particularly benefit from integrating energy management
techniques with the Internet of Things (IoT). Embedding
electronics, software, and sensors into lighting systems,
cooking equipment, and HVAC systems allows managers to have
control like never before. Managers can be alerted when lights
are left on, cooling and heating systems are running
simultaneously, equipment is running inefficiently and when
doors to refrigeration units are left open.
Energy management
systems can become even more effective when the efficiencies
of supervisory control and data acquisition (SCADA) systems
are used. SCADA is a system that operates coded signals over
communication channels so equipment can be monitored and
controlled. SCADA systems are conventionally found in highly
efficient manufacturing environments, but when adapted to
restaurant chains they can provide tremendous capabilities
Using SCADA, a manager can now take action when the lights are
left on or heating and cooling systems are running
simultaneously by remotely turn off the lights, heating and
cooling systems.
Collecting data on
energy usage also allows managers to determine during which
shifts energy is used inefficiently. This promotes
accountability and motivates employees to make energy
conscious decisions. Furthermore, data collected from
equipment can be used to create energy profiles that inform
management when to conduct preventative maintenance. This
increases the efficiency of the equipment while reducing
equipment replacement costs.
Conclusion
National food chains are implementing a
wide range of advanced technologies to stay competitive in a
continually changing industry. Due to their size, national
food chains benefit from economies of scale when implementing
innovative restaurant technology. Any investment in technology
can be applied to all stores and thus produce substantial
benefits, no matter how small the improvement may seem.
Research and development
activities in restaurant technologies will enable national
food chains to stay competitive in the years to come.
Federal and state R&D Tax Credits are available to help
support and stimulate restaurants implementing advanced
technology.
