QSR Update
Lots of news this week. A couple of earnings reports and call by Shakeshack & Burger King. They always throw in some points about kiosks enhancing their profitability and we jot them down for our next ppt. Olo is in the news for bad reason. They lost Wingstop which is doing it in house.
And that leads into PAR, Olo and RBI genesis from McDonalds.
- Shakeshack (from Yahoo Business)– BTIG walked away from a meeting with Shake Shack (NYSE:SHAK) management last week confident that the restaurant chain has multiple levers to pull to continue driving Shack- level margins higher. Analyst Peter Saleh said Shake Shack (SHAK) is leaning on further use of kiosks to reduce labor hours, and still has upside with menu pricing. Kiosks were noted to be the company’s highest-margin channel, due to the higher average check and labor efficiencies that they help generate.
“We estimate that total digital sales are currently around 80% including kiosks, web, app, and delivery. Management noted that over 50% of in-shack sales are coming from kiosks, a figure we estimate is up from 30%-35% a few quarters ago, as kiosks are fully deployed and adoption rises.
- Burger King — Nov 2023 from Business Insider — Burger King will double-down on digital order kiosks, which bosses say are better for both staff and customers – and also lead to bigger orders. “We’re starting to make some progress figuring out kiosks,” Josh Kobza, the CEO of Restaurant Brands International, Burger King’s owner, told investors Friday. Digital kiosks are large touchscreens where diners can order and pay in-restaurant instead of ordering from a staff member at a counter. Kobza said Burger King had started piloting kiosks in more company-owned restaurants with “tremendous results.” The “vast majority” of orders in these restaurants were placed using kiosks, he added.
Kobza said that 14% of Burger King’s orders were placed digitally in the quarter, up more than 40% year-on-year, but the figure was 28% at company-operated restaurants with kiosks. - Olo — Shares of restaurant-technology company Olo (NYSE: OLO) got creamed on Tuesday after the company reported financial results for the third quarter of 2023. If you only looked at the numbers, you might think that the stock would be up today. But it looks like the market is concerned about the company losing a really big customer. And that’s why Olo stock was down 23% as of 11:45 a.m. ET, sinking to an all-time low.
In Q3, Olo generated revenue of $57.8 million, up 22% year over year and ahead of management’s guidance of $56 million to $56.5 million. There are now 78,000 restaurant locations using the company’s platform, up 1,000 from the previous quarter. And average revenue per unit that uses its platform increased 33% year over year to $742.
In other words, more restaurants are using Olo, the company is making more money per location, and its revenue is consequently growing at a strong rate.
However, chicken restaurant chain Wingstop mentioned last week that it’s built its own technology platform for ordering. And Olo’s management confirmed that Wingstop may not renew its contract when it runs out in the first quarter of 2024.
With nearly 2,000 locations, Wingstop is one of the biggest restaurant fish in the sea. And losing it has the market feeling down about Olo.
- PAR Wins POS, Online Ordering at Burger King in Massive Blow to Global Payments, Olo — See article below — excerpt here –And by the way, RBI is more than just Burger King: Popeye’s, Tim Hortons, and Firehouse Subs.Per sources, all of these brands are in various phases of testing PAR and POS alternatives, which should make incumbent restaurant technology providers nervous. RBI’s brands and franchisees use a blend of Aloha, Micros, Countr, and Xenial for their POS needs. Olo is not currently an RBI vendor, which might be a silver lining since Olo won’t have to explain losing the online ordering business if the cards fall that way.
PAR is a leader in enterprise POS but they’re not a $10B business unit like Micros is to Oracle. They might stumble in the Burger King roll-out, but they have a better shot of keeping the business than smaller POS players. Burger King surely went into this eyes-wide-open having large vendors like Oracle already.
Resources of Note
- NRN Wingstop – first to note new platform I think
- Shake Shack’s use of kiosks is expected to keep boosting margins
- Shake Shack stays focused on labor and guest experience going into Q4
- Burger King closes 6 more restaurants amid plan to shut down up to 400 locations this year
- A third major Burger King franchisee declares bankruptcy
- There’s going to be a lot more touchscreen kiosks at Burger King – and you’ll probably end up ordering more, too
- Yum Brands utilizes aggressive promotions for strong Q3
Analysts
qsr analysts
Full Article on PAR and Burger King
Jordan at Reforming Retail wrote an excellent article (with his usual acerbity). Highly recommended.
The technology history at Restaurant Brand Inc (RBI), the parent company of Burger King, is quite a doozie.
Start with this.
McDonald’s is one of the only retailers who has built and supported their own POS system.
Frank Liberio worked at McDonald’s for 16 years while McDonald’s endeavored on their own POS, ending his tenure as their Global CIO.
Frank then joined RBI in 2019 as RBI’s Global CIO.
One of Frank’s initiatives was to copy McDonald’s POS strategy and bring RBI’s POS effort in-house.
Which he did.
In 2019 RBI purchased a copy of MediaWorks, a POS company based in Brazil with decades of experience. The link will give a fuller story, but MediaWorks built and supported the POS system for McDonald’s, Subway, and other international brands.
But it didn’t work out as well as Frank would have liked, and he got the boot.
In our experience hardly any retailers could ever justify building and maintaining their own POS, and if any could do it would be the biggest of the big; RBI recognized $5B of 2022 revenue while McDonald’s was nearly 5x that number at $23B.
Feels like it’s a stretch for RBI.
Not surprisingly RBI insiders grew frustrated with the cost to support the system. They felt resources spent on the POS were resources not spent on more pressing needs and the system kept falling further behind.
In 2022, RBI – specifically Burger King – began considering alternatives.
After a number of labs Burger King decided that PAR would be their exclusive and mandated go-forward solution, with Brink for the POS and MENU for online ordering.
This is a bit different from the Focus decision to select Qu for a few reasons.
First, this system is mandated by Burger King corporate. Focus will need to get creative to move franchisees whereas PAR won this at the corporate level with full buy-in. That means that PAR will roll out Burger King much more quickly than Qu will with Focus. A way to visualize the difference is to look at this picture of PAR’s CEO on stage at the Burger King Franchise conference in Miami.
No other vendor presented that we are aware of.
Our guess is that Burger King rolls our PAR in two years to start taking advantage of a unified offering.
Second, Burger King has international locations that greatly increase the complexity of operations. Different jurisdictions have different legal requirements, which makes things like taxes and reporting non-trivial. Focus is US-based and much simpler. PAR is a more robust international product than Qu at this point.
That said, just because there are international locations doesn’t mean they’re economical to serve. We will be interested to see if PAR does decide to support far-off locales or punts the international business to someone else, even though Brink is gearing up for a more concerted international expansion, and MENU was an international product when it was acquired by PAR. We should note that as of today, Micros supports Burger King’s international business.
Third, Burger King isn’t just taking POS but also online ordering. Burger King will be using MENUlink, which is akin to Olo’s Rails product, or Itsacheckmate. Implicitly Qu can also replace a tool like Olo without much modification, but PAR is already there with their MENU product. As some restaurants have claimed, MENUlink is a more modern version of Olo Rails.
This is dangerous for Olo because it’s becoming clear that POS companies are catching up and can own the restaurant’s ecommerce and digital menu; this makes Olo redundant. Given this, it’s been estimated that PAR will be earning $3,000 per store per year. Not great for Toast’s narrative that restaurants will pay infinitely for their POS, but relatively good for the enterprise segment of the market… at least according to those of us that have lived this.
Deals of this magnitude don’t come without their defeated, because enterprise restaurants literally own POS systems for 30 years, taking them off the market for quite some time.
The biggest loser is Global Payments, who’s been trying to convince everyone that they understand software.
Global Payments, through its Xenial division, had a marquee customer in Burger King. Burger King was using SICOM’s POS and digital signage (who Global Payments also owns) and even convinced Burger King to put a payment bro’s POS system (Xenial POS – we know it’s confusing) in their lab and… shit the bed.
Cuz #paymentsbro.
You can’t just buy software and expect it to perform like your job is done: you need real R&D investment to be relevant.
Global’s narrative has just been completely torpedoed. And frankly, there’s no payments margin in enterprise restaurants, so we’re not sure why Xenial is pretending like they’re relevant in this market segment anyhow. Go out and focus on SMBs or wherever you can make your fat payments spreads.
Another of the vanquished is Olo, who is seemingly losing more of these ordering accounts by the month. Many shareholders have expressed their concern that Olo’s online ordering solution is out of TAM, and Burger King isn’t doing that talking point any favors.
NCR is irrelevant so we can ignore them, but this should have been an obvious Micros/Oracle win.
Big account.
Needs a lot of features and support.
International (where Oracle already owns the POS relationship, actually).
Complex.
But it didn’t happen.
In fact, PAR won because they pitched the opposite of a large, establish enterprise: their CEO is known to take calls at 2 AM when a problem arises, and that culture has propagated across PAR.
But that’s extreme ownership, and it may not be super scalable.
And by the way, RBI is more than just Burger King: Popeye’s, Tim Hortons, and Firehouse Subs.
Per sources, all of these brands are in various phases of testing PAR and POS alternatives, which should make incumbent restaurant technology providers nervous. RBI’s brands and franchisees use a blend of Aloha, Micros, Countr, and Xenial for their POS needs. Olo is not currently an RBI vendor, which might be a silver lining since Olo won’t have to explain losing the online ordering business if the cards fall that way.
PAR is a leader in enterprise POS but they’re not a $10B business unit like Micros is to Oracle. They might stumble in the Burger King roll-out, but they have a better shot of keeping the business than smaller POS players. Burger King surely went into this eyes-wide-open having large vendors like Oracle already.
Enterprise retail moves glacially – and painfully – slow. But when something breaks, it makes waves. PAR is on pace to double its POS ARR, which it never would have accomplished without Savneet at the helm.