The COVID pandemic has hit the hospitality sector hard and Quick Service Restaurants (QSR) - AKA fast food chains - haven’t been immune. That said, leaders in the sector had been engaged in multi-year digital transformation programs - most notably seen at McDonald’s - that positioned them well to service remote consumers as in-store dining collapsed.
While McDonald’s is the bellwether exemplar here, others have enjoyed their own relative successes here. Back in 2018, the biggest crisis KFC faced was when it ran out of chicken. That’s a pretty big problem for a chicken restaurant, of course, but compared to the impact of a global pandemic, it might be regarded rather differently.
In fact, KFC has ridden out the COVID crisis pretty well, benefitting from earlier investments in digital and delivery capabilities across the parent Yum! Brands group (which also contains Taco Bell and Pizza Hut). Yum exited 2020 with digital sales up 45% year-on-year to $17 billion, $5 billion of which came in the final quarter.
Across the group, digital transformation programs have continued despite the pandemic, with KFC US about to test its own-built e-commerce platform, while Taco Bell is piloting a new Point of Sale (PoS) system and Pizza Hut continues to tap into its ‘HutSpot’ intelligent coaching app. The group also specialises in ‘growing its own’ tech talent, observes CEO David Gibbs, citing the organization’s recent virtual global ops summit:
What stood out the most to me was how the summit integrated key talent from our digital and technology teams directly into the unmatched ops agenda. More than ever before, our young digital and technology team is not solely focused on the customer experience, but the team member experience, as well through focus on building systems at scale, harmonizing platforms and leveraging an agile mindset. The goal is to unlock our pace of innovation and adoption for front and back of house platforms, which will be launched in a major market first, iterated until mature and then scaled globally.
The KFC e-commerce roll-out is a prime example of this in practice, enabling the firm to take online orders for both pick-up and delivery via its own digital platform, rather then relying on the third party aggregators that have grown out on the back of the QSR sector in recent years. That will be tested in the North American market, before being expanded to other geographies and other brands in the group.
On the tech front line during the pandemic crisis has been KFC Digital Officer Nitin Chaturvedi, who emphasises the localized nature of how the firm operates on the ground across its 150 global markets, akin to “running 150 companies in one shot”, he says. COVID’s impact on operations was two-fold, he explains:
On the one hand, the restaurant sector was hit pretty hard. A lot of our markets were hurting pretty heavily on sales, especially the ones that had mall-heavy stores or diner-heavy stores. Our franchisees were hurting on capital and cash flow, so there were a lot of negative and downward impacts across the globe. But on the flipside, digital really exploded. As consumers shifted to off-premise, our restaurant teams and our franchisees fundamentally pivoted the ways of working and in our business model, we captured the COVID tailwind and saw multiple years of progress in less than nine months
Speed was critical, he says, and that meant federating digital responsibility throughout the organization:
Pretty much every digital metric was accelerated, sales grew by a lot. We diversified our digital channels to make the business stronger for the future. We scaled by rapidly growing things like curbside [pick-up] and click-and-collect across the globe, and delivery. We made it the mandate of every function to digitize themselves, whether it was operations or marketing or real estate. As a result, we could open up multiple battle fronts at the same time and make progress a lot faster.
This did mean evolving the corporate organizational DNA, he adds:
Like many companies we were organized functionally and often the greatest breakdowns and leakages happen at the intersection of these functions. We fundamentally changed our ways of working over the COVID crisis. We worked in cross-functional ways, we were much more iterative - progress over perfection, progress over credit. Those kind of things really helped our teams move much faster because there were none of the historical leakages that we used to see.
This flexibility was essential due to ever-changing circumstances as COVID took hold, he says:
The future was changing all the time [in terms of] lockdown patterns, government mandates. We couldn't really prepare and plan for any given future, so we just increased the optionality in our business model to be able to react to whatever future came our way. Whether that was things like payment choices or ordering choices or fulfillment choices, we just expanded all of them so that we could react to whichever way the wind blew.
A whopper of a challenge
Not every QSR brand has fared as well. At Burger King, global digital revenues stand at $6 billion for 2020, a doubling year-on-year, but still well behind arch-rival McDonald’s. Digital only accounts for 8% of total US sales, but José Cil, CEO of parent company Restaurant Brands, strives to strike a ‘glass half full’ tone when he claims:
We've made great progress in our work to revolutionize our drive-thru experience and have now installed outdoor digital menu boards at around 1/3 of the over 10,000 drive-thru’s in the US and Canada…The strong growth that we've seen in our digital and delivery businesses is part of the larger exciting digital journey that we're on to become a leader in our industry.
But the harsh reality is that there is a lot of catch-up work to be done and the group’s brands didn’t enter the COVID crisis with the same degree of digital defence in place as some of its competitors, even if Chief Operating Officer Josh Kobza makes the case that the doubling of online sales is a positive sign:
This continued momentum reinforces our belief that the wave of digital adoption we've seen in the wake of the pandemic has represented a step change in terms of how our guests interact with our brands and how we serve them going forward…This year, we are bringing greater focus to our white-label delivery program, which allows our guests to order food directly through our own brand app or website, with delivery fulfillment from third parties.
There has been digital progress made, he argues, citing the Burger King app as a case in point, highlighting improvements in the user experience and an increase in the number of monthly active users. The digital menu board program is another example, he adds:
In our efforts to deliver an improved and more personalized experience to our guests, we continue to make significant progress with our initiative to upgrade our drive-thrus with the installation of outdoor digital menu boards. We've now installed them in over 1,900 Burger King drive-thrus in the US and expect to have completed the considerable majority of the remaining installations by the end of this year…Though it's still early days, we're encouraged by the impact on speed of service, as guests can more easily read our menus on the bright, easier-to-read screens.
As a result of this and other improvements, we have seen meaningful increases in guest satisfaction in many of the locations where we brought this new and improved experience…We think some of that is just that it's easier to read and easier to confirm the orders you see back on those digital menu boards, the confirmation of what you're actually ordering. We think is really helpful. It also helps order accuracy.
Kobza also points to an uplift in check-in locations where new predictive selling technology has been implemented:
We're still developing and evolving those technologies, but we're already seeing the ability to drive some pretty observable sales upside. That's something that we'll continue to evolve and improve over time as we roll [this technology] out to more restaurants and improve the technology that we have.
It's something that impacts a lot of our restaurants and so many of our guest experiences because of how prevalent it is in terms of service modes for our business across the US and Canada. We feel good about the pace of rollout and the ability to impact a lot of guests over the next 12 to 24 months.
As the firm looks ahead, expect more focus on integrating the mobile experience with the drive-thru and digital menu boards across other Restaurant Brands firms, such as Popeyes. It is, says Kobza, a long game:
We have been on an exciting digital journey to become a leader in our industry and we have attracted strong digital and technology talent to join our global team and work on these strategic projects. We've made investments in e-commerce platforms that now support both home markets and an increasing number of our international markets. Intelligent selling technology is being rolled out across a rapidly expanding number of our drive-thrus and other digital consumer experiences as well. And we will also be investing to improve restaurant operating systems that drive efficiency and guest satisfaction as well as rapid integration with our e-commerce channels.
I think one of the other things that we think is interesting, as we think about developing further some of our own apps, is the value that we can deliver to our guests on our apps through our loyalty programs potentially…We’re testing a loyalty program at Burger King and I think that's just another way to think about the value that we can deliver on our own platforms when our guests interact with us on bk.com or via the app.
A tale of two fast food firms and another indicator that, as seen in so many other business sectors, those organizations that did the ‘digital spade work’ early are the ones that have been best-prepared to ride out the COVID crisis in their respective markets.