Why More Restaurant Companies Are Investing In Tech Startups – Forbes

Restaurants have notoriously been behind the tech curve–particularly compared to their retail peers.

This is no surprise, really. Razor-thin margins will affect priorities in a way that elevates foundational food and service investments over shiny new tech products with relatively unproven returns.

COVID-19 shifted these priorities significantly, however. Now, shiny new tech products are table stakes, and returns are quick.

In fact, digital sales are now expected to make up more than half of limited-service business by 2025, which is a 70% increase over pre-COVID estimates.   

That said, since most restaurant companies have never really been built around a tech stack, many are scrambling to catch up and are doing so via acquisitions, partnerships and sexy innovation labs. Consider the past month as an example. Yum Brands YUM , the global giant that franchises KFC, Pizza Hut, Taco Bell and The Habit Burger, has acquired two tech companies—Kvantum, which uses artificial intelligence to optimize its marketing strategy, and Tictuk Technologies, which enables customers to order food through social media and messaging channels. 

Further, Chipotle announced an investment in autonomous driving company Nuro in late March, while Inspire Brands, parent company of Dunkin’, Arby’s, Sonic and more, invested in ItsaCheckmate in September to integrate multiple online ordering platforms into point-of-sale systems.

Three data points make a trend and we have four from the past several months alone.

To be sure, we were seeing this type activity well before the pandemic. McDonald’s MCD created headlines in 2019 with its acquisitions of AI startup Dynamic Yield and mobile app developer Plexure. Yum invested $200 million in Grubhub in 2018 (in a relationship that has since gone south). On the heels of that news, Yum’s Pizza Hut brand acquired online ordering company QuikOrder. All the way back to 2016 (a lifetime ago in tech speak) Subway acquired e-commerce provider Avanti Commerce.

Such partnerships and acquisitions not only bring these restaurant brands up to speed on a now-digit-first landscape, they provide a competitive advantage in the fight over a pandemic-induced changed consumer.

For Chipotle, this changed consumer drove a 174% increase in digital business in 2020, for example, with about half of those digital sales coming from delivery. But those delivery fees compromise profit margins, and Chipotle has raised menu prices on those specific orders accordingly. Driverless delivery could change that.

In an interview with Nasdaq, Chipotle CFO Jack Hartung said the chain could deploy autonomous delivery through its Nuro partnership within five years.

“We’re going to work with them to pilot and try to design a vehicle that’s uniquely fitted to deliver our burritos,” he said. “I do suspect the [delivery] cost will be less expensive. More than that, I think the experience will be better.”

Therein lies a major benefit of these tech partnerships: They offer brands a seat at the table to help mold quickly-evolving technology in a way that provides an advantage. Notably, they also offer a deep perspective into the fast-paced world of startups to perhaps mold their brands around a digital-first future.

This need to sort of think and act like a tech startup is also why a growing number of restaurant brands have created innovation labs.

We’ve seen some of this simmer for a while–Wendy’s opened a technology innovation center on the Ohio State University campus in 2015, for example, while Chick-fil-A opened an innovation Center on Georgia Tech’s campus in 2018, Domino’s opened its “Innovation Garage” in Ann Arbor, Michigan, in 2019, and McDonald’s created McD Tech Labs in Silicon Valley.

Yum Brands plans to open a new innovation lab in Plano, Texas, later this year.

In a recent interview, Joe Park, Yum’s first-ever VP of Innovation said, “… We’re trying to create a future that gives us a unique advantage. We’re not just going to anticipate what’s coming, we’re going to see it coming a mile away.”

Notably, this statement was made prior to Yum’s Kvantum and Tictuk acquisitions.

Anticipating the future has become more important than ever as consumers have become more agile than ever. A case study here is Domino’s, which has unquestionably been one of the most insulated restaurant brands during the pandemic. The company has long touted its position as a “tech company that sells pizzas,” which has helped drive a staggering 39 consecutive quarters of same-store sales growth.  

That position was particularly advantageous throughout the past year as consumer habits accelerated toward digital at breakneck speed. Now that we’re in a new reality, it’s become quite clear that other companies are following suit in becoming tech companies that sell food. Or, at least food-slash-tech companies.