After a great MURTEC keynote speech by Capriotti’s CMO/CIO Jason Smylie, I was inspired to read the futurist mainstay “The Singularity is Near” by Ray Kurzweil. In it, Kurzweil spends many of the early pages ruminating on the wonder of exponential growth. He references Moore’s Law in which Gordon E. Moore, co-founder of Intel, observed the exponential improvements in processing power of integrated circuits (because of a doubling of the density of transistors). Moore’s Law is now broadly interpreted to suggest a doubling of processing/computing power each year: the exponential growth of computing power.
At my company, Olo, we are witnessing this same kind of exponential growth in the restaurant industry with the rise of digital ordering: enabling customers to place orders from their own devices for faster, more accurate and more personal service. We are witnessing a doubling every year of our digital ordering user base: 1 million users in January 2012; 2 million users in January 2013; 4 million users in January 2014; 8 million users in January 2015; and more than 12.5 million users now, suggesting that we’ll see more than 16 million users by January 2016 (indeed, we’re now adding more than 1 million users per month).
Pizza Hut, Domino’s, and Papa John’s began their efforts around digital ordering in the late 1990’s with online ordering websites and each built up these platforms to more 50% of sales over the next 15 years. With Pizza Magazine indicating 2013 sales of $5.7 billion for Pizza Hut; $3.8 billion for Domino’s, and $2.5 billion for Papa John’s for a combined $12 billion in sales, we can estimate that the big three alone are now processing more than $6 billion in digital ordering sales.
In a recent blog post, I suggested that non-pizza restaurants may achieve 50% digital twice as fast as pizza restaurants did: by the end of 2022. Inspired by Moore’s Law, I imagined that non-pizza restaurant digital ordering adoption would grow at double the rate of pizza restaurant digital ordering adoption, representing the next generation of the digital ordering trend. This 50% number may have seemed too abstract to some readers, who wanted to understand the dollar implications of such a prediction. I turned to Hudson Riehle, Senior Vice President of Research & Knowledge Group at the National Restaurant Association for assistance in quantifying what 50% digital ordering adoption for non-pizza limited-service restaurants would mean in dollar terms. Riehle shared data from the NRA Restaurant Industry Forecast, noting that the limited-service category in which Olo operates and digital ordering is prevalent today represents $234 billion between quickservice (fast food and fast casual) at $201.1 billion and snack/non-alcoholic beverage bar at $32.8 billion. If we back out the entire pizza segment from this number (conservatively assuming that all pizza restaurants fall in this limited-service category) and see that pizza represented a $38.5 billion market segment in 2014, that leaves roughly $200 billion of restaurant industry market share in the ‘quickly shifting due to the exponential growth of digital-ordering’ category.
The bottom line implication is nothing short of shocking: over the next seven years, roughly $100 billion of restaurant industry sales will shift to digital ordering. Again, I am specifically speaking about non-pizza, limited-service restaurant industry sales. And that number may be significantly understated, if we consider the reality that digital ordering may impact other restaurant industry segments as well: tableservice, non-commercial, managed services, retail hosts and lodging, in descending order of market share.
The question that any operator, investor, or other kind of stakeholder must ask himself in reading such a conclusion is “how well am I prepared for the coming $100 billion digital shift in this industry?” I would argue that quickservice drive-thru operators are categorically poorly positioned to weather this transition and come out on top. Operational rigidity, high real-estate costs, and capital expenditure intensive remodeling to better enable digital ordering service models all stand in the way as barriers of quickservice operator adoption. Undoubtedly, some would point to this fact as an indication that such overwhelming digital ordering adoption will not be as exponential in rate or as significant in impact as I have claimed. But such an argument is wishful thinking and ignores the overwhelming demand for digital ordering. One need look no further than the annual doubling of Olo’s digital ordering user base to see that consumers crave the convenience, accuracy and personalization of digital ordering. The only question that remains is this: which restaurant concepts are best positioned to meet this demand and win the $100 billion prize?
Noah Glass is the Founder & CEO of Olo. Since 2005, Olo has helped restaurant brands increase revenue per square foot by delivering faster, more accurate and more personal service through digital ordering. Today, over 15 million consumers use the Olo platform to order ahead and skip the line at the restaurants they love.
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