Authors: Mathew Focht, Founding Managing Partner EMERGING, Sterling Douglass, Co-Founder of Chowly
The restaurant digitalization market is on a rapid growth trajectory, projected to grow from $7.9 billion in 2023 to $29.6 billion by 2032, with a CAGR of 16.3%.
The rise of artificial intelligence (AI) is transforming the restaurant industry, and diners are taking notice. AI is streamlining operations and enhancing the customer experience in restaurants. As consumer demand for convenience and personalized experiences increases, restaurants are turning to AI and digital solutions to meet these needs, streamlining operations and enhancing customer experiences.
This trend, like the most recent push for more digital and off premise touchpoints accelerated via Covid, begins with the consumer, but results in the most changes “under the hood” of the restaurant. In order for restaurants to keep up with the new reality and expectations of the consumer, they must adopt AI-powered solutions simply to survive. The early and effective adopters will thrive as the industry goes through another major transformation.
Diners are first and foremost drawn to the convenience that AI brings. AI-powered systems can streamline reservations, order taking, and table management, leading to shorter wait times and a smoother dining experience. From a customer perspective, these improvements may not be perceived as AI-related but rather as an efficient restaurant team. This will be the theme of most AI centric innovations in the restaurant space.
The benefits extend beyond just convenience. AI will also help restaurants keep costs down. AI predicts ingredient needs and consumer demand to minimize food waste and runouts by optimizing inventory management. The biggest innovation in the last 10 years in this field was been the “rolling 90 day average” to guide restaurants on how much to order. AI represents a fundamental change in the decision making in each and every aspect of the restaurant. It can automate repetitive tasks like order processing, communication, staffing, and dozens of other tasks freeing up staff for more customer-focused roles and lower costs. Better for the consumer and better for the restaurant.
Is the Restaurant Industry Growing?
2024 is set to be a record-breaking year for the U.S. restaurant industry, with sales expected to reach $1.1 trillion. By 2030, the U.S. foodservice market is projected to grow to approximately $1.77 trillion.
But how can restaurant spend on technology increase at 16.3% while the total sales grows at a slower rate? This is where, like in many industries over the past 20 years, technology eats the P&L. Restaurants will replace current large non-software expenses with less expensive software where AI plays a large role.
Emerging’s portfolio company, Chowly, does this today. After their acquisition of the automated digital marketing company, Targetable late last year, they’ve begun replacing traditional $5k monthly retainer costs for Marketing Agencies with a $500 per month SaaS fee. The AI “under the hood” makes this possible and starts to shift the percentage of the restaurant “pie” spend more and more toward technology while saving them money at the same time.
Companies like PopMenu, Menufy, Reachify, and others have developed “call deflection” technology where AI can take and answer 80% of phone calls to the restaurant. This reduces labor spend for the restaurant, but also allows the staff to spend more time with customers. Not mention this reduces context switching for staff which helps improve their execution of other tasks resulting in a better customer experience.
AI Addressing Rising Labor Costs
EMERGING is investing in automation and robotics to boost productivity, consistency, and margins. With 82% of restaurants reporting staff shortages in 2023, productivity improvements are a priority. Forty-five percent of operators aim to increase productivity by more than 10% this year. AI reduces labor costs by automating order-taking, freeing staff to focus on food preparation and customer service. It speeds up service, processing orders faster than humans, leading to shorter wait times and higher customer satisfaction.
AI addressing Ordering Taking
In the restaurant industry, AI is revolutionizing operations and customer experiences, especially through AI-driven voice recognition in drive-thrus. This technology automates order-taking, reducing the need for human involvement and minimizing errors. Companies like SoundHound, Presto, and others continue to push the envelope on this technology.
AI-driven voice recognition captures and processes spoken orders using advanced algorithms. It converts speech into text and generates the order, handling complex requests, recognizing various accents, and even suggesting additional items based on customer preferences. This speeds up the process and improves accuracy, ensuring customers get exactly what they ordered.
The applications of AI within the restaurant are wide and moving quickly. Many technology companies are seeing fast adoption of many products as restaurants look to move quick to capitalize on a competitive edge in an often over-saturated market.
10 AI Popular Uses in the Restaurant
Automated Order Taking: AI-driven voice recognition systems streamline the ordering process in drive-thrus and kiosks.
Personalized Marketing: AI analyzes customer data to create targeted marketing campaigns and personalized offers.
Inventory Management: AI predicts inventory needs, reducing waste by optimizing stock levels based on demand forecasts.
Dynamic Pricing: AI adjusts menu prices in real-time based on factors like demand, time of day, and ingredient costs.
Customer Service Chatbots: AI-powered chatbots handle customer inquiries, reservations, and orders online or via messaging apps.
Kitchen Automation: AI optimizes kitchen workflows, automating tasks like food preparation and cooking.
Menu Optimization: AI analyzes sales data to identify popular items, suggesting menu adjustments to maximize profitability.
Employee Scheduling: AI creates optimized staff schedules, balancing labor costs with customer demand.
Predictive Maintenance: AI monitors equipment to predict when maintenance is needed, reducing downtime and repair costs.
Customer Sentiment Analysis: AI analyzes customer reviews and feedback to gauge satisfaction and identify areas for improvement.
How does EMERGING approach AI solutions with Fragmented Industry?
The U.S. has nearly 750,000 restaurants, with 138,560 being single-location full-service establishments.2 EMERGING’s affiliated operating companies work with over 250,000 restaurants, representing about one-third of the U.S. market. By partnering with technology companies on go-to-market strategies, EMERGING conducts extensive due diligence before investing, often using feedback from leading restaurant groups and existing clients to refine their investments. EMERGING is at the forefront, investing in innovations that are reshaping the dining experience and boosting profitability in an industry traditionally characterized by low margins. As restaurants increasingly embrace AI, robotics, and other technologies, those that adapt will see substantial margin improvements, driving unprecedented profitability.
EMERGING also benefits from seeing technology trends in their infancy due the nature of their early stage investing thesis. In a sector where there are few focused investing vehicles, EMERGING stands at the top with emerging technology companies seeking them out for potential investment. This combined with their deep bench of operators in their fund combines the best of both worlds with new bells and whistles and true verifiable intrinsic value provided to restaurants.
The restaurant digitalization market is undergoing significant transformation, driven by the adoption of groundbreaking technologies. And EMERGING is on the front lines with unprecedented access and perspective to this transformation.
Example:
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