The first company I worked for used Lotus Notes, an email client developed by Lotus Software in 1989 and seemingly not refreshed since. It also used a custom-built CRM made during the Reagan Administration and held together with duct tape and bubble gum. If you’ve ever worked for a large company — or used Lotus Notes — then you’ve probably familiar with tech debt. It’s the notion that past technical decisions weigh down business performance by dampening productivity, limiting capabilities and increasing employee frustration. Fixing tech debt requires time, money and managerial fortitude. Many companies prefer bandaids to surgery.
As e-commerce penetration deepens, technological prowess and access to capital are becoming more important to business success. Sweetgreen, a succulent-filled salad chain with 160 stores and over $450M in annual sales, is a case study on how technology is changing the rules of the restaurant industry. The company prides itself on its direct relationship with farmers, local sourcing, cooking from scratch and convenience. It also invests heavily in tech and is paranoid of becoming the next Blockbuster, a company that failed because it didn’t adapt.
Restaurant Economics & Dining’s Digital Divide
Traditionally, restaurants are box businesses. Each unit costs a certain amount to build and generates a certain amount of cash flow per year. Investors focus on payback periods, the number of years it takes to return their initial investment, and ROIC. When the model works, you copy and paste the box over and over. No one restaurant is a trophy, but multiply by a hundred or a thousand and you can get big business.
At the unit level, restaurants have high fixed costs. For each dollar of sales, food costs chew up about $0.30, labor another $0.30, rent about $0.10, and discounts and other expenses $0.10 or more. World-class restaurant margins are 20%; most operate in the 10–15% range.