Can Computer Screens Boost Restaurant Profits?

With the U.S. economic recovery slogging along, restaurants are hoping a new dose of technology will bring in more customers. Chili's, owned and operated by Brinker International  (NYSE: EAT  ) and the Olive Garden, owned by Darden Restaurants are two casual dining chains that have struggled during the recession due to decreased consumer spending. These chains have lost business to "fast-casual" restaurants like Panera Bread (NASDAQ: PNRA  ) and Chipotle Mexican Grill (NYSE: CMG  ) . To improve the dining experience, some chains have turned to interactive computer screens that allow diners to order menu items, pay the check with a swipe of their credit cards, and offer games that keep children entertained.

Chili's recently announced the roll out of computer screens in most of its 1,266 U.S. restaurants by early 2014. Senior VP at Chili's Krista Gibson commented in the Wall Street Journal that diners have a tendency to spend more when ordering through a computer screen. In marketing tests conducted by the company, sales of desserts increased 20% and coffee sales also increased. Apparently when pictures of desserts or coffee are shown on the screen during the meal, customers are more likely to order them. Chili's also has plans to promote alcoholic drinks in a similar manner .

Chili's aggressive sales goal
Earlier this year, Chili's disclosed aggressive sales goals for fiscal 2014, which included a "promise of doubling earnings per share." Its strategic focus for the next five years includes reducing costs while investing in initiatives that enhance the guest's dining experience. For fiscal 2013, Chili's company sales rose 0.7% to $2.39 million. The increase was driven by higher comparable restaurant sales of 0.5%, which included an increase in menu prices of 1.4% and was offset by a 1.8% decrease in traffic. The rise in comparable sales was 2% lower than last year, where prices also rose 1.4% along with traffic by 1.5% .

Chili's has stressed that by installing tablets it is not trying to decrease the number of servers it hires. The company still requires a server to greet the customer. One of the main benefits of the tablet is to make it easier for guests to pay their bill without having to wait for the check. There are also plans to use the tablets to gather information and survey the customer.

Applebee's undergoing screen testing
Applebee's (NYSE: DIN  ) hasn't committed to installing tablets at its restaurants yet. It is currently testing three different computer devices – Ziosk, Presto, and eTab. Chili's is using Ziosk and pays the company a monthly fee to use the screens. Revenue from videogames played on the tablets are split between the two companies.

Reporting a strong second quarter, Applebee's had same-restaurant sales growth of 1.3%. The company's profit was down in the quarter due to the sale and refranchise of 137 restaurants during the third and fourth quarters of 2012. Second quarter net income was $19.7 million, representing adjusted diluted EPS of $1.02. The increase from $19.1 million, or $1.06 per diluted share, in the same period in 2012 was due to lower interest and G&A expenses .

Will a more efficient dining experience increase traffic?
Competing with Chili's and Applebee's, Panera Bread and Chipotle Mexican Grill offer comparable dining experiences with healthier options and faster service. Panera's second quarter net income was $51 million and diluted EPS was $1.74, an increase of 16%. The quarter also had an increase of company-owned comparable bakery-cafe sales of 3.8%, which combined average year-over-year growth of 4.3% and a decline of .5% in transactions.

Panera's CEO Ron Shaich commented during the latest quarterly release that the company is working on improving its peak hour throughput. A restaurant's throughput relates to how quickly and efficiently customers move through its service line. In the next few quarters there will be a focus on sales building and improvement of operations to deliver a better customer experience and grow sales . Fiscal 2013 diluted EPS is estimated to range between $6.75 to $6.85.

In comparison, Chipotle Mexican Grill serves "food with integrity" – with a focus on serving food that is grown through sustainable practices that are better for the environment and provide better ingredients. For the second quarter of 2013, the company reported net income of $87.9 million, an increase of 7.6% from the second quarter of 2012. Diluted EPS increased 10.2% to $2.82. Comparable restaurant sales increased 5.5%, however restaurant level operating margin dropped 160 basis points to 27.6%. The decrease in margin was attributed mostly to higher food and marketing costs .

Foolish conclusion
With speed and efficiency playing a critical role in the restaurant business, the addition of tabletop tablet computers in restaurants such as Chili's and Applebee's can help these companies match the faster service associated with their competitors. As their research shows, sales of certain food items and beverages increase when promoted on these devices, which can increase revenues in a market that continues to struggle with limited consumer spending. But the most attractive option these devices offer is eliminating the wait time to pay for a meal, an option all customers value when eating out.

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