Will This High-Tech Move Revolutionize or Wreck Applebee's Future?

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This year is going to prove to be a transformative one for America's largest casual-dining chain, Applebee's, which is run by DineEquity (NYSE: DIN  ) , in more ways than one.

Heading into December, the big talk on everyone's mind was how Obamacare might affect workers, and the restaurant business, moving forward. Although the implementation of the employer mandate -- the actionable part of the Patient Protection and Affordable Care Act that will require employers of 50 or more full-time employees to provide health plan options to those employees and possible subsidies if health-care premium costs cross a certain threshold -- has been pushed back a full year, businesses are getting an early start on cutting back workers' hours.

Fast-food restaurant chains such as Wendy's (NASDAQ: WEN  ) have spent a substantial amount of time in the spotlight for cutting hours back on non-management employees to 29 or less in order to avoid being liable for the employer mandate, which qualifies full-time as any worker who averages 30 hours a week. With Applebee's, like many other restaurants, following suit, Obamacare was looking like the issue that would dominate 2014 ... until early December, that is.

Source: Joe King, Flickr.

Tablet for two
In early December, Applebee's announced that it would follow in the recent footsteps of Brinker International's (NYSE: EAT  ) Chili's and Buffalo Wild Wings (NASDAQ: BWLD  ) in rolling out tabletop tablets to aid with orders and billing.

The scope of Applebee's order is what's truly astounding. Whereas Buffalo Wild Wings is testing tablets in select locations and Chili's rolled out tabletop tablets in some 800 locations, Applebee's, the nation's largest restaurant chain, is rolling out 100,000 tablets in 1,800 locations. Not to be taken lightly, this was a decision that Applebee's management has pondered for some three years now.

The decision itself has revolutionary potential in both positive and negative connotations for Applebee's, its employees, and its customers. The question is going to be whether this rollout starts a trend to be followed or if it'll turn into one of the more unsuccessful ventures of all time.

How tablets could revolutionize Applebee's
Initially, Applebee's will be limiting the scope of what customers can do with its tablets to ordering drinks and desserts, and paying their bills. This in itself, though, is a genius move on the part of Applebee's. The highest-margin products for restaurants are its drinks and desserts, providing easier access for consumers to order these products and drastically reducing wait times for restaurant-goers to receive their beverages.

The devices themselves also act as a win-win for all parties involved.

Source: E la Carte.

As Forbes noted in December, chipmaker Intel (NASDAQ: INTC  ) stands to be a big winner since it provides the processing chip in all the E la Carte Presto tablets that Applebee's will be ordering. E la Carte gets residual revenue from its recurring software-as-a-service subscription fee charged to Applebee's for maintenance of its tablets. Finally, Applebee's should see a bump in customer convenience, which will more than likely translate into more drink and dessert orders, and preferably repeat business.

Ultimately, these tablets could also transform the way restaurant patrons are entertained or advertised to with social media games for children and perhaps TV shows available for a nominal fee for adults. This fee may potentially go to Applebee's or some combination of Applebee's and E la Carte. As Forbes notes, advertisements aren't supported on E la Carte at the moment, but if Applebee's experiment proves successful, you can rest assured it will be right around the corner. 

How tablets could wreck Applebee's
Unfortunately, going more high-tech isn't always the right answer, and there are certainly question marks surrounding the move that will only be answered with time.

Perhaps the biggest concern, especially if I was an investor in DineEquity, would be exactly how these tablets are going to affect the customer-server interaction. Although these tablets are supposed to improve serving time for drinks and speed up the ability to pay with a credit card, and you'll still have to order your food through your server, the bond between server and customer could be compromised. That bond, not the food, is often the driving force that brings repeat traffic back into a restaurant. If the tablets take away too much of this experience, Applebee's could find that while its products ordered per table moves up, its customer traffic may be down.

Another concern would be on the employee's side of the business. A restaurant can only be as good as the enthusiasm and happiness of the workers behind it. Understandably, removing the ability of servers to control all aspects of the ordering process could threaten their tip and even the need for their job. Applebee's spokespeople have been adamant that they have no plans to scale back their employment figures in light of this rollout and re-emphasized that customer-server interaction is a key component to bringing customers back. However, automating certain aspects of servers' jobs could reduce morale and give the impression of being replaceable. E la Carte has contended that its systems actually delivered an improvement in waitstaff tips, but only time will tell if that's true.

Here's my take
This year is certainly going to be filled with a number of changes for America's biggest casual-dining chain, but chances are they will be more beneficial than harmful. The tablets offer an avenue for diners to pay faster and reduce wait times to receiving beverages, which is the ticket to higher-margin business for Applebee's. In addition, if successful, Applebee's will hold a leg up on its competition in terms of early adoption and should be drawing in a more tech-friendly generation of customers for years to come.

On the flipside, the high-tech move does come with risks in terms of alienating customers who are less tech-friendly, as well as customers who dine at Applebee's with the intent on interacting with the waitstaff.

In all, as long as workers' tips aren't negatively affected by the move (which is important, because worker morale is everything), and margins improve, this could be a revolutionary step to long-term growth for Applebee's. I look forward to witnessing what the next year might bring.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 06, 2014, at 5:37 PM, UpFromDownunder wrote:

    I dunno about this - it might be ok for ordering a straight soda fountain drink or a beer but I can't see it working well for cocktails - there's just too many variations. Heck, even my wife's standard drink at Applebees (diet coke with a squirt of lime juice) might not be do-able.

    We went into a burger joint I think it was in Vegas a year or so ago where you could only order electronically at the table (no wait-staff at all - order electronically then pick up your burger at the counter when they called your name). We left after a few minutes of screwing around with the device and weren't able to easily find a way to order a burger without onions.

  • Report this Comment On January 09, 2014, at 3:21 PM, ncix wrote:

    Red Robin has already done this in our area.

    They also replaced the store's pager device one uses while waiting for seating. Now you give them your cell number and they send a confirmation then a table ready text direct to your phone.

    Nice; but now my cell number, credit card number, eating, drinking, tipping habits etc. are all in their system.

    Guess I'm just a little paranoid as I look at the mall out the window. You know the one with "Target" in it.

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Sean Williams

A Fool since 2010, and a graduate from UC San Diego with a B.A. in Economics, Sean specializes in the healthcare sector and in investment planning topics. You'll usually find him writing about Obamacare, marijuana, developing drugs, diagnostics, and medical devices, Social Security, taxes, or any number of other macroeconomic issues.

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