Technological advancements continue to change the way we live our lives. One of the most disruptive technologies of the past few years is the invention and adoption of the smartphone. And for some innovative companies, smartphone usage has opened up a world of opportunity.
From 2016 to 2020, smartphone users worldwide increased by 40%. Today, 45.1% of the world's population -- representing 3.5 billion people -- own a smartphone. By 2021, the number of people who own a smartphone is projected to increase to 3.8 billion. And by 2025, it's estimated that 72% of all internet users will rely on smartphones to access the web.
Not only are these technological shifts changing the way we communicate, learn, and work, but technology is also morphing more mundane aspects of everyday life as well. For example, the process of buying a cup of coffee or ordering a pizza can be radically different than it was before the dawn of the smartphone.
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Two restaurant companies incorporating technology into their business practices are Luckin Coffee (LKNC.Y -0.32%) and Domino's Pizza (DPZ 2.10%) -- and both have stocks that make compelling picks for restaurant investors to consider.
Let's take a closer look at them.
1. Luckin Coffee
Luckin Coffee, a Chinese coffee chain, places technology at the core of its business.
Luckin's mobile app covers the entire purchase process from start to finish. Luckin doesn't have cashiers, nor can customers use cash in any of its stores. Instead, payments are processed through smartphones. The company aims to bring "high quality, high affordability, and high convenience" to its customers.
Luckin's tech-focused business model seems to be catching on. The company is growing rapidly all throughout China.
In the third quarter of 2019, Luckin reported a 557.6% annual increase in revenue to 1.49 billion yuan ($208.9 million). This growth was fueled by a 413.4% increase in annual transacting customers -- customers who purchased at least one item from the company's mobile app -- in that same time period. What's more, the company reported a total of 3,860 stores in the third quarter, representing a 209.5% increase from one year earlier.
That said, all of this growth has come at a cost, and investors should be watchful of operating losses. In the third quarter of 2019, Luckin reported an increased operating loss of 590.9 million yuan ($82.7 million), up from 485.6 billion yuan ($70 million) a year prior.
On a bright note, the company has recently been showing signs of improvement in these areas. In the third quarter, Luckin reported an operating profit of 12.5%. A year earlier, it had reported a store-level operating loss.
Investors in search of a company that's leveraging technology and growing rapidly should take a closer look at Luckin.
2. Domino's Pizza
Domino's Pizza has also made technology an essential element in its operations. In fact, CTO Kelly Garcia and CDO Dennis Maloney describe Domino's as an "e-commerce company that happens to sell pizza."
A little over a decade ago, 20% of Domino's sales were conducted online. Today, more than 65% of the company's sales take place through digital ordering channels. Recently, the company constructed a 33,000 square-foot facility to house its teams that are pushing this ordering technology forward.
Online ordering provides Domino's with the opportunity to upsell customers into making additional purchases beyond pizza. Menu items such as desserts, sodas, and appetizers all help to increase the average order amount -- and that translates into increased revenue.
Right now, Domino's provides customers with 15 ways to place a digital order, including by voice, through text, and over Twitter. The company's mobile applications are compatible with 95% of smartphones and tablets and allow customers to place orders in as little as five clicks, or about 30 seconds.
This commitment to ordering technology has led to some major growth for the company: From 2009 to 2018, Domino's market share doubled from 9% to 18%.
In 2019, Domino's reported a 9.51% year-over-year increase in revenue. In that same time period, earnings per share grew 16.1%. If we zoom out even further, revenue and earnings-per-share growth look even better. In 2018, Domino's grew revenue 23.1% from a year prior. During that same time, earnings per share increased by 43.2%.
That said, I'd expect Domino's digital presence to continue to grow revenue and EPS as long as consumers continue to show an affinity for the speed and convenience of Domino's technology. For investors interested in a restaurant that's making good use of tech, Domino's is an excellent stock to consider.
