Will Touchscreen Menus at Chilis Make You Money?

In the very near future as you walk into a Brinker International (EAT -0.24%) Chili's, you may notice that something has clearly changed. As your hostess guides you to your table, she won't leave a menu for your perusing pleasure. Instead, you'll be directed to an on-table touch-screen menu which will allow you to order your food, pay with a credit card, and play games while you wait. There will be 50 such menus at all 823 company-owned locations, in addition to many franchised locations.

This isn't just a Chili's-centric development. This month, DineEquity's (DIN -0.79%) Applebee's is starting a year-long roll-out of these menus across every location -- with over 100,000 tablets in all. Buffalo Wild Wings (BWLD) plans to have tablet menus at all its locations by the end of this year. Truly taking touchscreen menus to the next level, Pizza Hut of Yum! Brands (YUM 0.23%)  plans to make the table itself into the touchscreen. When you see the video you might say what my wife said: "I want to go just to play with the table."

For investors, touchscreen menus are a trend worth noting. Will they lead to higher profits for the companies that implement them?

The tablet menus
Before we talk about the implications, let's turn to the tablets themselves. No one has a monopoly on the tablet menu market and each player is clawing for its share. So far, it seems like each restaurant is going with a different supplier.

Ziosk and E la Carte manufacture their own tablets and they have been quiet on what's under the hood. However, Buffalo Wild Wings uses the Samsung Galaxy tablet -- Buzztime simply provides the software for ordering and paying, as well as watching sports content and playing casino-style games. This is a win for Samsung, yet it won't noticeably move the company's revenue meter. Consider that the Galaxy S4 sold 20 million units in just its first two months. Buffalo Wild Wings's order would be more in the ballpark of 50,000 units.

Why these restaurants are investing in tablets
In conference calls, each restaurant has been quick to say that it was adding these menus to enhance the customer's experience. Many consumers enjoy the tablets' advantages -- such as ordering a drink refill immediately after the drink runs out and never having to lose sight of the credit card -- but at the core, tabletop tablets help these companies make money.

First, tablet menus can decrease labor costs. With technology taking over some responsibilities, it's likely that restaurants will begin to assign more tables to each server, and therefore they will lay off some servers. Analyst Christopher O'Cull with KeyBanc Capital Markets estimates that the tablets could save some restaurants up to 2% in labor costs.

Second, tablet menus can "up-sell" 100% of the time. While management can encourage servers to suggest more expensive menu items, tablets are programmed to do so every time with every guest. This can particularly prey on impulse buyers. Ziosk claims that restaurants that enable all of the up-sell options can increase their sales by up to 10%.

Third, tablet menus increase throughput. How many times have you been in a restaurant while waiting for the server to take your order? How long have you waited for the check? With tablets, there is no more waiting. When you are ready for something, you do it. This gets you in and out faster, and restaurants can serve more guests and increase their comp-sales.

Lastly, tablet menus engage customers better. Ziosk notes that 20% of its users fill out non-incentive surveys, while this statistic is just 1% normally. E la Carte claims that it receives 10x more email addresses than the average figure. These menus create an opportunity to turn ordinary customers into loyal costumers.

However, it's not all positive with tablet menus.

Why some are staying away
One notable player which will stay away is The Cheesecake Factory (CAKE 0.59%). President David Gordon said "I doubt very much that we're going to do tablets." He fears that tablets would actually take away from the guest experience by reducing customer service -- one of Cheesecake's strengths.

I personally wonder how guests will respond to constant up-sell suggestions from a tablet. Done right, this feature could boost comp-sales. Done wrong, the tablet could feel like a used car salesman joining you for dinner.

So what now?
Tablets aren't new, but their implementation in restaurants as menus is novel. While it's a completely logical development, it's interesting that this trend is starting now -- at a time when traditional casual-dining chains are struggling to generate comp-sales and revenue growth. Squeezing more profit out of each location seems to be the main driver here.

This drive for higher revenue could have some chains getting in too deep too fast. The Cheesecake Factory's concerns are valid, and I'll be watching intently to see the outcome of this trend during the latter half of this year.

The restaurants mentioned in this article are the pioneers in this trend. We don't know what the outcome will be, but the effects of the trend on these restaurants -- both positive and negative -- should be a good indication of what will happen to chains that implement tablet menus further down the line.