Fast-casual restaurants are among the most competitive businesses on earth. Even premium brands like Starbucks (NASDAQ:SBUX) must continually innovate to stay ahead of the competition. Three food and beverage chains are innovating better than any other company in the space: DineEquity (NYSE:DIN), Buffalo Wild Wings (NASDAQ:BWLD), and Starbucks. Read on to find out how these companies are evolving to crush the competition.
Applebee's eliminates the worst part of eating out
DineEquity owns Applebee's and IHOP. At the end of 2013, both concepts had completed their conversions to 99%-franchised models. As a result of the refranchising effort, DineEquity's operating profit margin expanded from the mid-single digits in the years following the 2009 recession to 33% in 2013 -- better than how it performed before the recession.
Even though the chains are almost completely franchised, the parent company retains a high degree of influence over its franchisees. This enables it to innovate through tests in company-owned stores and pass on what works to its franchisees.
The most exciting innovation so far addresses the worst part of eating out: waiting for your waiter. To address the issue, Applebee's is putting tablets at every table so that a customer can order appetizers, play games, and even pay the check -- all without having to wait. Results from test restaurants show that the tablets increase appetizer and dessert sales. That success may be why IHOP is also considering adding tablets to its tables -- and other restaurants could soon follow.
Buffalo Wild Wings is innovating in all directions
Buffalo Wild Wings is known for its focus on beer, wings, and sports. Everything it does centers around these three core competencies. However, that focus allows for a lot more innovation than it may seem. The company is experimenting with its menu through a deal with PepsiCo, in which the snacks and beverages giant is developing sauces and salad dressings for the restaurant chain. The chain might soon feature a Mountain Dew-flavored salad dressing or a Doritos-flavored wing sauce.
Buffalo Wild Wings' biggest innovation is on the technological front. Like Applebee's, Buffalo Wild Wings is rolling out tableside tablets that let customers pay their bills as soon as they are ready. The tablets also contain a mix of free and premium content that includes trivia and video poker games that customers can play against other tables in the restaurants. As with Applebee's, Buffalo Wild Wings is rolling out the tablets to all of its North American locations, after it received enthusiastic feedback from test locations.
Although no single innovation is a game changer for the company, the sum of its efforts is clearly better than those of its competition. While other fast-casual chains blamed weather and the economy for poor results, Buffalo Wild Wings' comparable-store sales increased 5% and its profit grew an astonishing 25%. Clearly, the company's innovation is paying off.
Starbucks innovating with menu and technology
Like Buffalo Wild Wings, Starbucks is innovating on two fronts: its menu and its technology. On the menu front, Starbucks has introduced new La Boulange breakfast and lunch items designed to boost comparable-store sales. Customers can now order a spinach and feta breakfast wrap, a vegetable and fontiago breakfast sandwich, or a bacon and gouda breakfast sandwich to go with their morning coffee. The new menu rollout has largely been a success, although there have been a few bumps in the road.
The company is also innovating with its Teavana concept. CEO Howard Schultz promises that Starbucks will do for tea what it did for coffee. Teavana Tea Bars are opening across the U.S.; Starbucks plans to open 1,000 Teavana locations in the next five years. Before Starbucks cafes became popular, most Americans brewed their own coffee at home. Soon, Teavana hopes, millions of tea drinkers will stop boiling water (and throw away their pods) and head to Teavana.
Starbucks is also revolutionizing retail through mobile payments. The company's mobile app allows loyalty card holders to earn rewards and pay with their mobile phones. Already, customers conduct more than 14% of their Starbucks transactions in the U.S. with mobile phones.
At the company's March annual meeting of shareholders, Chief Digital Officer Adam Brotman told the audience, "You haven't seen anything yet. ... We have a robust pipeline of digital and mobile innovations coming down the pipe." It appears that Starbucks is just beginning its mobile revolution -- good news for customers and shareholders alike.
Innovation happens in all sectors of the economy, not just in tech. Restaurants are currently undergoing a paradigm shift in the way that their customers order and pay for their food. DineEquity, Buffalo Wild Wings, and Starbucks are leading the way. It will take constant innovation to stay ahead of the competition, but if these companies can maintain their leads, their shareholders will receive rich rewards.
Ted Cooper has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Buffalo Wild Wings, PepsiCo, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.