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Leveraging Technology to Grow Sales

NATHAN'S FAMOUS VS MCDONALD'S

Prepared by The Intangibles

Nathan’s does not currently offer a mobile app. They only offer access to their products through third-party apps such as UberEats, DoorDash, and Postmates. Nathan's is lacking a customer rewards program, which would pair well with a sleek new mobile app. There are many benefits to adding a rewards program, such as customer loyalty and increased check sizes. Nathan's drive-thru is dated and inefficient. They could improve this by harnessing modern technology such as digital menu-boards and express lanes.

Nathan's Famous has significant opportunity for growth and innovation in the technology space. Nathan’s has fallen behind the competition, and if their trajectory continues the organization will continue to lose market share. To remain competitive, Nathan's must evaluate technology upgrades best-in-class companies like McDonald’s are implementing and mimic the ones that make sense.

As such, we have identified three key opportunities for Nathan’s to implement to modernize their technology. These changes will help Nathan's stay relevant in the marketplace, grow sales, and engage with their customers in new ways by investing some of the company's idle cash.

Nathan's cash ratio shows that they have sufficient liquidity to cover these investments.

Cash & Equivalents / Total Current Liabilities = Cash Ratio 76,600,000 / 11,000,000 = 6.96

By making these improvements Nathan’s can capture sales in new ways and grow their market share.

Technology is the Future.

Introduction

Ranked #4 in the app storeRanked #4 in the app store for Food and Drink for Food and Drink 466K ratings466K ratings with an average of with an average of 4.5 stars4.5 stars App sales exceeded $10BApp sales exceeded $10B,, or 20% of systemwide sales in their top 6 markets in 2020. or 20% of systemwide sales in their top 6 markets in 2020.

“70% of consumers use their mobile devices on their food purchasing journey.“70% of consumers use their mobile devices on their food purchasing journey.”” 56% of consumers56% of consumers said they would said they would order more frequentlyorder more frequently from a restaurantfrom a restaurant thatthat provides a mobile appprovides a mobile app with order and pay functionality with order and pay functionality 89% use89% use their mobile ordering app once a month or more.their mobile ordering app once a month or more.

Nowadays there is an app for nearly everything, and fast food is no exception. McDonald’sNowadays there is an app for nearly everything, and fast food is no exception. McDonald’s launched their app with order and pay functionality in 2015, and it's been quite successful.launched their app with order and pay functionality in 2015, and it's been quite successful.

Because of this success, Because of this success, McDonald’s plans to invest an additional $1B+ in technology inMcDonald’s plans to invest an additional $1B+ in technology in 20212021 as part of their Velocity Growth Plan. as part of their Velocity Growth Plan.

Furthermore, market research conducted by AdTheorant, a digital advertising solutionFurthermore, market research conducted by AdTheorant, a digital advertising solution provider, revealed some powerful findings.provider, revealed some powerful findings.

Mobile apps are a great tool to run targeted marketing campaigns to grow sales, brandMobile apps are a great tool to run targeted marketing campaigns to grow sales, brand awareness, and customer engagement. For these reasons, we recommend that Nathan’sawareness, and customer engagement. For these reasons, we recommend that Nathan’s Famous launches a mobile app.Famous launches a mobile app.

Mobile App

Growing the restaurant's customer baseGrowing the restaurant's customer base Sending targeted ads personalized based on past order historySending targeted ads personalized based on past order history Increasing brand loyaltyIncreasing brand loyalty

For example, “when a customer is about to unlock their loyalty reward, For example, “when a customer is about to unlock their loyalty reward, they spend 39%they spend 39% more on average.”more on average.” The study also found that The study also found that 70% of consumers would be more likely to visit a fast-food70% of consumers would be more likely to visit a fast-food restaurant if they received a personalized adrestaurant if they received a personalized ad based on their past orders. based on their past orders.

Rewards programs are a trending business initiative that many fast-food chains are using.Rewards programs are a trending business initiative that many fast-food chains are using.

Some Some key benefitskey benefits include: include:

The implementation of a loyalty rewards program would provide great benefits to Nathan’sThe implementation of a loyalty rewards program would provide great benefits to Nathan’s Famous. A study conducted by LevelUp showed impressive return on investment data forFamous. A study conducted by LevelUp showed impressive return on investment data for mobile restaurant loyalty rewards programs.mobile restaurant loyalty rewards programs.

McDonald’s currently offers McCafé rewards and is testing a more comprehensive loyaltyMcDonald’s currently offers McCafé rewards and is testing a more comprehensive loyalty program in the U.S. that will launch later in 2021. This program will mirror what exists inprogram in the U.S. that will launch later in 2021. This program will mirror what exists in countries like France and will give customers 100 points for every dollar spent and even morecountries like France and will give customers 100 points for every dollar spent and even more points during targeted promotions. The McCafé rewards program has been fruitful forpoints during targeted promotions. The McCafé rewards program has been fruitful for McDonald’s globally. McDonald’s globally. In Austria, where the total population is 9 million people, 2 millionIn Austria, where the total population is 9 million people, 2 million or 22% of their residents are loyalty members.or 22% of their residents are loyalty members.

Nathan’s can seize a key opportunity to grow customer loyalty and engagement and gatherNathan’s can seize a key opportunity to grow customer loyalty and engagement and gather insights with this technology. In our opinion, it is essential for Nathan’s to join this trendinsights with this technology. In our opinion, it is essential for Nathan’s to join this trend before they are left behind. As with every new change, there will be inherent risks, such as appbefore they are left behind. As with every new change, there will be inherent risks, such as app security, but these can be easily mitigated with encryption and other technology securitysecurity, but these can be easily mitigated with encryption and other technology security measures. For the rewards program to be successful, it is essential that consumers are educatedmeasures. For the rewards program to be successful, it is essential that consumers are educated on the benefits and incentives of the program. Employees must also be trained to pushon the benefits and incentives of the program. Employees must also be trained to push awareness of the program to leverage word-of-mouth advertising. McDonald’s is “doublingawareness of the program to leverage word-of-mouth advertising. McDonald’s is “doubling down” on this business initiative because they see the value in staying relevant. It is ourdown” on this business initiative because they see the value in staying relevant. It is our opinion that Nathan’s should follow suit.opinion that Nathan’s should follow suit.

Rewards Program

In the November 2020 Investor Update, In the November 2020 Investor Update, McDonald’s leadership stated that in their top sixMcDonald’s leadership stated that in their top six markets roughly 70% of sales occur in the drive-thru.markets roughly 70% of sales occur in the drive-thru.

Harvard Business Review reports that empirical research published in 2011 in the peer-Harvard Business Review reports that empirical research published in 2011 in the peer- reviewed journal Manufacturing & Service Operations Management stated, reviewed journal Manufacturing & Service Operations Management stated, “A 7-second“A 7-second reduction in service times in fast food restaurants can increase the company’s marketreduction in service times in fast food restaurants can increase the company’s market share by 1% to 3%.”share by 1% to 3%.”

Since 2018, Since 2018, McDonald’s has cut drive-thru times by about 30 secondsMcDonald’s has cut drive-thru times by about 30 seconds in their top markets. in their top markets. Nathan’s should mimic industry leader McDonald’s forward-thinking to cut service times andNathan’s should mimic industry leader McDonald’s forward-thinking to cut service times and grow sales by upgrading their menu boards to harness the power of artificial intelligence.grow sales by upgrading their menu boards to harness the power of artificial intelligence.

“Smart”, algorithm-powered menu boards can tailor food and drink suggestions based on time“Smart”, algorithm-powered menu boards can tailor food and drink suggestions based on time of day, day of the week, the weather, and more. This improves the customer drive-thruof day, day of the week, the weather, and more. This improves the customer drive-thru experience and experience and results in increased check sizes of 2.5% more on averageresults in increased check sizes of 2.5% more on average, according to a, according to a Total Economic Impact of digital menu-boards study conducted by Forrester in 2017. Total Economic Impact of digital menu-boards study conducted by Forrester in 2017. TheThe same study, which looked at a 10-store pilot, found that the investment payback periodsame study, which looked at a 10-store pilot, found that the investment payback period was 11 months and return on investment was 196%.was 11 months and return on investment was 196%. The pilot group also The pilot group also saved $30,000 onsaved $30,000 on printing costsprinting costs by moving to digital. by moving to digital.

We also recommend Nathan’s Famous builds a drive-thru express lane in locations whereWe also recommend Nathan’s Famous builds a drive-thru express lane in locations where there is ample space, which would service mobile app customers who have already ordered andthere is ample space, which would service mobile app customers who have already ordered and paid via the app. An alternative to this in cases where space is not available is dedicated pickuppaid via the app. An alternative to this in cases where space is not available is dedicated pickup spots in the parking lot or pickup cubbies inside the restaurant. Faster service resulting inspots in the parking lot or pickup cubbies inside the restaurant. Faster service resulting in happier customers and higher sales is a win-win.happier customers and higher sales is a win-win.

Drive-Thru Upgrades

By By offering their own mobile appoffering their own mobile app, Nathan’s can run targeted marketing campaigns to, Nathan’s can run targeted marketing campaigns to grow sales, brand awareness, and customer engagement.grow sales, brand awareness, and customer engagement.

Launching a rewards programLaunching a rewards program within the mobile app would also support these goals, as within the mobile app would also support these goals, as well provide useful insights into customer behavior and build customer loyalty.well provide useful insights into customer behavior and build customer loyalty.

Finally, by Finally, by upgrading their drive-thrusupgrading their drive-thrus, Nathan’s can capitalize on algorithms to cut, Nathan’s can capitalize on algorithms to cut service times, which translates to higher check sizes, more market share, and customerservice times, which translates to higher check sizes, more market share, and customer loyalty.loyalty.

It’s imperative that Nathan’s Famous remains competitive in the market. In order to ensureIt’s imperative that Nathan’s Famous remains competitive in the market. In order to ensure this, the company must modernize their technology.this, the company must modernize their technology.

Summary