Shake Shack is starting a mobile order-ahead program (SHAK)

BI Intelligence

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Fast-growing burger chain Shake Shack introduced a limited mobile order-ahead pilot for iOS customers at one New York location, according to a company press release.

Customers at that location can download the Shack app and then use it to order, pay, and select a delivery window to pick up their food without waiting in line. Shake Shack noted that this is a limited pilot with no plans to expand, but it’s likely the Shack app will be implemented at other locations down the line, according to Eater. The firm is developing an app for Android users as well.

The ease that the app provides could help Shake Shack grow.

• Mobile order-ahead often increases average ticket size. At Taco Bell, which has a robust mobile order-ahead offering, app-based average order values were roughly 30% higher than in-store transactions in Q4 2015. That’s likely because app-based ordering limits pressure to decide, easily facilitates group ordering, allows for repeat purchasing, and makes customers more aware of add-on options that can increase the cost of ordering.  
• Shake Shack has characteristics that make it prime for mobile ordering, which means that more of its orders could shift away from in-store. Mobile order-ahead is most helpful in restaurants with long lines, long wait times, and frequent visitors. Shake Shack fits these criterion, which means that customers looking for a more convenient way to shop might turn to order-ahead more often. If a significant amount of sales shift to app-based purchasing, the location in the pilot might see lifted sales overall, which could push the chain to expand the offering. If Shake Shack adds a loyalty or rewards program down the line, this impact could be magnified. 

And the pilot points to growing implementation of mobile order-ahead programs. In 2015, mobile order-ahead accounted for just 1.5% of quick-service restaurant (QSR) sales in the US, according to BI Intelligence estimates. But that’s expected to increase to $38 billion or 10.7% of QSR sales by 2020. Smaller boutique chains, like Shake Shack, implementing the offering show that laggards could be beginning to catch on, which might drive up implementation and usage of these platforms.

Quick-service restaurants (QSRs) — also known as fast-casual restaurants — such as Starbucks have been turning to mobile order-ahead apps to extract higher sales, intensify customer loyalty, and heighten foot traffic.

Mobile order-ahead refers to a consumer-facing mobile payment platform that allows customers to order food remotely, pay for the items on their phone, and pick up their order at a specific restaurant location.

Leading QSRs in the U.S. are beginning to adopt these platforms at an accelerated pace and are benefiting from them. Taco Bell sees 30% higher average order values on mobile compared to in-store, and Starbucks' Mobile Order & Pay already represents 10% of total transactions at high-volume stores, directly contributing to increased company sales.

Mobile order-ahead is still in its early days, but will be a $38 billion industry by 2020, accounting for 10.7% of total QSR industry sales. This will be driven by full adoption among the top QSRs in the US, the growth of mobile commerce, QSR adoption through aggregators like Grubhub, loyalty programs, higher average order values, and new buy buttons.

Evan Bakker, senior research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed Mobile Order-Ahead Report that profiles the companies that have proved the mobile order-ahead concept and analyzes the trends contributing to this new industry's growth.

Here are some key takeaways from the report:

• Mobile order-ahead apps — platforms that enable consumers to remotely purchase menu items for in-store restaurant pickup — are on the rise among quick-service restaurants (QSRs). We expect sales on these platforms to reach $38 billion by 2020, representing a five-year compound annual growth rate (CAGR) of 57%.
• Mobile order-ahead will ultimately have an additive effect on the QSR industry. Mobile ordering platforms have been proven to intensify customer loyalty, increase purchase frequency, and lift average ticket sizes through order customization and easier checkout options. This means that mobile ordering is not a simple substitution for in-store purchasing, but a channel that can enhance the lifetime value of QSR customers. This makes mobile order-ahead a critical channel contributing to the growth of the QSR industry.
• Alternative commerce solutions will help propel mobile ordering. Aggregators like Grubhub will onboard smaller fast-casual restaurants into the mobile ecosystem by offering them an existing app to integrate into, lowering the upfront costs of creating a mobile channel of their own. And in-store self-service kiosks will help popularize remote ordering and accustom users to less traditional forms of payment that don't require a cash register.

In full, the report:

• Forecasts the growth of the mobile order-ahead industry in the US from 2015 to 2020, including its share of total QSR sales.
• Profiles brands that are leading the migration to mobile ordering.
• Examines the alternative commerce solutions that could help popularize mobile order-ahead.
• Explains the risks and drawbacks to launching a mobile commerce platform.
• Assesses the ways both large and small brands can create a mobile order-ahead platform.
• Determines which types of fast-casual chains are in the best position to benefit from mobile order-ahead.

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The choice is yours. But however you decide to acquire this report, you’ve given yourself a powerful advantage in your understanding of mobile order-ahead.