A Game-Changing Technology For Restaurants

By James Brumley | December 19, 2011 AAA

There's a fundamental change in the way restaurants attract customers; a change big enough to assume those who master it will reap the reward, while those who don't master it will simply miss out. Some of the usual suspects are at the top of the list.

The industry's marketing overhaul is mobile phone marketing, and if it seems like the connection between smartphones and dining choices is still a distant one, think again. There are some major restaurant names that have already traveled this road and are happy with the results. (For related reading, see Retailers Are Going Mobile: How You Can Benefit.)

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Proof of the Mobile Marketing Pudding
It would have been comical a couple of years ago, but by early 2011 when smartphones became the new norm for American consumers, the ability to place a to-go food order at your local Sonic Restaurants (Nasdaq:SONC) with a mobile phone made perfect sense. Sonic is trying it for select restaurants.

Sonic Restaurants are no stranger to mobile phones, either. The company provides a website designed specifically for mobile phones that really gets the user geographically involved in local ads/marketing. In 2009, the company took an even more direct marketing route, by introducing text messaging to the marketing mix. The campaign created about a 3% response rate, which is quite strong by mass marketing standards.

Subway Restaurants has gone as far as to hire Velti PLC (Nasdaq:VELT) as its mobile advertising agency. The deal indicates that Subway sees a big opportunity in mobile advertising, and the company doesn't deny their interest.

The real trophy for the mobile marketing industry, however, is McDonald's (NYSE:MCD). The restaurant has unveiled a smartphone app that not only helps a user find the nearest store, but can also deliver menu nutrition information over the phone. The app can tailor-make an offer to promote a certain item at a particular item, via a mobile-phone-only offer. It's recent Monopoly-themed smartphone campaign was reported to have an 'astronomical' conversion rate.

McDonald's is regarded as the gold standard for marketing and adverting in the quick-service; there's a reason it's the biggest food chain in the world. So, to see the undisputed champ continue to tweak its mobile marketing effort speaks volumes about the venue's potential.

Were it just one of these restaurants, it may be easy to say mobile marketing is just a curiosity for these companies. To see them all adopt the medium, and continue to tweak it? There's got to be something significant to it. (To learn more, check out Advertising, Crocodiles And Moats.)

The Bottom Line
While the rise of the web-enabled smartphone is already boosting sales of restaurants that do this kind of marketing well, the bigger beneficiaries of this paradigm shift are the companies that actually perform this kind of service. Velti PLC was named as one; it struck a major deal with Subway. Motricity (Nasdaq:MOTR) is another one; it develops apps and websites for viewing on mobile devices. Unfortunately, Motricity and Velti PLC have had checkered recent pasts, and both still appear to have lingering income statement challenges that aren't necessarily related to demand for mobile marketing services.

Either way, there's one clear reason why restaurant investors may want to respect a well-thought out mobile marketing plan, or be wary of a poor one - the redemption rate of mobile coupons is nearly 25% higher than printed internet coupons and about 10 times higher than mail or newspaper coupons and are only a fraction of the cost. That's game-changing, for better or worse. (Learn ways to receive free advertising, read 9 Tips For Getting Free Publicity For Your Business.)

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At the time of writing, James Brumley did not own shares in any of the companies mentioned in this article.

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