Byte by Yum Brands

First off, congratulations Joe Park, Vadim Parizher, Yum! Brands and the many other team members that worked together to get this massive lift off of the ground. Technology transformation on the move!

In the last 24 hours, I've gotten dozens of inquiries about what this technology change might mean for vendors - and after I gave about the fifth response, I decided to write a LinkedIn post instead.

- Wow!

- Dollars and Sense

- Ongoing Tech Company

- Tech Innovation Competition

- Data. Data. Data.

Wow: First and foremost - congratulations! Welcome to the club. There are only a few handfuls of successful restaurant technology companies that have ever built - much less deployed - technology at scale in our industry. The rip and replace of hardware, software, and multiple systems from multiple providers is no small undertaking. Years of coordination, analysis, investment, change management, and build out had to occur to make this happen. And I would bet it wasn't all just "champagne and roses" at every step of the way.

Dollars and Sense: Operating 61,000 restaurants is no laughing matter (by my count that's more POS locations than any single restaurant POS company can claim - except possibly, Toast across all of their product lines). And Yum has the earnings and profit to build technology - $2.36B in revenue this past quarter, and about $423M in net earnings. On a per-store basis, that is just under $7,000 per store, per quarter. This is definitely a pennies business.

I have no idea what the cost was to build Byte was ... back in 2017, it was reported that Panera Bread spent $150M to build out their technology stack, and I recently heard that they may be abandoning all or parts of it (see below). Wingstop Restaurants Inc. recently spent $50M to build their (smaller) technology stack, which I saw on stage back at the #MURTEC show with Restaurant Technology Network a few months ago.

Ongoing Tech Company: Certainly, there is the effort to build an "all-in-one" vertical system, and then there's the ongoing maintenance to maintain and build the system. It turns out, the cost of technology is always the long tail. It's never the initial investment.

Even if the cost was "only" $50M, over several quarters, it is a rounding error because of Yum's scale. Software maintenance costs typically form up to 75% of the Total Cost of Ownership (TCO), so if the build out was $50M, we can assume it will cost around $200M over a 5-year period. That doesn't include new enhancements / versions / etc... If the initial build out cost was $150M, this is likely a $600M investment.

Technology has advanced, it's easier and cheaper to build now than it was in 2017. #AI can help in many ways. However, Yum is now committed to being a tech company - and all of the good and bad that goes into that. They'll need to work with device manufacturers when they release new equipment, drivers and online gateways, OS changes, updates to AI models, and all of the hard work that goes into regressions and rollouts and support. And Yum is well positioned to handle most or all of this because of their size and scale and call centers and training programs and decades of Standard Operating Procedures to make sure it all runs like clockwork.

Tech Innovation Competition: Yum is now responsible for their own technology innovation. I will guess that they've stood up their own Centers of Excellence (COE) to drive innovation in all the areas in which they are working. Because, frankly, they are now responsible for all of their own innovation in ways that they were not before.

No one with a POS will be calling on them, and everyone who has an online ordering or loyalty or labor platform will assume that Yum brands is looking to borrow / steal ideas from their products and build them into their own. There's literally no reason for any tech vendor to call on them. They are now competitors to the vast majority of the restaurant tech ecosystem, as they are reliant on their in-house team. With the right team and succession plan in place, this will be just fine.

They may even look to license this out to other restaurant groups, like Amazon did with their grocery solutions prior to acquiring Whole Foods. I had several customers using Amazon's tools, but then Amazon became a competitor - and every single grocery chain left Amazon and mostly left Amazon Web Services (AWS). Some have come back over the years.

Kroger has done this with multiple products over the years, but really only succeeded when they were completely spun out and sold to Private Equity.

If you owned a competitive wallet share restaurant, would you buy technology from your competitor? Probably not.

Data. Data. Data: I anticipate that the main reason and driver for this was all about the data, getting access to data in a timely fashion, in the format that it is needed, so that the business can provide the services needed to the business and guest. Data has proven woefully difficult to get out of most restaurant technology vendors, with API access only existing in about half of the products on the market. And even then, when API's are available, sometimes the data is too old to do anything with it.

This has certainly been done before - and will be done again - but succeeding as a restaurant company is objectively hard. Succeeding as a technology company is equally difficult. Trying to do both is really something that should be left to the largest of the large.

Even then, a few members leaving from the board or the leadership team, and you may find yourself with a technology stack that is woefully outdated, difficult to manage, and missing key technology pieces with a lack of support - trying to decide if profit is going to be used to grow the restaurant business, or the technology business, every single quarter.

Yum is set up in ways that many other brands are not, and will likely succeed in ways that others would not.

What do you think?