Trends, Challenges & Opportunities: With Tony Smith of Restaurant 365 (Ep 208)

publication date: Mar 6, 2024
author/source: Jaime Oikle with Tony Smith

Running Restaurants | Brenton Thomas | Restaurant Trends And Challenges


In this episode, founder Jaime Oikle interviews Tony Smith, CEO and Co-founder of Restaurant365. They discuss the state of the restaurant industry, touching on concerns about a potential recession, the impact of inflation, and the ongoing labor challenges. They delve into the role of AI and data intelligence in restaurant management, including forecasting, inventory, and employee scheduling. They explore how technology can give managers time back by automating administrative tasks, allowing them to focus on the guest experience and operate more like owners.

The conversation also covered the significance of decision-making and leadership within the industry. Tony teases future developments for Restaurant365, such as tip automation and enhancements to their workforce management suite. The episode concludes with a few book recommendations from Tony and Jaime.

Timestamps and other highlights from the episode include:

  • Current industry trends and concerns (00:00:44)

Discussion about the uncertainty in the restaurant industry, potential recession impact, and the alleviation of inflation concerns.

  • Restaurant 365's primary pillars (00:02:59)

Overview of the three main areas: accounting, operational software, and workforce management, along with the focus on providing better intelligence tools.

  • AI and data intelligence in the industry (00:04:19)

Exploration of the applications of AI and machine learning in the restaurant industry, including sales forecasting, accounting functions, and employee training.

  • Automating administrative tasks (00:06:34)

The system's ability to give managers time back to focus on guest experience and important tasks, leading to them thinking more like operators.

  • Empowering managers and operators (00:07:51)

Discussion about how the system turns managers into operators, allowing them to make impactful decisions and have a more significant role in the business.

  • Labor challenges and solutions (00:09:41)

Addressing the labor crunch, wage inflation, and successful strategies for hiring, retaining, and incentivizing employees.

  • Restaurant Transformation Tour and community involvement (00:11:25)

Insights into the regional and national shows aimed at providing valuable information, bringing partners together, and fostering a sense of community within the industry.

  • Cultural initiatives and employee engagement (00:14:09)

The importance of a culture focused on growth and learning, investing in employees, and providing intrinsic value in the workplace.

  • Prime cost control and profit management (00:16:07)

Discussion about the significance of prime cost control, including food and labor costs, and its role in the overall profit and loss statement for restaurants.

  • The profit and loss report (00:17:18)

Discusses the significance and frequency of profit and loss reports in Restaurant 365, emphasizing its importance in the restaurant industry.

  • New offerings and future plans (00:18:34)

Highlights the recent release of tip automation and the expansion of workforce management suite, as well as the ongoing investment in business intelligence and machine learning.

  • Decision-making and leadership (00:19:42)

Tony shares his recent reading on decision-making, the impact of AI, and the importance of human nature in decision-making.

  • Book recommendations and decision-making (00:21:38)

Explains the concept of decision-making and betting, and additional book recommendations.

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Trends, Challenges & Opportunities With Tony Smith Of Restaurant365

Welcome to the show. We're bringing the tips, tools, and techniques you need to know to make your restaurant more profitable and successful. I've got a great episode for you. I'm excited to welcome back Tony Smith, who is the CEO and Cofounder of Restaurant 365. Tony, welcome. Great seeing you again.

It’s good to get connected, Jaime. I always enjoy our chances to chat. I'm glad we can.

Current Industry Trends And Concerns

I want to dig in. You guys do so much in the business. This conversation can go in a whole bunch of different directions, and I'm looking forward to going there. Let's kick things off a little bit with what you are seeing right now. What are your clients seeing? What do you want to talk about the most? What do you think?

It's interesting. There's a lot of insecurity out there in the industry right now. Is there a recession coming? Is it upon us right now? What's going to happen to restaurants if there is a recession? Some things that happen in the general economy may or may not impact the restaurant industry. It'd be very different this time around than, say, the pandemic was. You look at a year or two ago when tech companies went through a difficult time, and some are even feeling that now, but that difficulty didn't seem to reflect on the restaurant industry as restaurant sales continued to go up.


Some things that happen in the general economy may or may not impact the restaurant industry.


What we're seeing in our customers right now is that their sales continue to increase, which is fantastic. We're very hopeful that that can continue right now, but that part has definitely been something on everyone's mind. The other one I would touch on is inflation has been such a heavy topic and that seems to be alleviating some and looking at a lot of numbers there has been interesting as well. Those are two things we've definitely been keeping our eye on.

Every time I hear the word inflation, I think of my personal experience of shrinkflation. We're all spending more money on the same stuff. I happen to have a classic example right here. I'm going to put them on the spot in a negative way. Two things. I'll be positive. They’re so delicious. Look at the size of the Girl Scout box cookies. It's shrunk.

That's the size of your hand.

I know. We're paying more and getting less. Believe me, I want to leave it as they are very still delicious. That's my favorite. It's like inflation and everything is hitting us. As consumers, my family, we spend a lot on restaurants and it's probably too much. We have three kids. We were talking about kids before, but we're out, we're eating out, we're on the go. We're spending a lot of money, but we're starting to think more carefully. Which direction is it going to go? I saw it on your site. I know you guys continue to grow, but to congrats on the numbers. Forty thousand-plus restaurants are using you guys. You're seeing data across the spectrum. What are the areas that you guys touch? I think there are 3 or 4 main areas.

Restaurant 365's Primary Pillars

Our primary pillars, we started with accounting, so restaurant-specific accounting. We added the operational software inside the stores. For us, that's mainly forecasting their sales by item, recommending ingredient purchases, managing the stock counts and everything around inventory, as well as recommending employee schedules and managing that employee experience.

We have a mobile app the employees will use, too, and then task management as well. That's the store ops, second pillar. The third is workforce management. For us, that's applicant tracking, hire, onboarding, HR, payroll and that full suite of the employee's lifecycle with you. Those are the three primary pillars of functionality. The thing that links all of them together is intelligence. We've been investing more lately to provide even better intelligence tools that people can use all this data. There is so much data. We were constantly trying to find the best way to help people utilize that to become smarter.

AI And Data Intelligence In The Industry

Let me go there right now. I definitely have some notes that I wanted to get to that use the word AI. You say data intelligence, and maybe they're overlapped, maybe they're different. Why don't you layer in AI to what you guys are doing, to the industry as a whole, bringing intelligent data to the forefront so you can react? What do you think?

It's interesting. When you look at AI, there are so many applications in all aspects of our life. Outside of the restaurant industry, you could look at AI as ten years from now. Are we all going to have an AI best friend who's a companion on our phone, who talks to us, who books our vacations for us? That could be reality.

Now, let's take it back to think about this industry specifically. In restaurants, I think it's primarily twofold. One is robotics. The intelligent robotics and functions that they can serve. It's fun to go to the National Restaurant Show and see some of those robots rolling around the floor, but then there's the second side, which is more intelligence, the restaurant management side, and that's where we play.

The type of AI that you can have there or machine learning is pumping in these large data sets and then being able to see things, for example, a more accurate sales forecast. You can imagine that with all of the data points you have, something that can more intelligently crunch those numbers is going to get more and more accurate forecasting.

Another one is even performing some of your, let's say, accounting functions, like things people don't like to do, like getting invoices into a system. How much more accurate can AI make us in ingesting these invoices and automating some of those manual functions that no one wants to do anyway? Those are some of the functions that I think AI is directly applicable to. I think it'll also be useful in training your employees. The restaurant industry has so much turnover and I think there's an opportunity there for AI to build out some of these trainings and recommend or serve things up to the employees in the moment that they're looking for it. Those are a few applications.

Automating Administrative Tasks

As they say, it is coming. It's not if. It's when to keep plugging those changes in. I want to stay in the area where you talked about the administrative stuff, the stuff that people don't necessarily like to do, but it takes a lot of time. There was something on your website that I wrote down. Give managers time back to focus on what matters most, which is guest experience and things of that nature, taking that time away. Your system does a lot of that and probably more and more over time has gone, taking away those administrative hassles. Is that the secret sauce that gets people hooked on what you do, giving that time back? What do you think?

Yeah. One of the early things that our system did, one of the best compliments we got early on was we started using Restaurant 365 and grew from 6 restaurants to 20 and didn't add any overhead staff because the system was doing so much of that for us. That's something from the beginning; this is over a decade ago, and we've been trying to achieve it. As time has gone on, as we've extended the system to the other modules I was telling you about, now we're trying to give that same time back to other types of users, like the restaurant managers in the store, and having them be able to have a smarter system that's recommending things so that they're making more of the human decisions and then giving more of the human element. A system can do a lot of the repeated processing for you.


Restaurant365 turns managers into operators.


Empowering Managers And Operators

Another quote I saw on the site was to turn my managers into operators. When I hear that, I think about the managers having a whole bunch of tasks to do. Now, maybe it frees them up, and they can have the visibility to think more like owners and operators. Is that a fair statement?

Yeah, that's good. You've done your homework, by the way. Thanks for looking at my website

Thank you. It's great because turning the restaurant into the operator for us, the manager into the operator, is getting out of thinking of yourself as hurting these employees in the store or making sure that people get their food. Instead, turn your managers into someone who loves what they're doing, and who feels like they're making impactful decisions because they're into the real data and are the closest to it.

You don't want to wait until something gets up to a district manager or up to corporate in order to come back and say, “You missed your number,” or, “This was a bad decision.” You want them to have that info and being armed with it in the moment. I've seen that the more info you provide people over time, the more ownership they feel for something. I think that's what every restaurant would want in the leaders inside of the four walls of the store.


The more info you provide people, the more ownership they feel for something.


Labor Challenges And Solutions

That is 100% if you can bring people to that mentality. I interviewed someone and it was the idea of taking everybody, even from the parking lot to understand the signage, the entryway, and the experience. When people have a bigger, broader view of the business, they're going to contribute more. They're not going to use the, “That's not my job,” excuse. They're going to believe in the whole, the whole enchilada. Let's talk about people for a second. I'm wondering if you're hearing from folks. The labor crunch is definitely still a piece, and restaurants are paying more, especially where you guys are everywhere. However, I know your headquarters is in California, one of the most expensive labor markets on the planet.

Terrible choice, Tony, to start a company in California.

I know. It's tough. I guess New York's got the line. If you can make it there, you can make it anywhere. Listen, if you can run a business in California, you're doing great. Any success stories, tips you're seeing from folks, finding people, retaining people, incentivizing people, rewarding people, things that work out there because everyone has this challenge?

I was the presenter at our restaurant transformation tour. We have regional shows and then an annual show. At those shows, we put on a lot of content, and we actually have an expert on our team, and one of the sessions they give is around that, hiring, retaining, and attracting employees, and they have a ton of great tips. I probably won't dive into all of it here, but we are definitely seeing a lot of that.

One of the other positives that we see on that front is wage inflation seems to not be rising at the rate that it was a few years ago, which is almost untenable if it kept going at that pace. It's not that wages are coming down, but they aren't inflating as fast as they were before. That's a good sign. From the surveys that we're putting out to a lot of our restaurant customers, hearing that hiring has not been quite the concern that it was before was basically the number one concern. Now, it seems like that's starting to alleviate and people are able to staff their stores.

That's good news to hear. I know you guys are very active in that survey space. Since you brought it up, tell me more about it because I saw that on your site. What's the name that you guys have it for? Restaurant, you said it.

Are you thinking of the transformation tour?

The transformation tour. I saw Denver, I saw Nashville, I saw Lauderdale. What's going on?

Restaurant Transformation Tour And Community Involvement

We finished up in Boston and we try to get maybe 5 of these a year and we do them regionally and then 1 of them will be the national show. That's the much bigger venue, with multiple days of content, whereas these others are one day of content. We try to provide a whole bunch of valuable information. We bring partners together. We bring a ton of restaurants together, and we're trying to match people up and have them make friendships and learn from one another and from us. It's an exciting time. I think Nashville will be the annual one this time. That'll be the multi-day event.

I applaud you guys. You do a wonderful job of providing resources for the industry. You do the blogs, I get the emails about webinars, you do the surveys, and you do calculators on your site. Talk about that process of giving back in that way.

One of the big things for us over the years that has matured in our view of the industry is the R365 community. We want that to truly exist and feel like a community and that's not all of the users paying to use our software, but all of the partners. We integrate with hundreds and hundreds of other groups. Besides the users and the customers of those restaurant locations, we've got these partners.

There are also industry experts that may not work for a restaurant tech company and may not even work for a restaurant, but they are integrated in some way. We try to bring those voices of expertise together as well. Separately, in the community, we also try to bring in higher education. There are a number of schools in the country that have hospitality programs. We try to plug in and help with those programs where we can, and on occasion, we even teach a course.

We also have an internship program that we run to try to feed that as well. Lastly, another piece of the community is doing good in the environments here and where we live. We look at that right now primarily in two ways. We look at the philanthropy side of that with organizations like CORE, Children of Restaurant Employees. We also think about it from helping prevent food waste, for example. It's something that our system does that can then add value to the world as a whole. Those are some of the ways we look at the community.

Cultural Initiatives And Employee Engagement

A lot of good stuff there. I know we've talked about culture specifically in one of our talks in the past, and I know you're a big believer in that area. You guys do a good job there. Any ongoing initiatives you guys are using internally or anything that's new that you're finding as a way to make staff feel more involved and more engaged?

I could talk about my thoughts on culture for a long time. Like you said, I am very passionate about it. I mean, a couple of the key tenants for me are that any culture, like everyone else, will have different core values. Every company is trying to accomplish a different mission, but I believe that any culture that's focused on growth and learning is going to succeed because learning brings not only a desire to do more but also this element of humility, of understanding you don't know everything already. That's a key component, I think, to any healthy culture.


Any culture that's focused on growth and learning is going to succeed.


Growth is the other side of that, trying to extend yourself, the business, the product, and your reach. There's a phrase I use with our people internally all the time, AAV, which I could always add value. I think in everything you do, you're looking at that. Those are some of the core tenets, I think, of any healthy culture. Of course, as an organization, you'll have a mission statement.

You might have your core values and then you need to be sure to invest in your people because you want to find ways to give them that intrinsic value that they enjoy their job, not because of extrinsic motivators such as money or rewards but also that intrinsic, they value their job because they have autonomy, they have mastery, meaning they're becoming expert in something and they have the purpose. They feel like there's a good purpose behind what they're actually doing day to day. Those are some of the most key points of the culture. I think that's probably enough with those boiled together. Like I said, I could go off forever. I'll stop there.

Prime Cost Control And Profit Management

I see the passion coming out from you and that topic and you cannot grow a company without that. Let's go back to the nitty gritty for a little bit. Prime cost. This must come up a lot in your system. I'll go back to the website. Control prime cross, like a true boss. I like that phrase. I need to get it in here. What goes into that?

I love the phrase prime cost of this. The first report we ever built for Restaurant 365, which was built back in 2011, was called the Prime Cost Report. That took your sales for the day or for the month for any time period, week, or month, and then it gave the sales minus the food cost and minus the labor cost to give you your prime profit. That food and labor cost is the prime cost side. Everything we built initially around the system was to enable them to control those two primary costs because that was what was the most controllable to the manager.

Avoiding waste, ordering the right amount on time, the sales side of it, driving enough, having enough on hand so that you aren't running out. The labor side, of course, controls the employees and labor schedules efficiently. Controlling that was number one. That report grew out to be a profit and loss statement of the restaurant where then below that prime profit line, then you go to rent and utilities and all of the other types of costs that you have and get to the full profit and loss report.

The Profit And Loss Report

We've been passionate about that prime cost portion of the profit and loss report from the beginning. One place that's demonstrated this is the profit and loss report, where you get that prime cost, which is still the number one report run in Restaurant 365. I like to say a profit and loss report is running out of Restaurant 365 every three seconds somewhere around the country. You can tell I'm not the only one passionate about it, but I do love it.

The next question a lot of people ask and the answer is there's a wide range, but as someone were to say, “Tony, I'm in the pizza space, I'm in the steak space. What should my prime cost be?” I know it depends. Do you give folks a good range these days, a target? Do you have something on your mind?

One thing that we're actually working on right now is stronger benchmarking because we do have so much information that we can see things regionally and even by restaurant type. As you said, buy pizza, buy burgers. You would be able to compare it more. We aren't serving up a ton of those benchmarks, but that is something that we have all of the information to be able to provide. We're seriously looking at that this year.

New Offerings And Future Plans

What's coming next? You guys continue to integrate more stuff into your suite. You don't have to say if it's a secret or anything else coming down the pike that folks you want to let folks know about.

One of the newest offerings we've released is tip automation. Being able to help people with tips. I think throughout the year, without me naming too many names on specific products, you'll see us continue to expand our workforce management suite. That's where tips fit, so you'll see us continue to expand that. Now, something that's unique to us compared to a lot of companies out there is that we have both full payroll and workforce, but then we also have the full store ops.

A lot of these pieces that we release actually overlap, and they touch both sides of the issue. You'll see us try to do more of those products that help both store operations and the workforce together. That's some of what we're doing. Also, we've been investing heavily still in our intelligence product. As I mentioned, the business intelligence is trying to come out and make better use of the data and the benchmarking and even feed some of that into machine learning so that it can get a lot smarter.

Decision-Making And Leadership

I hit a lot of the notes that I wanted to hit. Anything I didn't touch on that you want to bring up, any other business wisdom? Sometimes, I know I've asked you for book recommendations in the past. Anything else on your mind?

Yeah. I better not stop and start pontificating enough, but I am always reading books and trying to learn. What I've been on a kick lately, you'll have to hit me up later when I'm all done with this kick. Maybe I will have boiled it down to five statements. Right now, I have a million thoughts, but it's been around decision-making. How can we make the best decisions? As you think about AI coming, maybe computers are going to do some more things for us, especially some more of the mundane things. I started to think about what makes us human.

Part of that is the decisions that we make, how we think through everything, how it impacts our world, and how it impacts the people around us. I've been reading a number of books. The most recent one was called Decisive, but I've read DecisiveThe Paradox of ChoiceThinking in Bets. By the time I'm done with this, I want to compile it to see what ways we should think about how we can be decisive and make use of the technologies coming. Also, take advantage of this human nature that we have because we don't want to lose that and hand everything over to a computer at some point, years from now.


Part of what makes us human are the decisions that we make - how we think through everything and how they impact our world and the people around us.


Anyway, that's one thing I've been thinking about lately. The other one, leadership-wise, as our company continues to grow. I love the evolution there and seeing things grow and change. My biggest fear, by the way, is being stagnant. I'm afraid I'm going to grow moss or something. Constantly trying to move and change. We've hired a new CFO as well as a chief people officer. Those two will plug in and bring some new ideas and insight to us internally. That's been one of our biggest internal things right now.

Book Recommendations And Decision-Making

I think I said I released on that. Question for you. Going back to one of those books, did you use the words decide and bet?

Thinking in Bets is one of the books. It's thinking about some people get paralyzed in decisions, and they think they need more info all the time. At some point, you're making a bet, no matter what. Even if you think you've gathered every data point, you're still making a bet. There's a thought there of thinking about the bet you're making and maybe what the probability is of it. You're saying, “This is 80% likely to be good, instead of thinking, is this the right or wrong answer?” It’s because you almost never are going to know that.

There's a book that you'll like, Algorithms to Live By.

I'll check that out. I'll write that down.

Brian Christian is one of the authors of Algorithms to Live By.

I'll check that one.

You'll definitely appreciate that one. Resources on the website, send them to the website, any social channels, anything else you want to wrap up with?

No, I think that's great. Everyone, go to that website, come to our restaurant transformation tours. The more, the merrier. It makes it better, and more ideas flowing. Jaime, it is such a pleasure. I appreciate you having me on.

I always like talking with you. I appreciate it. Good stuff. Folks, Tony Smith, Restaurant 365. You can find them on the web Easy to find there. For more great restaurant marketing and service people with tech tips, stay tuned to us here at In the meantime, do us a favor, hit the like button, subscribe, and give us some feedback. That stuff helps us. We appreciate it. We will see you next time. Thanks, Tony.

Thank you.


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