KUALA LUMPUR, Aug 12 — CIMB Research recently initiated coverage of Cuscapi Bhd with an Outperform call on the potential earnings of the company it describes as Asia’s leading F&B (food and beverage) management system provider.
The confidence is premised on its twin belief that China will provide strong growth prospects to the company, while a customised tablet Cuscapi has spent 18 months developing will help transform it into a long-term recurring-income business, instead of its current software/hardware sales model.
The company, which has a presence in nine countries, is calling its customised tablet REV, for revenue. Its chief executive officer Her Chor Siong tells Digital News Asia (DNA) that the tablet represents the F&B solution provider’s attempt to move from the backend of the F&B business to the customer-facing front-end, where it will replace the print menu with a digital one.
But beyond being just a digital menu, REV will have various interactive features and will be connected to the Point-of-Sale (POS) and Kitchen Display System (KDS).
Developed inhouse with an R&D cost of US$1.23 million (RM4 million), the Android-based software was built by its 90-man software team in Suzhou with hardware design and product roadmap done out of Kuala Lumpur. The company worked with a Chinese manufacturer in Shenzhen to come up with the hardware specs and manufacturing.
Because Cuscapi wanted to integrate REV to other software systems used in F&B outlets it picked the Open Source based Android, and rooted the whole system to have control at the kernel level and not just at the app level.
“As a developer, we knew it was important to have full control over how the hardware and software behaved,” says Her.
A five-country pilot is expected to be completed by September or October.
Behind the development of the tablet lies Cuscapi’s deep knowledge of the F&B business, which contributes 90 per cent of its revenue. That knowledge of how restaurants work, coupled with the realisation that restaurants still do not know who their customers are and have poor loyalty programmes, led to the development of REV as the solution.
“They are still stuck in the brick-and-mortar world,” says Her.
But what about all those apps being developed to help merchants cultivate a closer relationship with their customers? Her is dismissive. “All those customer loyalty apps are half-baked.”
REV is not just a solution to a major pain point Cuscapi sees in its customers business. It also represents the company’s desire to move towards a high-growth strategy and live up to its mission to bring its F&B clients closer to their customers.
Her points out that its traditional POS systems business is a one-off sale to an F&B customer, with annual maintenance fees around 10 per cent to 15 per cent. “But offering them REV as a managed service will entail us taking a monthly fee from each F&B outlet.”
In previous media interviews, Her has been quoted as estimating that this could lead to as much as US$7.68 million a month in revenue by 2015 — an eye-popping amount for a company that registered US$18.1 million revenue in 2012. CIMB estimates revenue in 2014, the first full year that REV will contribute to earnings, to come in at US$27 million.
Her shares the same US$7.68 million monthly projection with DNA, but stresses that it is a hypothetical calculation derived from charging US$2,467 a month per F&B outlet, and with 40 per cent of the outlets adopting REV.
The estimate is based on the current 8,000 table service outlets that Cuscapi is managing, with 3,200 of them adopting REV. Its customers consist of both quick service restaurants (i.e. McDonald’s and similar fast-food chains) of which, it has 12,000 outlets and the mid-tier table service restaurants of which it has 8,000.
Each of those 3,200 outlets will apparently be happy to share revenue and give Cuscapi a fixed monthly fee and a variable fee based on the extra revenue derived as there is no upfront cost to installing the REV tablet on each table; where it will be integrated into the POS system and the KDS.
From a trial done at a single western restaurant, using an Android tablet, Cuscapi claims that REV offers F&B outlets a hattrick of benefits.
The first is around cost. With around 30 per cent of a waiter’s time taken up by order taking, a pilot showed that this can be taken away leaving the waiters to do more important tasks. Or, an outlet can choose to reduce its headcount. Her says this can save each outlet 25 per cent in labour costs.
Second, the pilot showed that REV actually helped the restaurant increase the bill per table versus other tables at the restaurant that did not have REV. He attributes this to the fact that REV can be programmed to suggest diners make certain orders, for example, a salad at a 30 per cent discount, to go with a meat dish ordered.
“With so many of the waiters at mid-tier restaurants being non-Malaysians, the ability to upsell to customers is already being lost. We feel REV can address this,” he says.
Third and most important, Her believes that REV actually helps to give customers a better dining experience, which then leads to them coming back — which in turn means repeat business.
Elaborating on this, he says that REV lets customers know how long their food will take to be prepared and also gives them a chance to offer feedback to the restaurant after their meals. “Gen Y especially will appreciate this, as they want to be empowered with information.”
With the change in its business model, Cuscapi is also changing the way it operates with the introduction of REV.
Again, pointing to its deep knowledge of the F&B industry, six months ago Cuscapi established a new department staffed with ex-F&B personnel whose job is to work with the marketing departments of their F&B customers to come up with promotions that will be programmed into REV.
“This is part of our value in selling customers managed services through REV. We are not selling them the tablet. We can even help them manage their operations. Many technology companies don’t do this, but we can,” Her claims.
All this in an effort to position Cuscapi as an expert in customer interactions. Her points to an interesting reality in the F&B industry: The chains do not have teams specialising in customer interactions, with their marketing and customer service teams working separately. “We think this is wrong,” he says.
REV is the bid to bridge this yawning gap.
As far as competitors go, Her says there is a startup in the United States that has something similar called E la Carte.
“But their solution is focused on the US market and it is not at the level which we are offering ours, which is fully integrated with the operations of the F&B outlet,” he claims.
His bigger worry is about deep-pocketed non-traditional players such as Taobao of China, which recently started offering to help restaurants offer their menus online so that diners can pre-order and pay for their food before coming to the restaurant. That’s probably just a start.
But Cuscapi has more than a head-start and leveraging on its existing customer base of thousands of F&B outlets, including the likes of McDonald’s, Cuscapi hopes REV will live up to its name and propel the company, which is on the verge of a move from ACE to the main board of Bursa Malaysia, to the ranks of fast growth companies. — Digital News Asia