School Working Papers Series 2002

SWP 2002/01

eCommerce and the competitiveness of small

enterprises: A study of the restaurant industry

Authors:
Tanya Castleman and Carolyn Ye-Phern Chin

URL: http://www.deakin.edu.au/mis/research/working_paper.htm
 Deakin University
School of Management Information Systems
Working Papers 2002/01

eCommerce and the competitiveness of small enterprises:

A study of the restaurant industry

Tanya Castleman

phone: +61 3 9244 6532

[email protected]

Carolyn Ye-Phern Chin

phone: +61 3 9552 3391

[email protected]

Abstract
eCommerce can provide competitive advantage both by enhancing efficiency and helping an
enterprise differentiate itself in the market. These forms of advantage apply differently according
to industry sector and the size of the enterprise. This paper reports a study of one such industry
sector, that of small, owner-operated restaurants within the larger hospitality industry. Drawing
on two theoretical approaches to business competition and trends in consumer behaviour, we
present a framework for understanding the advantages eCommerce offers to small restaurants and
the broader implications of applying technology to businesses that are often still run on traditional
lines. Theories of competitive advantage and consumption trends suggest that the primary
potential of eCommerce for these restaurants is as a support for distinctiveness and differentiation
rather than efficiency gains. However, the study found that while the small restaurant owners
tended to identify potential efficiency gains from eCommerce, they relied on traditional business
practices to differentiate themselves in the market. These considerations are relevant for the future
development of eCommerce applications and systems designed for small businesses supplying
services.

1. Introduction

The extensive literature on eCommerce adoption provides a rich analysis of the implications of
eCommerce for individual enterprises. A multitude of case studies explores the strategic
applications of eCommerce from innovative marketing, to better supply chains to creative
customer relationship management (DFAT, 1999). Each of the successful cases, often widely
publicised, seems to reinforce the value of doing business online. The enterprises that make this
transition enjoy a competitive advantage: in lower costs, wider exposure to potential customers,
better service, faster response times. We assume that their counterparts, those businesses which do
not take advantage of technological advances, are doomed to miss out and see their competitive
position eroded.
At the enterprise level, accounts of ‘lagging’ adoption patterns usually assume that it is the
obstacles (be they material or attitudinal) which delay or block the uses of technology. Otherwise,
a business would be doing what is in its own interests – using these tools to maintain or improve
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 Tanya Castleman, Carolyn Chin
its competitive position in relation to other individual firms. The one able to adopt the technology
earliest (first mover) and with the greatest strategic acumen would reap business benefits.
However, there are different ways of gaining competitive advantage and the pursuit of efficiency
through eCommerce may not be the best way for all competitors. In some industries and for some
enterprises, eCommerce may provide no competitive advantage at all. We need to understand
better how eCommerce affects the competitive position of individual companies within an industry
sector as well as its effects on competition between sectors of an industry.
Our research focuses on one sector of a larger industry in order to study eCommerce and its
relation to competition among SMEs in that sector and between the SME sector and other sectors
of the industry, noting Porter’s admonition against using overly-broad industry definitions (Porter,
1990:34 ). We consider the implications of eCommerce for the competitive position of individual
firms as well as its potentially longer-term implications for a whole sector of the industry in
question.
The research reported in this paper is exploratory and focuses on small, highly-individual, owner-
operated restaurants in Melbourne, Australia where restaurants of this type abound. The national
industry incorporates approximately 140,000 food service outlets, including small restaurants,
which provide 20 billion meals annually to the Australian public (Militiades, 2000). Melbourne’s
restaurant industry consists of approximately 3730 restaurants (Liquor Licensing Victoria, 2000),
most of which are small businesses. We have called this sector the small restaurant industry (SRI)
to distinguish it from larger restaurants, restaurant chains and franchises and hotel restaurants. The
small restaurants are typically family businesses employing 20 staff or fewer but as a sector it is an
important provider of employment and a feature of the cultural life of the city. Our research was
designed to identify eCommerce use and orientation among small restaurant owners and the
factors affecting eCommerce use in this part of the industry.
As the research developed, it became clear that we needed to see the SRI in the context of the
hospitality industry as a whole. This posed rather broader questions:
q What wider trends in the economy are shaping the hospitality industry and the SRI within it?
q How might eCommerce affect the ways that small restaurants compete against each other and
against larger restaurants, hotels and franchises?
q How might eCommerce affect the viability of the SRI as a whole?

2. eCommerce applications in the restaurant industry

eCommerce applications are becoming increasingly popular in the hospitality & restaurant
industry. They include integrated hotel reservation systems; ePOS-stock control systems; recipe-
costing systems; catering information systems; conference and banquet systems; email; EDI
(electronic data interchange); EFT (electronic funds transfer) (O’Connor, 1996)
Internet-based eCommerce for the industry began its development in the mid-1990s with more
restaurant and hospitality organisations developing a web presence (Rubin, 2001). Since then, web
sites have incorporated more content and visual appeal. More recently new functionality was
added onto web sites especially in the US industry. This was mainly to stimulate eCommerce,
enhance customer relationships with management, searching for information and communications
(Rubin, 2001).
The industry shows a growing use of eCommerce and the internet. The National Restaurant
Association (of the US) has estimated that about 4 out of 10 table service restaurants have their
own web sites; approximately 10% of clients have viewed menus online and 44% of the rest have
expressed an interest in doing so (Adams, 2001). Some restaurants have used the internet to sell
signature merchandise, to promote their online menu and to buy supplies online (B2B
eCommerce). Some restaurants are beginning to use recruitment sites on the Internet, such as
Monster.com, to post job openings and connect with qualified workers and there appear to be
growing opportunities for dealing with suppliers and in streamlining operations Adams (2001).

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In addition to the trends that Adams has identified, Ross (1999) and Adler (2001) point out that
one of the most popular eCommerce applications currently used by US restaurants and hotels is the
Point of Sales (POS) system. Over the years, an increasing number of restaurant and hotel
operators have turned to paging and table management systems to provide better customer service
and enhance efficient reporting and the profitability of their dining rooms (Ross, 1999). POS
systems are a new generation of table management systems that are able to capture real time status
of table servicing. Combined with video production and expeditor displays, these systems provide
a comprehensive picture of service cycles on real time basis. Such systems allow restaurant
owner/managers to accurately measure and manage guest experience (Ross, 1999; Adler, 2001;
Adams; 2001).
In addition to POS table management systems, real time reservation network sites such as
OpenTable.com and Foodline.com allow customers to browse and make reservations online.
Facilities exist for restaurant patrons to log onto the Web site and search for member restaurants
by name, cuisine and space availability (Ross, 1999). In addition, accidental booking conflicts are
minimized and the operator is able to track data, e.g. table turnover rates per night, which can
assist planning with statistical data (Ross, 1999; Adler, 2001; Adams, 2001). Moreover POS
software can be customized to accommodate the restaurant table layouts and seating schedules,
which bolster accuracy and operational efficiency (Ross, 1999; Adler, 2001; Adams, 2001).
Hospitality Technology’s 2 nd Annual Restaurant Technology study reported that only 20% of
restaurants have data warehouses or data marts in use, but nearly 70% of respondents say they will
have data warehouses and other components of enterprise business intelligence systems in place by
2002 (Pantages, 2000). A future eCommerce technology that is targeted for the restaurant and
hospitality industry is the “Smart Kitchen”. Panitz (2000) argues that the “smart kitchen” of the
future has the potential to revolutionize the industry by making production more efficient,
streamlining labour-and-training demands, enhancing food safety and simplifying equipment
repair. For example, refrigerators can keep track of stock items like milk and automatically re-
order items through the Internet and a pre-programmed oven appears to be gaining popularity. It is
even possible that interconnected kitchens will be able soon to communicate with outside sources.
With this array of options, it is still not clear that the restaurant community will want or need such
advanced technologies (Panitz, 2000).

3. Competitive forces and the SRI

How can we understand the competitive pressures facing small restaurants as they compete with
each other and with other restaurants, fast food chains and hotels? How can a small restaurant
compete effectively against other small restaurants and how can small restaurants as a group
compete with the larger enterprise sector? What role does eCommerce play in this competition?
Before considering the competitive dynamics of the SRI, we describe the main characteristics of
this industry sector. Our understanding of the industry context was enhanced by interviews with
representatives of the industry associations and other public information sources. This augmented
the responses from the restaurant owners and provided a broader picture of the SRI and restaurant
industry as a whole
It is generally easy to enter into Melbourne’s SRI and to set up a new business. Little formal
knowledge and skill are needed to open a new restaurant, so almost anyone with sufficient funds
can open a restaurant, although considerable skill and acumen are necessary to make the business
successful. The sector enjoys the interest and active patronage from Melbourne’s population but
it is highly competitive and such ventures often fail.
The industry has a generally high staff turnover, with almost half of the workforce employed on a
casual or part-time basis. Approximately 41% of employees in the restaurant industry are waiters
(ABS, 2000) and many waiters in Australia do not consider their job to be a long-term professional
career. Very frequently they are students who are preparing for careers totally unrelated to the
hospitality industry.

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 Tanya Castleman, Carolyn Chin
A hallmark of small restaurants is their labour-intensive nature, with long working hours. As most
restaurants operate until late in the evening and on weekends, the impact on the social and family
lives of owner/managers and their employees is significant and stressful. Moreover, the job of the
restaurant owner/managers entails varied and onerous responsibilities. This includes: promoting
the restaurant, keeping customers and staff happy, managing backend paperwork, taking care of
overheads, managing cash flows, adhering to city council requirements, hiring and dismissing
staff, ordering supplies, keeping up with changes and trends in the industry, complying with new
laws and regulations (e.g. changes in tax and health legislation), balancing the daily cash till,
paying wages and superannuation funds for staff, and juggling work demands with their
personal/family life. With such demanding job commitments on the part of the owner/managers,
the small restaurant trade in Melbourne involves hard work and long hours, with no guarantees of
long-term survival.
Melbourne’s restaurant trade, especially in the SRI, is characterised by many traditional business
practices and is very reliant on personal relationships and networks. Restaurants must have
dependable access to high-quality fresh produce and restaurateurs are heavily reliant on trusted
suppliers.
Restaurant customers seek more than simply well-prepared food. Customers demand friendly,
efficient service and a pleasant restaurant environment. The ‘dining experience’ is holistic. It
needs all of these elements to come together. Customers do not come to these restaurants simply
to be fed. There are cheaper and quicker alternatives. They come for an experience that is
pleasantly memorable and meets their needs for food and fellowship, including interaction with the
restaurant staff. Successful restaurant owners develop good relationships with customers (many of
whom are repeat customers) and with staff to ensure high quality food served in a pleasing
environment. Often, the competitors (other small restaurants doing exactly the same things) are
only a few doors down the street.
Michael Porter’s classic theory of competitive advantage (Porter, 1990) helps us analyse business
competition in the SRI as indicated in the table below.
Table 1 Application of Porter’s five forces model to the SRI

Porter’s competitive forces Competition in the SRI

Threat of new entrants High threat of new entrants because of low barriers to
entry and popularity of small restaurants
Threat of substitute products High threat from other prepared food outlets (including
transnational franchises), take-home packaged foods and
home-prepared food
Bargaining power of suppliers Medium level of power. Many sources of supply exist but
a restaurant needs reliable quality and a good
understanding of its needs
Bargaining power of buyers Buyers’ bargaining power is relatively high because the
demand for restaurant meals is elastic. It is mitigated by a
variety of factors including buyers’ tendency to search
locally rather than go further afield; by the relatively large
number of diners and their tendency not to be too
influenced by pricing.
Rivalry among existing This is intense both within the SRI and the restaurant
competitors industry more broadly.

Thus, while small restaurants are not typically highly profitable, many small restaurant owners
have other motivations besides financial return and will stay with their business as long as they can
sustain a reasonable living.
Porter also provides a framework for understanding how individual enterprises position themselves
within an industry sector. An enterprise can compete either by lowering costs or by differentiating
itself from competitors with either a broad or narrow competitive scope (Porter, 1990: 39).
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Owner-operated small restaurants necessarily have a narrow, localised scope and cannot, given the
low margins on which they operate, directly compete on price. Only a focused differentiation
strategy will work. The differentiation can be based on quality (itself a multi-dimensional
characteristic) or innovation (novelty, uniqueness). In his later work that addresses the effects of
the internet on competition, Porter (2001) distinguishes two ways of achieving sustainable
competitive advantage. One is by enhancing operational effectiveness; the other is by strategic
positioning which delivers a unique value to customers (Porter, 2001: 70).
How can the eCommerce applications described above improve the competitiveness of a small
restaurant? A small restaurant may improve its business processes and thus its operational
efficiency by using many of these applications to increase its productivity, reduce waste, manage
procurement more smoothly and incorporate more flexibility into the running of business. Porter
(2001: 70) claims that while the internet is a powerful tool for increasing operational effectiveness,
this does not confer competitive advantage since other enterprises can readily reap the same
benefits. In any case, there is limited competition based on price in the small restaurant sector and
improvements in operational efficiency, through eCommerce or internet commerce are not likely
to be an effective strategy.
The sectors of the restaurant industry where major technology applications are found do not
include the SRI but the larger enterprises where the size and scope of the businesses are greater.
The paradigm case of these applications is McDonald’s hamburger restaurants where technology is
integral to the business success of this multinational chain which is so well known that its name
has entered the language to describe the use of factory production in food retailing. George Ritzer
(1993) has dubbed this approach ‘McDonaldization’. McDonald’s has become a transnational
food empire with efficient supply chains, prescribed production techniques, standardised products,
and product and brand control worldwide. This depends heavily on sophisticated eCommerce use.
Strategic positioning, Porter argues, has become a more important source of competitive
advantage than operational efficiency. This entails competing in a distinctive way (Porter, 2001:
72) and offering a unique value that is not easily matched by competitors. Consistent with this
idea is a trend identified by Joseph Pine and John Gilmore (1998; 1999) who coined the term ‘the
experience economy’. They argue that increasingly the consumer’s experience is the basis of
competition and experience has become commoditized, often in conjunction with traditional goods
and services. The experience is created when the business engages the customer in ‘a personal and
memorable way’ (Pine, 1998). For example, theme restaurants not only provide food and serve it
to customers, but provide an experience to draw customers as well. Singing waiters and other
inventive activities are the basis of competitive advantage. The food itself may provide no
particular attraction. While the commoditization of experience is not new, it is more commonly
the basis for value creation than before.

The small restaurant may not match the showmanship of the Hard Rock Cafes, but its success is
heavily dependent on the dining experience it provides to the customers. That experience includes
the presentation of the food, the style of the service, the décor, the ambience and the management
of the ‘event’ from the time the customers enter the restaurant until they are bid goodbye after the
bill is paid. It also includes the relationship developed or implied between the diner and the
restaurant staff and the manager. The dining experience is an increasingly important element of
competitive advantage and a dimension on which the small restaurant can compete with other
eating establishments both large and small.
Small and even medium-sized restaurants cannot compete in scale and operational efficiency with
enterprises like the McDonald’s chain. But these restaurants compete in a different industry
sector. Their competitive strengths are the antithesis of McDonaldization. It is in their very
unpredictability and uniqueness that their competitive advantage lies. There is little to be gained
by playing catch-up with the larger restaurants or franchises. The rise of the Experience Economy
is a boon for small restaurants.
Our purpose in this study is to understand how small restaurant owners engage with eCommerce
and position themselves in this competitive industry. We wanted to understand how they
approached it, if at all, as a tool of operational efficiency and as a means to assist in strategic
differentiation

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 Tanya Castleman, Carolyn Chin
4. Study Method

We decided to conduct an exploratory study of the SRI because the more general literature about
SMEs does not provide the kind of detailed information that would help us understand the specific
issues for that industry. Through face to face interviews we were able to adapt the questions as
necessary, clarify their responses and follow up on issues raised by the respondents (see Sekaran,
2000). This interaction was important because the participants did not always have a clear
understanding of what eCommerce was and how it might apply to the restaurant industry.
Furthermore, face to face interviews allow the researcher to explore issues raised by the
respondents, which generally is not possible through questionnaires or more limited telephone
interviews.
The sample for the study was chosen randomly from a list of restaurants in the Yellow Pages
telephone directory, the areas included: Melbourne City and 9 adjacent Eastern suburbs within a
radius of approximately 10km from the central city. As the focus of this research is mainly on
small owner-operated restaurants, we did not include any restaurant chains, franchises or hotels in
our sample.
A letter outlining the purpose of the research and requesting an interview was sent to the first 40
restaurant owner/managers on the list who were then contacted by telephone. Because the first
mail-out did not yield the target of 20 participants, primarily due to lack of time and interest by
restaurant owners, letters were sent out to the next 25 restaurants on the list. Out of the 65
contacted by letter, 20 participated in the research (a 31% acceptance rate). Two other owners
were interviewed who were referred by other participants. A total of 22 owner-managers were
interviewed. The interviews were conducted at the restaurants’ premises and lasted about 25-90
minutes each. A semi-structured questionnaire was used for the interviews.
The restaurants provided a wide variety of cuisines ranging from Asian to Australian, Middle
Eastern to European cuisine. This was not deliberate but a coincidence, partly because
Melbourne’s restaurant industry includes owners and chefs of multi-cultural backgrounds.

5. eCommerce use and orientations in the SRI

The restaurants varied in their levels of eComme rce use and three broad levels of adoption were
used to classify the 22 restaurants. Table 2 indicates a low level of eCommerce use among them.
Although all had credit card facilities, 4 used no other applications. Even among the third group,
only one restaurant could be considered has having really advanced eCommerce
Table 2 Levels of eCommerce use by small restaurants

Group Use levels Number

Non-users Electronic payments only (credit card plus 7
EFTPOS in 3 cases)
Basic users Internet banking, advertising over the internet via 7
websites
Medium to advanced users More sophisticated applications including 8
barcodes, POS systems, online booking, email,
online mailing lists and online ordering. Most
used 3-4 applications.
We identified a number of issues that shape the approaches to eCommerce in small restaurants.
These issues influenced the ways that restaurant owners approached eCommerce. In some cases
they were issues affecting SMEs in general and in some cases they were characteristic of the SRI.
One set of factors reflects decisions about eCommerce in terms of operational efficiency. A
second set of factors relates to the strategic positioning of a restaurant in the SRI and its use of
eCommerce. This set of factors relates to the ability of a restaurant to compete on the basis of the
intangible and relational aspects of the provision of a dining experience.

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Issues related to operational efficiency
In response to questions about their reasons for using or considering eCommerce, the interviewees
identified issues that were related to operational efficiency. These responses included both
positive responses (identifying the drivers) and negative ones (identifying the barriers).
1. Attracting a larger clientele via web-based publicity
The ability to attract more customers was a major issue, mentioned by the majority of the 15
owners who had implemented some level of eCommerce. This motivation was particularly strong
for those in the basic user group where 6 of the 7 had a website for that purpose. They saw the
internet as a more efficient way to advertise though none of them referred to any measure of this.
These owners believed that a website offered potential customers more information about their
restaurants. This issue was less frequently mentioned by the 8 more advanced users, but all had
websites. A majority of the respondents raised issues of market access and advertising volume,
but not all restaurant owners were so concerned to publicise their restaurants. For some non-users,
their loyal clientele and word of mouth were sufficient to sustain their business activity. They
were not interested in expanding their business and thus did not see value in having even an
inexpensive business website.
2. Leveraging information technology
Familiarity with and skills in information technology proved a significant factor in eCommerce
adoption. All of the 8 participants medium-to-advanced users of eCommerce described themselves
to be knowledgeable about IT which was an impetus to apply these skills and knowl edge in their
business. Most also knew someone (usually a family member) who had the knowledge and skills
to help advise them. They had been able to make an informed decision about eCommerce in their
business and reported that without these skills and knowledge, they would have been hesitant to
adopt it. Conversely, the lack of IT skills was an important factor for the non-users since six of the
seven described themselves as not computer literate and had no idea how eCommerce technology
could benefit their business or if it would suit their business needs. These IT skills can be seen as
a competitive advantage by making it easier and less expensive to go online. Lack of the skills
made eCommerce adoption more expensive and less likely to pay off.
3. Cost-savings and productivity improvements
A major motivating factor for the adoption of eCommerce by the medium to advanced users was
the anticipated benefits of cost savings and productivity improvements. In contrast to the other
groups, they appeared to be better-informed about eCommerce and its associated benefits. Their
greater awareness of the advantages had prompted them to use more sophisticated applications in
an integrated way to reduce costs. Several argued that a website provided a more cost-effective
means of advertising with the added benefits of including more information than the traditional
print media (e.g. Yellow Pages telephone directory). Other benefits were reported in the ease and
efficiency of on-line ordering and in control and accounting applications (e.g., tax reporting). But
these were confined to the minority who were medium to advanced users. Those in the other
groups relied on traditional techniques to manage their businesses.
Cost and productivity were also key factors for the non-users and basic users of eCommerce. Most
restaurants already have large overheads and the cost of implementing eCommerce was a serious
impediment, especially for the non-users. The costs included the technology infrastructure, the
training and the ongoing costs of updating software versions. Time was also an issue for many
non-users who believed that they might not have the time to learn new technology and that it might
pose problems for staff.
4. Lack of business advantage
A number of respondents among the non-adopters and low level adopters explained their
reluctance to adopt eCommerce in general terms. They did not debate its potential benefits in
some cases but did not see them as applying to their own restaurants. The following quote is a
good example of this approach.
Apart from our web site and Internet banking, which we are currently using, I really don’t
think we need any other eCommerce technology for our business. I don’t see the point in

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 Tanya Castleman, Carolyn Chin
spending more money and time on things that the business just doesn’t need at this point in
time.
This thinking highlights the scale of small restaurants and the difficulties they have in getting a
return on eCommerce investment, in contrast to larger restaurants and franchises. It was easy to
understand that non-users could see ‘no need for eCommerce’. Similarly, most of the basic users
were fairly non-committal about its benefits and had not been driven by any strategic goals. They
were generally satisfied with their level of adoption and found no need to include new eCommerce
applications into their business operations. Even most of the medium-to-advanced eCommerce
users saw little need to extend their eCommerce activities, although all were satisfied with the
applications they used.
These indicate fairly ad hoc eCommerce ventures. It also indicates an orientation to both the
benefits and costs in efficiency and cost terms.

Strategic positioning and differentiation

There was some evidence of a growing awareness of advantages to be gained in strategic
positioning from eCommerce. The following quote shows an owner moving in that direction:
The web site can offer more features than any other form of print media. My web
site can include significantly more information about the restaurant and its food,
such as by providing an online menu, notification of special events and a special
section for recipes. In future, I have the option of offering online booking and a
virtual tour of the restaurant through my Web site. I’m also thinking of setting up an
online r estaurant member’s club. In fact, very soon I intend to use the Internet for
keeping in touch with my customers through an online mailing list.
However, most of the owners did not see the point of leading in this way although they anticipated
a (mainly future) need to follow.
1. Keeping up with shifts in industry practice.
About half of the non-users indicated that they would implement eCommerce if a large proportion
of restaurants in the industry had also done so, but they did not believe that this was the case yet.
They were interested in eCommerce if it helped them to keep up with shifts in industry practice
especially to maintain market share.
All seven basic users reported that they had adopted eCommerce because they wanted to keep up
with practices in the industry and saw eCommerce as consistent with a shift toward an Information
Age. Six out of the seven said that by using eCommerce they were satisfying the perceived
expectations of customers and keeping up with competitors in the industry. This group of
participants felt that by using eCommerce they were “keeping up with the times”. There was no
sense that it would help them differentiate their restaurants, only that it would require conformity.
2. Disruption of relationships
The majority of respondents held an uncommitted attitude to eCommerce as a tool for
differentiation in a competitive industry. However, they were sensitive to what they saw as its
negative potential. Their primary concern was its impact on their current business practices and
relationships. This was the major barrier cited by basic users but not confined to this group. Their
fear is that eCommerce technology will compromise the personal, face-to-face relationships on
which most restaurant owner/managers rely. These are traditional business links and are integral
to this section of the restaurant business. They include trust-based relationships between business
trading partners; they were hesitant to adopt additional eCommerce applications for the fear that it
would affect these relationships. Similarly, they are apprehensive that the relationships with their
staff and their customers (particularly the ‘regulars’) could suffer if they pursue eCommerce too
vigorously.
None of the respondents referred to the capability of eCommerce to enhance the dining experience
directly. They were more attuned to its potential to disrupt it. While these restaurants’
competitive advantage lies in differentiation and strategic positioning in a sector of the industry
that emphasises unique experiences, many are not aware of any contribution that eCommerce
might make to that. They think primarily in terms of efficiency which will be of moderate value at
best to their businesses.
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6. Discussion

Although this study is exploratory, the findings are consistent with what is known about SMEs in
general and with information provided by industry representatives. The level of eCommerce
knowledge was relatively low and the restaurant owners were wary of it. They are well aware of
the dynamics of the SRI and until eCommerce becomes the industry standard, they will not have
strong reasons for using it. Furthermore, several of the restaurant owners articulated a concern
about the competitive appropriateness of existing eCommerce applications. Not only were they
unconvinced that these business tools would help them, but they might interpose an unwelcome
element in their dealings with customers, often quite personally based. To the extent that they are
offering experience rather than just food, the efficiency and control advantages of automatic online
booking, for example, could be less significant than the potential of that system to alienate the
customer from them. In this sector, the diner comes not just for food but arguably for the
interaction with the restaurant staff which includes being made to feel welcome and valued. There
are cheaper and quicker means of appeasing one’s hunger.
The relationship-dependent nature of the SRI is also evident in the ways that these restaurant
owners deal with their staff and their suppliers. These are highly personalised relationships
relying on trust, favours and mutual obligation. These relationships help the restaurant owner
manage the enterprise and provide the experience (and the food) that the diners want. If these
relationships are disrupted, the restaurant’s competitiveness is threatened. It is no wonder that the
owners are wary of technology.
We do not discount the efficiency and productivity gains that eCommerce may deliver to small
restaurants. Clearly there are benefits if these applications are appropriately designed and
implemented. Increasingly, customers will expect efficient service and affordable prices. They
may be unwilling to pay a significant amount more for a highly personalised dining experience.
The development of eCommerce techniques appropriate to this sector, however, will involve the
intangible elements of the relationships and experience. These are not reducible to calculation of
the McDonaldized world.
The competitive landscape of the SRI turns out to be more complex than we first anticipated. A
small restaurant competes both with others in the SRI and with chains, hotels and other larger
restaurants. It must compete fiercely and many do not survive.
The issues appear to be different for competition within the SRI and between the SRI and the
larger restaurant industry. The table below indicates the various competitive implications of
eCommerce adoption by small restaurants in terms of McDonaldization and the growth of the
Experience Economy.

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 Tanya Castleman, Carolyn Chin

Table 3 eCommerce and competitive issues for small restaurants

Operational efficiencies Strategic positioning and

differentiation
Competition among small Gains to be had from Limited scope if the cost
restaurants inexpensive additional and skill demands of the
communication channels advanced techniques that
with customers and would be required are high.
suppliers; easy and More information could be
inexpensive web page provided online, but
development and traditional, personal
maintenance. relationships are much more
important.

Competition between small Unlikely to match the larger Collaboration among small
restaurants and large enterprises in their ability to restaurants could help
restaurants, hotels, chains and benefit from these promote their industry
franchises techniques. The key will be online and foster customer
ease of use and low cost; no loyalty to the SRI as a
superfluous functionality. whole. Costs of effective
applications will be beyond
the budget of a small
restaurant.
The table above suggests that the competitive issues are different within the SRI sub-sector and
between industry sub-sectors. Online applications oriented to improving the efficiency of business
processes will be of limited use to individual restaurants and are likely to benefit larger restaurants
much more than small ones. Initiatives that focus on enhancing the diners’ experience and
building relationships and loyalties can enhance the competitive position of the SRI relative to
larger restaurants and chains, but are unlikely to be effective unless pursued on a collective basis
with members of that sector cooperating.

7. Conclusions and Directions for Further Research

We began this paper by posing some questions about the broader implications of eCommerce for
competitiveness within an industry sector and between sectors of a broader industry. We were
seeking understanding through an exploratory study of the small restaurant industry of the
implications of eCommerce for the ways that small restaurants compete against each other and
against larger restaurants, hotels and franchises. We sought to identify the wider trends in the
economy that shape the hospitality industry and the SRI within it and the possible effects that
eCommerce might have on the viability of the SRI as a whole.
Our research suggests that to stay competitive small restaurants need access to inexpensive, easy
to use eCommerce tools to facilitate business communication and on-line marketing but owners of
small restaurants are unlikely to be eager or early adopters of eCommerce. It is unclear that
anything beyond fairly basic eCommerce use would give a small restaurant much of an advantage
as the industry sector currently operates. The costs, in terms of both time and money, are unlikely
to be commensurate with potential gains given that relationships with both suppliers and customers
are heavily reliant and personal and quite traditionally-managed relationships. Improved business
efficiency would be an asset for these restaurants, but only if the eCommerce applications they
used were inexpensive and easy to use, both for the owners and the casual and temporary staff they
employ.
The competitive advantage of this sector of the Melbourne restaurant industry lies in its ability to
provide a valued dining experience, part of which relies on personal interactions, loyalties and a
sense of local connection. We should not dismiss the concerns voiced by the restaurant owners
that adopting eCommerce might disrupt these relationships. Only applications that recognise the
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small restaurant‘s location in the so-called Experience Economy will support their competitive
position. Those developments, however, are probably best undertaken on a collective basis,
linking a substantial number of small restaurants together so they can share costs and market their
services effectively.
The small end of the restaurant industry is not unique. Other industries follow the same profile
with a sub-sector of small enterprises that supply both goods and/or services plus experiences and
relationships. The hairdressing industry is one such example. In addition to issues of eCommerce
awareness, knowledge, use and effects on these SMEs, is the issue of the implications of the
spread of eCommerce for the relationships between industry sectors. Investigations of these cases
across countries and across industries will provide a better understanding of eCommerce adoption
and the implications of its spread.

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