cDonald's recently announced it will accept payments from consumers using Visa, MasterCard, American Express and Discover cards at 6,000 restaurants nationwide by the end of this year. This means that the vast quick service restaurant (QSR) market is poised to explode for ISOs/MLSs.

Sales agents are ready to ride that gravy train, right?

Unfortunately, life is rarely that simple. QSR does represent a great opportunity, but a good portion of the new market will be closed to ISOs/MLSs, so competition for the balance of the market share will require expertise in value-added services to ensure success.

Let's look at the dynamics of QSR, primarily a franchise-driven business with a subset of stores owned directly by the corporate entity. McDonald's, for example, has over 31,000 restaurants in 119 countries; roughly 80% of those are franchises.

According to an August 2003 report in QSR Magazine, "The QSR 50-America's Hottest Chains," the top 50 chains represented more than 117,000 locations in the United States, 93,136 of which were run as franchises in 2002.

Because thousands of sites are run by independent franchise businessmen, many in our industry mistakenly think this market is wide open to independent sales pitches and equipment deals.

Don't get me wrong-despite the limitations, there is great opportunity here. A year ago, the QSR industry as a whole was still debating the merits of card acceptance and pondering the likely return on investment. That debate is now over.

The industry will soon follow suit, now that McDonald's and Burger King have rolled-out national card payment programs. There is truly a massive market opening up.

The 50 chains mentioned in the QSR Magazine report accounted for $96 billion in revenue in 2002, and the total QSR segment has been estimated at $138 billion. That's a lot of transactions. More importantly for the QSR franchisee, that's a lot of transactions to speed up with card payment.

The good news about QSR chains adopting card payment on a national basis is that it will be practically impossible for independent franchisees to hold out if they want to compete.

The bad news for the ISO/MLS community is that a large chunk of the market will be serviced by direct sales forces of the large processors or through corporate requisition systems.

One goal driving QSR chains is a unified card payment system that will make it easy to adopt national marketing campaigns leveraging payment systems. Even though the chains don't control decisions made by franchisees flying their flags, they are negotiating volume purchase rates with the processing networks and equipment vendors based on the volume they can influence. From the franchisee perspective, what the chains are able to negotiate is arguably going to be the best deal on the table.

A good rule of thumb is that among national chains, one-third of locations are a mix of corporate-owned stores or franchisees that will march in lock-step to whatever corporate says. The next third will be relatively easy to convince, but will require corporate to do a lot of selling on why it's a good idea. The remainder resist whatever corporate says, doing just the opposite on principle, or will never spend a dime if they don't think they have to.

Right off the bat, we've whittled the target opportunity considerably-and for the moment, put aside the opportunity to upgrade the early adopters to new equipment.

Success in selling to the QSR market requires two fundamental skills: the abilities to demonstrate an understanding of the business model (walking the walk and talking the talk) and to deliver value-added solutions that will enable you to compete with bottom-dollar pricing options available through the corporate purchase options.

ISOs/MLSs need to be able to sell the value proposition. It's well documented that card payments produce higher ticket prices-Visa said a recent study of 100,000 QSR transactions showed that customers using payment cards spent an average of 20 - 30% more than those who paid with cash; American Express said that its tickets at QSRs are on average up to 100% higher than the average cash ticket.

But the biggest driver in QSR these days is speed of throughput. In a majority of locations today the kitchen prepares the food faster than the throughput speed at the counter and drive-thru. In that environment, anything that can speed up the movement of customers is a positive factor and anything that slows it down is a negative.

Another powerful selling point is the increasing expectations of consumers for card payment options. A somewhat dated American Express survey in the late 1990s found that 47% of customers said they would switch to another restaurant if they were short on cash at the time of purchase and the restaurant did not accept payment cards. If you're the one store on the street that doesn't take cards, you're going to lose business.

Once payment systems reach the magical mark of 80 - 85% penetration of locations in a nationwide chain, the corporate parent will be able to effectively embark on national marketing campaigns that build on payment systems. The chains will also start using gift card and loyalty programs to drive consumers into their stores.

The challenge for ISOs/MLSs lies in developing creative solutions to enable the franchisees to go with a non-corporate package and still be able to participate in corporate loyalty and gift programs.

Another area in which ISOs/MLSs can increase their value to QSR franchisees is through delivering communications options. Internet Protocol (IP) is far and away the biggest technology driver; it allows QSR operations to move faster at reduced costs. With IP, QSRs process payment transactions that are, at minimum, 10 seconds faster than with dial-up.

The rapid proliferation of DSL and satellite Internet access options makes it possible to equip QSRs with broadband Internet access without having to set up a separate and costly communications channel. Even if a QSR operator is not yet ready for an Internet set-up, selling dial-up terminals that include capabilities for upgrading to IP later will provide an easier, less expensive migration path when the time comes.

As great as technology is, for the most part it still represents a complicated solution from the perspective of the QSR operator; this provides another area for ISOs/MLSs to demonstrate value-added capabilities.

Bringing in a local area network (LAN) is definitely more complex than drop-shipping a terminal with a pre-loaded application. While it's not rocket science, it's a support step that doesn't exist now, and if the network goes down and prevents processing of transactions, that's a level of pain that is felt right on the bottom line.

The drive-thru component, which accounts for, on average, 60% of QSR sales, is another step in the value chain where ISOs/MLSs can step forward. Drive-thru payment terminals are inevitable and they need set-up and ongoing support to ensure they work as expected, when expected.

All in all, the changing nature of the QSR payment environment requires ISOs/MLSs to evolve into value-added resellers and systems integrators. In many cases, franchisees may only be ready for baby steps. Being able to deliver modular configurations will win over the heart of the little guy not quite ready to dive into payments in a big way.

Sales agents need to offer solutions that allow these business owners to grow with the industry over time. Being able to work with QSR operators at differing levels of technology sophistication is important. Recommending the right implementation and establishing an ongoing service relationship will generate recurring revenue and lasting customer relationships.

Jeff Miles is VeriFone, Inc.'s Director of Business Development focused on driving VeriFone's strategy in the quick service market by delivering solutions to the processor, ISO/MLS and direct sales channels. He can be reached at Jeff_Miles@verifone.com .