The novel coronavirus pandemic has proven that off-premise is a vital part of the restaurant industry.
Those that already offered takeout, delivery and drive-thru were able to continue operations even when their dining rooms were forced to close in March and April. Restaurants like 101 North Eatery & Bar in California turned to curbside pickup, delivery and cocktail kits, while All Together Now in Chicago created a pickup window, family dinners and tweaked its menu for delivery.
Streamlining operations to accommodate more carryout orders has been a main strategy as this segment grows at a faster pace than delivery. Domino’s proved this in 2019 when carryout orders represented 2.5 times the number of transactions compared to delivery. Carryout is especially popular because it doesn't come with third-party commissions and customer don't have to pay additional fees.
But delivery will only continue to grow and third-party delivery comprises over half of all delivery. This is expected to increase to 70% by 2022, proving that a multi-channel approach to off-premise will be key for restaurateurs.
This report explores key aspects of the off-premise segment:
How independent operators adjusted to off-premise during the pandemic
Why restaurants are missing out by not offering alcohol delivery
How meal kits are an untapped revenue stream
Full-service restaurant strategies to make off-premise work
What restaurants are doing to make delivery work for them
How third-party platforms are creating their own ghost restaurants
Whether a hybrid delivery model is an effective strategy
These are just a few of the many trends shaping the off-premise segment. We hope you enjoy this deep dive into today’s landscape.
Curbside service and cocktails: How a full-service restaurant is staying open during coronavirus
Southern California restaurant 101 North has turned to curbside pickup, delivery, cocktail kits and selling items from its kitchen to maintain revenue while its dining room is closed.
By: Julie Littman
Sometimes a customer will make a phone call. Other times, the request comes in by email or social media. Does 101 North Eatery & Bar, a restaurant in Westlake Village, California, have milk they could buy? What about fresh juices, raw poultry or milk? Staff then reaches out and works directly with them to try and accommodate their needs.
When New York native Chef Anthony Alaimo opened his restaurant two years ago, customer grocery shopping in his kitchen wasn't how he — or any restaurateur — saw his business running. But in the age of COVID-19, he's doing what he can to keep the doors open as dine-in operations have ceased. Shifting some of his operations has also let his company assist those who don’t have the same access to grocery items as he does from his suppliers, Alaimo said.
Over the years, Alaimo has worked in various award-winning restaurants all over the world, including Europe, Asia and the U.S. That has included working at the Bellagio Hotel’s Le Cirque with Sirio Maccioni and creating an Italian restaurant with Steve Wynn in Macau, China, where he earned a Michelin star and multiple Forbes five-star designations, a star rating service from Forbes Travel Guide for hotels, restaurants and spas.
He opened his newest restaurant 101 North about two years ago, receiving high marks from local media for his Italian-centric menu and unique appetizers, like Crispy Split Corn and yellowtail tartare.
But the novel coronavirus is redefining what it means to be a success: just survive. State-mandated closures of bars and restaurants have forced full-service operators to switch to off-premise or temporarily shutter. Lacking any revenue, some have been forced to lay off staff so their workers can collect unemployment insurance.
“It has been difficult,” Alaimo told Restaurant Dive in an email. “We have been trying to balance the business side of things with the humanity side. Taking care of our staff is extremely important to us and navigating how to do that under these circumstances has been challenging.”
The restaurateur’s main goal has been to find new creative profit centers to make sure staff can stay employed and the lights can stay on. That has meant adding delivery, curbside service, takeaway cocktail packages and beer and wine for delivery. It has also been acting like a middle man to provide customers with access to its kitchen to shop for essentials, Alaimo said. The restaurant has the capability to use its vendor partners to provide dry goods and essential foods, he said.
“As a company, we need to maintain our composure and allow ourselves to think outside the box,” Alaimo said. “Though this is a difficult time, we need to look at it as an opportunity to grow our business long-term through things like offsite catering, delivery, etc.”
With its dining room closed, the restaurant has shifted staff to do more maintenance, cleaning and improvements to retain as many workers as possible. He anticipates that as delivery and pickup grow, the restaurant will be able to bring in even more employees. Other workers are on standby for delivery as well, and 101 North is allowing its employees to keep all service charges and tips, he said.
The company didn’t offer delivery prior to the crisis, nor was it on any delivery platforms, but it was able to quickly pivot to self-delivery. A lot of the staff already had experience in off-premise and delivery from previous jobs and leveraged that expertise as the restaurant developed this channel, Alaimo said.
With so many other restaurants applying to be on delivery platforms it is taking longer for restaurants to go live on third-party platforms, which is why creating an in-house delivery program was on the top of 101 North’s list, Alaimo said. While he doesn’t know exactly how long it will take to go live, delivery platforms are estimating a three to five business day wait, Alaimo said.
Alaimo also adjusted the restaurant's menu pricing and is offering more lunch menu items and modifying its hours to accommodate lunch and dinner services. It previously was open only for dinner and Sunday brunch and closed Mondays. It’s now open daily from 11:30 a.m. to 8 p.m. Its menu, which includes wood-fired pizza, salads, starters and a mix of entrees from pasta to wraps and kebabs, also includes a full bar and wine menu available for takeout.
As the call to more strictly quarantine intensifies, the restaurant has experienced an increased demand for alcohol and is working to bring a piece of its bar program to guests’ homes, Alaimo said.
Offering takeout alcohol will become a bigger focus for many restaurants, not just 101North, since more states are relaxing regulations. In California, the Alcoholic Beverage Control lifted restrictions to allow restaurants to sell alcohol with food as long as drinks are in containers with secure lids. Nick Konokas, co-owner of the restaurant Alinea in Chicago, said on Twitter March 18 that he’s already sold $5,600 worth of Margarita Kits, for example.
In addition to offering takeout wine and beer, 101 North created five cocktail kits of various drinks created by its in-house mixologist, according to a press release emailed to Restaurant Dive. They include cocktail kits for The Lovely Loon, Old Fashioned, The Mojito, Red Sangria and a Margarita Kit. Each of these kits includes ingredients and instructions to make the cocktail at home, including a full bottle of alcohol itself. The kits are priced at $40, with Red Sangria priced at $30.
“As an industry we just need to be creative and look for new and different ways to drive revenue,” Alaimo said. “Survival will require swift and smart business decision making in addition to employee retention.”
Article top image credit: Permission granted by 101 North Eatery & Bar
Chicago hybrid restaurant offers a side of humor with 'social distance goods'
All Together Now altered its operations to provide a variety of pandemic provisions, including nightly dinners, small bites and its popular wine and cheese pairings for delivery and pickup.
By: Julie Littman
When you visit the website for Chicago-based All Together Now, you’re met with a new homepage created just for pandemic times. It lists the hours and its current services, but it’s also emblazoned with the words: The Social Distancing Edition. With one more click, you get the business’ menu of options, including “CDC-approved methods,” like carryout and delivery, of getting its products — except there’s a catch.
What’s the catch? “JK. We didn’t bother to get CDC approval, but we’re pretty sure they’d sign off if they weren’t otherwise occupied,” it reads.
“We like to say … our food and wine are serious. We are not,” co-owner Erin Carlman Weber told Restaurant Dive, adding she takes full responsibility for most of the bad jokes on the restaurant’s website.
Levity and light-heartedness have always been a part of All Together Now’s business, which is a mix of a small restaurant, specialty grocery, and wine and cheese shop, but it has become more to its customers during the pandemic.
“People have made it clear to us that they’re coming to us for an escape, a bit of a break from their work, the news, whatever,” Carlman Weber said. “We’ve heard time and time again, ‘Thank you so much for being open. Thank you for providing a sense of normalcy.’”
While its 25-seat dining room remains closed due to state-mandated closures, the company is still offering pickup and delivery of popular items, including red, white, sparkling and rose wines. It also has a wine and cheese hotline to answer the all-important questions of what wine pairs with which cheese or meal.
“I think our diverse mix of activities did set us up better than if we had just been only a wine shop or only a restaurant,” Carlman Weber said.
Adjusting labor needs
While All Together Now has maintained a bulk of its operations during the coronavirus outbreak, it is functioning with a staff of nine as opposed to 12. Those who are currently uncomfortable coming into work do not have to worry about losing their jobs permanently, Carlman Weber said.
The team adjusted the work schedule to be as lean as possible to allow employees to maintain a distance of six feet from one another. In the kitchen, Chef Abigail Zielke will have people come in later or on an off day to prep so that the tiny kitchen of 125 square feet isn’t packed.
Remaining staff was shifted to help with pickup and other forms of customer services, she said.
“Customer service is customer service and people who are good at it … in one context with us are generally good at it in all of them,” Carlman Weber said. “People are still taking care of guests … in terms of meeting their needs and accommodating them. It just looks a little different.”
Providing much-needed libations through off-premise
The idea for her shop came to Weber long before she opened her shop in December 2018 with co-owners Derek Herbster and Chris Radtke. Her career had her working in charcuterie at a specialty food shop, a cheese monger, and doing sales, marketing and events for a specialty chocolate company. Those jobs came together in the launch of All Together Now.
“We joke around that when we opened up All Together Now … that we put our favorite things to eat and drink in a room that we wanted to hang out in and hoped that people would go in for it, which is not all that far from the truth,” Carlman Weber said.
Nowadays, customers can’t come into the establishment to shop or eat, but instead can pick up orders through a window in the front of the restaurant. Cheeses, wine or other items they would normally be able to shop for at the store, such as tinned fish, olives and cultured butter and baguettes remain available, Carlman Weber said.
These items can be ordered online or through the wine and cheese hotline, where customers can pay for their selections ahead of time. It’s also offering a limited menu of items as well as beer and wine through Grubhub, which it had been working with previously.
It did pare down its menu to offer only bestsellers, which helps streamline kitchen operations and the ordering process.
“That’s kind of doing the same thing that we had been doing before, but just via different channels,” she said.
While it offers many of the same items for delivery as it does pickup, Carlman Weber said she’s noticed an increased popularity in wine orders, especially as the day progresses.
“We definitely see a few sandwich orders every day, but we can tell right around the time people start getting thirsty,” she said. “We’ll get the Grubhub tablets dinging like three bottles of wine for this order, a bottle of wine and a cheese board. … We can kind of tell people’s moods by the Grubhub orders that come in.”
Feeding families each night
Its biggest shift has been the addition of nightly dinners to provide comfort food that people can pick up and pre-order for family dinners, she said.
Weber called the first week of processing these family dinners “a pain in the ass” as the staff tried using Google Sheets to take orders. They ended up switching to Tock, a reservations and to-go platform for delivery and pickup orders.
The week’s meals are updated on Sundays. A recent menu offered mushroom lasagna with ricotta and Swiss chard, baby greens with crispy artichokes and yogurt dressing and middle brow seeded sourdough with cultured butter. The meals cost $16.25 to $18 per person depending on the party size of two or four guests, according to its website.
In the first two and a half weeks of offering these meals, there have already been return customers that have ordered two or three times, Carlman Weber said. The meals are capped at about 30 or so, however, and customers have to reserve a meal online ahead of time.
The restaurant’s wine director also offers nightly wine pairings and about half of the dinner orders have selected wine, which is providing another way for the restaurant to maintain connections with the things All Together Now offers, Carlman Weber said. Guests can also order cheese and meat boards and dessert.
While it had been experimenting with this idea for a month before launching it full-scale — with dinners originally available only on Sundays for carryout and dine-in — the offering is something that Carlman Weber said she could see the restaurant continuing post-crisis.
“We would love nothing more than people to stay in with us and enjoy [the family dinners],” she said. “I don’t know when we’ll all feel comfortable or that it’s safe to actually engage with people the way we have been before. I’d really like maybe once the vaccine is available and widely distributed … to have a big hug party,” Carlman Weber said.
Article top image credit: Permission granted by All Together Now
How investment in mobile order for pickup is the game changer restaurants need today
Whether the term used is “fast food” or “quick service,” the very name of the category implies a promise—food at the ready at the customer’s whim. It is more important than ever, given the rapidly changing world we now live in and the focus on “now,” with consumers getting more accustomed to summoning virtually anything they want on demand. But are restaurants delivering this type of experience?
“Wait times and speed of service are key benchmarks that dictate whether a potential guest chooses your establishment or goes to another,” says Deloitte’s US Restaurant & Food Service Leader Jean Chick, citing Deloitte’s Restaurant of the Future Survey, which found that 80% of respondents said wait times impact their decision to choose a restaurant.
To better understand the impact of customer experience on restaurant profitability, Rakuten Ready undertook the 2020 ROI Study to learn more about how shifting order mix toward Order for Pickup can become a revenue growth opportunity. Data collected across four major QSR brands confirmed that mobile Order for Pickup offers the shortest wait times–up to 2.4 times faster—than other service methods.
The study also confirms Order for Pickup is an efficient channel. As operators invest more into building out the necessary infrastructure and promote Order for Pickup, they will gain a number of benefits, including increased ROI. By shifting the mix towards Order for Pickup, brands gain operational efficiencies and cost savings not available with other order channels including:
Improved profits from needing less staff to capture orders and payments.
Shorter customer wait times, which increases order throughput and drives more revenue.
More opportunities for upsell, since the mobile app can automatically suggest items like beverages and desserts to help drive incremental revenue.
Additional revenue from new customers who want to use Order for Pickup but didn’t know it existed or previously went elsewhere due to the long lines.
But first, operators must address the perception of customers when it comes to Order for Pickup, compared with In-Store and Drive-Thru channels.
Perception Vs. Reality of Wait Times: The Disconnect Could Be Costing Restaurants
The Rakuten Ready study found that nearly 70% of frequent QSR customers perceive the In-Person and Drive-Thru channels as faster than mobile Order forPickup during peak periods.
However, the reality is that mobile Order for Pickup actually offers a considerable time advantage; it was on average 2.4 times faster than In-Person ordering and 1.7 times faster than Drive-Thru.
The challenge is for restaurants to change customer perceptions so they will shift their behavior towards mobile ordering – thereby allowing restaurants to increase their profitability by capturing revenue otherwise lost because customers deemed it too busy or just stayed away altogether.
Tips To Create A Successful Shift Toward Mobile Ordering
While the hallmarks of a seamless mobile Order for Pickup experience will vary by brand, vertical and location, there are several best practices restaurants can implement. The common themes are clearly marked and dedicated pickup locations and/or pickup lines and windows and ensuring that product is made just in time to minimize waste and provide food at peak quality. And communication is key, through an app that informs the customer when their order will be ready or allows the customer to let the restaurant know when they will be onsite for pickup.
“Technology has improved customers’ ability to order on their terms and have their items waiting for them when they arrive,” Chick says.
And the “right” technology is a pivotal component of this shift, most notably prioritizing the app experience and adopting other innovations like predictive arrival technology. That’s key to a program’s success, given that three-quarters of customers say that skipping a long line is the top reason they would choose Order for Pickup, and nearly the same number would choose Order for Pickup if they were confident their order would be ready when they arrive.
Reaping the Rewards
The Rakuten Ready research concluded that shifting the mix to promote more Order for Pickup offers a number of benefits, including:
Increased operational efficiency that leads to more throughput
Improved margins through more satisfied existing customers and new customers, who combine to bring in more profit
A more convenient customer experience with less interaction that leads to a better brand impression
By shifting the customer order mix towards Order for Pickup with a frictionless order experience, restaurants can reap the rewards of improved customer loyalty while improving profits and revenue.
Download the full Rakuten Ready 2020 ROI Study here.
Article top image credit: Dan Rentea via Getty Images
How 6 full-service brands make off-premise work
While Chuy’s and Macaroni Grill have honed in on their third-party delivery partnerships, Olive Garden is doubling down on its independent off-premise strategy.
By: Julie Littman
In the race to capture share of stomach, full-service brands have been falling behind. Fast casuals and QSRs have been quicker to adopt mobile pickup capabilities, easy-to-use apps and websites for online ordering and to access consumers social media. This has left many full-service models playing catchup, but the trend is beginning to change.
In the last few years, just about every sit down restaurant from Chili's to Red Robin and Buffalo Wild Wings to TGI Fridays has adopted operations either with new designs, websites or mobile apps to boost off-premise sales. Even Benihana, a restaurant known for its iconic in-store experience offers delivery, today.
And those off-premise channels are growing. As of October 2019, 52% of restaurants surveyed by Gartner had four delivery partnerships, 6% didn't have any partnerships.
While the trend has been to work with more delivery providers to reach more customers, several, like Chuy's, have taken the opposite approach by signing an exclusive deal with a single platform. This strategy can help reduce overall costs, provide access to customer data and offer POS integration. Other chains, like Olive Garden, refuse to enter third-party delivery, relying on in-house takeout model to keep costs down and maintain control of branding.
Though each restaurant is approaching delivery and off-premise in their own fashion, one thing remains clear: off-premise is a strong sales growth driver.
At the ICR Conference in Orlando, Florida, in January 2020, six chains discussed how they are making off-premise work and they anticipate it will boost sales. Read about their strategies:
Chuy's signed an exclusive deal with DoorDash in early 2020, Chuy's CFO and VP Jon Howie said. The taco chain used to work with 15 delivery providers across its 100-plus store system. The take rate, or fees charged by marketplaces, it sees on delivery is 22% to 23% overall on 2.5% of sales, which led to $2.2 million in delivery fees paid in 2019, he said. Howie added that he anticipates the move to one provider will immediately reduce the take rate to the mid-teens.
The savings on delivery fees will be reinvested in packaging to improve food quality in transit, he said. Chuy's will also add delivery to 32 restaurants, Howie said.
Chuy's is working to convert call-in orders as well to digital ordering, which is more accurate and automatically offers upsells. Additionally, the company has been building its catering business and reached $1.5 million in Q4 2019 compared to $300,000 in the quarter of the previous year, he said.
Off-premise makes up 12.9% of sales as of January, and management expects it could reach into the mid-teens and upper teens in the future.
Macaroni Grill/Sullivan's Steakhouse
Delivery and off-premise is essential to bothbecause it delivers convenience and functions as a marketing tool, CEO Nishant Machado told Restaurant Dive.
To help reduce overall costs, the company keeps an eye on all of its revenue streams across each restaurant so it knows what its margins are for dine-in, catering, delivery and takeout. It will balance its marketing spend with what it knows its delivery commissions will beas well, especially since the company views delivery as a form of marketing, he said.
"If you're not efficient in running your business, I don't think you see the margin growth … in off-premise," Machado said. "The way we run our business is we know what percentage of our off-premise is delivery or carryout and we've adjusted our labor models to account for that."
Sullivan's Steakhouse, offers a slightly different menu with a broadened sandwich and burger offering and appetizers and sides, he said.
These strategies have paid off. Within the first three months of launching third-party delivery at Macaroni Grill in 2018, the company reached over $1 million in monthly sales, and it grew delivery by 30% in 2019, he said.
Off-premise will be a key part of Red Robin's turnaround, CEO Paul Murphy said. Off-premise grew 28% in 2019 to $168 million, and the chain plans to accelerate that business with an emphasis on third-party deliveryand catering. The company believes there is significant runway with catering, which makes up about 1.5% of sales.
Red Robin works with three major third-party delivery players that were rolled out during the second half of 2019 and now makes up 5% of sales, Murphy said. The company rolled out a last-mile delivery program in February where guests order directly from the restaurant, but delivery is provided through a third-party, he said. This process will allow the chain to retain guest data while also allowing guests to use the loyalty program, he said.
To help grow off-premise, the company is developing a restaurant prototype in 2020 that can improve the dining and off-premise experiences, he said. Red Robin will also work on a new digital platform to improve the digital ordering experience and boost order completion rates, he said.
The company's rollout of its Denny's on Demand platform in 2017 helped the casual dining restaurant modernize and gainrelevance with younger guests, CEO John Miller said. This platform allows guests to order takeout or delivery directly from the company's app or website.
Almost 90% of the company's domestic restaurants work with at least one delivery provider, Miller said. Delivery has grown 67% from when the company launched Denny's on Demand and represented 12% of sales in Q4 2019.
Delivery is skewing toward younger guests and is popular among late-day parts, but the convenience of online ordering for pickup and delivery also represents additional opportunities for young families during dinner and breakfast, Miller said.
The One Group (STK and Kona Grill)
Growing to-go sales will be an important driver of The One Group's strategy to turnaround its recently acquired Kona Grill brand. To-go sales make up about 8% of overall sales, but the industry average is about 13%, Manny Hilario, CEO and president of The One Group told Restaurant Dive. Catering, which used to be a part of Kona Grill's business years ago, will also be brought back, he said.
With its restaurants at capacity Thursdays through Saturdays, to-go offers an additional point of revenue, especially since dining room space is not as available, Hilario said, adding that Mondays through Wednesdays are notbig drivers for off-premise because their dining rooms aren't at capacity.That has meant developing a bifurcated strategy where delivery and to-go might be pushed out more on the busier days.
As part of its off-premise push, the company spent a lot of time identifying packaging that doesn't get too hot or too wet. It has also provided education to host staff so they know what to do when a driver arrives to pick up an order.
Hilario saidthat in order to make delivery work, you have to listen to what consumers want. While delivery isn't a big focus for STK, it has done well in New York City, Chicago and Los Angeles, where the brand works with Postmates.
His brands have tried to push bundles and platters to drive toward a higher price point, but quickly found that if you force people to buy a certain amount of food for delivery, they'll find somewhere else where consumers don't have to buy as much. For his brands, he found that people prefer mac and cheese or sliders and french fries instead of large platters.
"[You] can't dictate what a consumer gets," Hilario said. "You can rationalize if you sell more at a bigger price point, it helps, but I'm not sure the consumer is really going to play that game."
Darden's off-premise business, which doesn't include any third-party delivery, has grown to over$600 million, growing 17% per year and making up 17% of sales as of January, CFO Rick Cardenas said. The company already delivers large party catering where the average order size is $350, which is much more compelling than delivering $12 lasagnas, he said. Delivery also creates operational challenges when people try to cut in line to pick up orders, Cardenas said.
"We don't really want to pay a third-party," he said. "We're still at a point where third-party doesn't make sense."
Article top image credit: Julie Littman / Restaurant Dive
Delivery profit is elusive. Are hybrid models the answer?
Restaurant execs are challenging the idea that standard third-party partnerships are key to survival in today’s market, but even non-traditional off-premise systems come with obstacles.
By: Emma Liem Beckett
Restaurant chains are gripped by the fear of missing out. And the promise of delivery sales, a holy grail for the slow-growing restaurant space, has chains across categories racing to partner with third-party providers.
But, not so fast. At the inaugural Future Restaurants conference in Austin last month the conversation around off-premise centered on the dangers of striking a delivery deal before operators are ready, and challenged the notion that third-party partnerships are key to survival in today's market.
"I've sat on many round tables with other CEOs of major restaurant groups … and the sentiment that blew me away was 'We have no choice. We have to do this,'" Taziki's CEO Dan Simpson, who took the helm of the fast casual chain in 2018, told Restaurant Dive. "And I was like, I'm the new guy in the room, but we always have a choice. And we need to be more thoughtful about how we go after this."
Throughout the event, Restaurant Dive spoke with restaurant executives about the myths they feel have become entrenched in the delivery discourse, the risks they're willing to take to optimize this channel and how they craft their off-premise strategy.
"The first challenge is to know why you're adding a certain channel. Sometimes you can look around the room and feel the pressure of 'Oh, Chipotle just rolled this out,'" Simpson said. "We've tried to be disciplined about solving problems versus just adding programs."
The consensus on the best path forward? Delivery models that pair online ordering directly through a brand's website with third-party delivery fleets. But even hybrid systems come with obstacles.
It's a hard road to profitability
Major third-party delivery services like DoorDash and Uber Eats can take as much as 15% to 30% off the top of every delivery transaction, a steep cost for emerging chains and legacy brands thanks to shrinking margins.
This arrangement can be especially challenging for restaurants that are heavily franchised and rely on cash-strapped franchisees that would have to take on the burden of processing orders, often through multiple tablets.
Applebee's has been working with third-party delivery providers for a little over two years, and VP of Strategy and Development Scott Gladstone told Restaurant Dive that the casual brand's biggest hurdle was operator concerns about profitability.
"We've made a big effort over the last couple of months to revisit the way we go to market with third-party delivery and take an approach where … we look at the delivery channel the same way we look at the dine-in and other to-go channels to make appropriate allocations," Gladstone said.
This includes ensuring restaurants recoup their margin by charging customers more via delivery fees and service fees, and giving franchisees discretion over how they tailor delivery menus based on products that hold up best in transit and what consumers are frequently ordering, he said.
"I think for a lot of concepts it doesn't make sense to have your own delivery fleet … to maintain their guest data and that guest relationship," Gladstone said. "The [hybrid model] has economic benefits. It helps you leverage your existing infrastructure with your online ordering ... and the opportunity for us is building our direct business."
This protects the brands from quality concerns and can help ensure that target delivery times are met, Panera Chief Growth and Strategy Officer Dan Wegiel told Restaurant Dive in August.
Taziki's is testing this kind of hybrid delivery and third-party delivery at the same time.
In Nashville and Richmond, Virginia, the Greek chain is piloting delivery with its drivers, and trying out delivery through Waitr in 12 markets, Simpson said. Taziki's partnered with Waitr because it offered a path to integrate into its system, which allowed the restaurant to continue marketing directly to customers. This was crucial in case the brand needs to convert its diners away from third party in favor of its own delivery, he said.
Stores pay around $3,000 to $4,000 per location for umbrella delivery insurance. If the stores use existing staff to perform deliveries those employees must reach out to their insurance companies and get covered for commercial driving, which Simpson said costs around $30.
"We need to make sure the person has a vehicle that meets our standards. ... Do they have commercial coverage for their vehicle?" he said. "Most of the times these drivers are coming out of the gig economy already. They already drive for others, understand the model, [and] they understand how they're going to get paid and they're looking for more opportunity in some cases."
Keeping order processing in-house
Another strategy is to work with a partner to allow customers to order direct instead of going through a third-party marketplace.Qdoba VP of Information Technology Eric Rosenzweig told Restaurant Dive that it's in the process of implementing mobile and online food ordering platform Olo for online orders directly through its website and app. After launch, diners will be able to place delivery orders — which will be fulfilled by current partners Uber Eats, DoorDash and Grubhub — without the customer ever engaging with those third-parties.
"You as the guest don’t know [who is completing the order] — you just click delivery and it shows up," he said. "We went to Olo because we wanted to have integration with third-parties so that the customer could be ours. … We need to make our experience so frictionless ... that there's not a need to go to DoorDash."
Nearly all of Corner Bakery's delivery partners, including segment leaders as well as regional players, are similarly integrated into its system, Director of Off-Premise Business Development Ed Keller told Restaurant Dive. But while operators are happy with these partners and the brand has negotiated low fees and chosen not to embark on an expensive delivery marketing campaign, profitability is still elusive.
"The [hybrid model] has economic benefits. It helps you leverage your existing infrastructure with your online ordering."
VP of Strategy and Development, Applebee's
"This thing keeps evolving and nobody's making money at it," Keller said.
On the other hand, Corner Bakery’s catering business is stronger than its delivery piece, driving 25% of its annual unit volume of $2.3 million per store, Keller said. The restaurant has a fleet of delivery vans and drivers for catering, but relies on third-parties to deliver individual, small off-premise orders.
"When we want to move the needle at $2.3 million, we need some help. And third-party helps that," he said. "We tested self-delivery at the beginning of this year. … We just couldn't generate the volume. ... I'm not McDonald's. I'm not Starbucks."
When it comes to fear of botched brand experiences in the hands of third-party delivery workers, Keller wonders if restaurants are wringing their hands over an issue that diners aren't easily put off by.
"Are we trying to set a [quality] standard that really isn't expected? I don't know the answer to that, but I suspect that we are," he said. "Do I care how [a delivery worker] is dressed. No, as long as they don't smell and they aren't sloppy. … If I have to heat up my order a little bit, would that bother me? No."
Still, studies show that when things do go wrong during the last mile of delivery, 62% of customers blame the restaurant and the third-party partner — a risk that restaurants still face with a hybrid delivery scheme.
"Amazon just changed its algorithm so that [it's] promoting [its] own brands above the most relevant brands. ... and there are a lot of risks that the same thing might happen in third-party delivery at some point."
VP of Strategy and Development, Applebee's
But all four execs emphasized data's value and forecasted that possession of consumer information will become increasingly contentious as the delivery market evolves.
"Amazon just changed its algorithm so that [it’s] promoting [its] own brands above the most relevant brands. It's based on search and there are a lot of risks that the same thing might happen in third-party delivery at some point," Gladstone said. "So it's critical that brands develop a direct delivery experience for their customers."
Gladstone said this shift has already begun to take place as delivery platforms build their own loyalty programs to make guests stickier, and that hybrid models can help restaurants expand their off-premise footprint but still maintain control of the guest relationship online.
Simpson also said restaurants can look to the hospitality industry as an indicator of the power struggle to come.
"There are some good lessons before us. This happened in the hotel industry and you had aggregators push a lot of hotels into the position where they no longer had control over their customer or their pricing," he said. "That's a very bad position to be in."
Meal kits could offer untapped revenue stream for restaurants
This off-premise segment could help restaurants offer a new option to diners alongside delivery and takeout, but very few operators have jumped into the ready-to-cook segment.
By: Julie Littman
From catering to pick-up windows and third-party delivery, restaurants are adapting their store operations and design to maximize lucrative off-premise opportunities.
But restaurants have overlooked one touch point: meal kits.
"I've been pitching [meal kits] to restaurants, but no one seems to see the opportunity that I see,” Mattson President and Chief Innovation Officer Barb Stuckey told Restaurant Dive. Mattson is a Silicon Valley-based food and beverage innovation firm works with CPG and restaurant brands. "It is somewhat short-sighted not to give at least a look to see if it is right for restaurant chains."
Many restaurants are focused on third-party delivery services as a path to off-premise prowess, but meal kits could solve some of the quality issues that come with this strategy, Stuckey said. Instead of offering a lukewarm dish that was cooked 30 minutes ago, restaurants can provide the ingredients for consumers to make meals fresh.
Chick-fil-A is the only major restaurant chain that's tested a meal kit. From the end of August to November 2018, it offered Mealtime Kits with five different recipes from over 100 Atlanta-based restaurants, and customer feedback was positive, according to Forbes.
"We know our guests are busier than ever and need a variety of convenient dinner options," Michael Patrick, Chick-fil-A's Beyond the Restaurant program lead, said in a company announcement. "We designed our offering so our guests don't have to order ahead, subscribe to a service, or make an extra stop at the grocery store."
Customers would pick up the kits from participating restaurants either in-store or at the drive-thru, Patrick said. Instead of selling common favorites, like its chicken sandwiches, it offered chicken parmesan, chicken enchiladas, Dijon chicken, pan roasted chicken and chicken flatbread.
"It's brilliant because it allowed consumers to experience the brand in a different way," Stuckey said.
While Chick-fil-A has yet to indicate whether or not it will make meal kits a regular option, its experiment provided a look at how a chain can successfully incorporate this option.
"It is somewhat short-sighted to not give at least a look to see if [a meal kit] is right for restaurant chains."
President and Chief Innovation Officer, Mattson
If a restaurant is primarily focused on lunch, they could offer dinner through the meal kits, said Stuckey. Restaurants could also boost lunchtime sales by offering kits that in-store diners can take home to make for dinner, she said.
The restaurant industry may be dragging its feet because few standard meal kits are profitable. The segment has been struggling with oversaturation, and Chef'd and Munchery have shuttered while budget-friendly kits like Blue Apron are just barely staying afloat. Meal kits are also competing with many different segments including QSRs, fine dining restaurants, food outlets within grocery stores, delivery, ghost kitchens and other off-premise options, LIDD Managing Director, Demand Chain Sean Butler, a Purple Carrot and Chef'd veteran, told Restaurant Dive.
"Ready-to-cook as a category is in a weird in between place where it doesn't offer the convenience of ready-to-eat, delivery or sit-down restaurants," Butler said.
The newest restaurant meal kit program is virtual
But despite a slow down in the growth of meal kits, about 100 million Americans are interested in trying them, according to Grocery Dive. And while budget meal kits have been particularly troubled, a new meal kit company hopes to capitalize on the less competitive premium segment that appeals to the foodie consumer. Chef Meal Kits partners with restaurants and chef entrepreneurs to license menu items that can be bought as a kit on an online marketplace.
"There are 200-plus meal kits ranging from the big guys, like Hello Fresh, to local meal kit providers," Chef Meal Kits founder Meg Ginimav told Restaurant Dive. "They all focus on budget meals for everyday use — that is a crowded market and very competitive. We don’t want to enter that space."
Unlike traditional meal kits that tend to be geared more toward families, Chef Meal Kits is focused on special occasions, like a dinner date or getting together with friends to cook, Ginimav said.
Chef Meal Kits streamlines the meal kit production process for restaurants in a way that could make this concept a viable option for many brands, especially since it uses a virtual kitchen model to fulfill orders.
Whereas traditional meal kits have more factory-level production and distribution facilities, Chef Meal Kits' operation is set up as individual 2,000 square foot kitchen block in one facility allowing it to support multiple virtual meal kit restaurants in one location.
At the virtual kitchen, staff go through and pick ingredients from the recipe like at a supermarket and package and ship the box to a consumer, he said. So instead of a restaurant using its own kitchen, it can move the production to a Chef Meal Kits facility to do it instead.
While its first kitchen is in San Diego, it wants to build a kitchen in every major metro, Ginimav said. It also plans to go live with 300 independent restaurants within the next six months and within the next two to three years to partner with 1,000 restaurants. Eventually, the company wants to partner with 10,000 restaurants. The company delivers to eight states — California, Nevada, Arizona, Washington, Oregon, Colorado, Utah and Idaho. Once the company gets more volume, Ginimav plans to offer two-day shipping across the country.
Many meal kits, like Home Chef and Plated have been focusing more growing partnerships with grocery stores taking the eye of the ball with direct shipments to consumers, which could give restaurants a chance to get into the overcrowded space.
For restaurant partners, there is no subscription cost and they get a 15% commission when the box sells. A chef consultant will work with the restaurant to figure out which menu items would best translate into a two-portion meal kit, he said.
For chefs and food entrepreneurs, Chef Meal Kits charges a monthly fee of $350 to set up a virtual meal kit restaurant. These entrepreneurs go through a vetting process that includes a look into the chef’s background and assessment of whether the menu items would resonate, and upload four menu items with pictures, Giminav said.
Comparatively, for a chef entrepreneur, there are few options to test new concepts and recipes, such as a food truck, food hall, ghost kitchens like Kitchen United, and this new method could provide an additional avenue to grow a new concept quickly.
Supply chain and quality control is key
Chef Meal Kits has also had time to work out some of the early challenges of operating a meal kit program. During the initial phases of the company, Ginimav learned that having the restaurant partner package and portion meal kits directly slowed down restaurant sign-ups. He said he felt that restaurants were already focused on the day-to-day operations of their businesses, and having to pack food and raw ingredients was a whole new process for them.
Chef Meal Kits will focus on building out virtual commissary kitchens, build its platform and send out the kits, he said. Down the road, the company may shift to having restaurants pack and send out the kits once they become more comfortable with the process, he said.
But while having an off-site kitchen can make production more streamlined, it takes quality control away from restaurants. Butler said restaurants have to be acutely aware of meal kit food quality, especially since the profit can be very low.
That means working closely with meal kit providers to make sure the kits move through the distribution channels from warehouse through the delivery system without any issues, Butler said. Unlike a delivery of a restaurant ingredients that arrive on a refrigerated truck, meal kits usually have some kind of refrigerant within the box, but travel through typical delivery means, he said. That means if not done right, ingredients could be exposed to heat and unsafe conditions.
"The risk of having a bad consumer experience, which is maybe going to cause this consumer to no longer visit your restaurant or support your brand, is very high relative to the upside," he said.
Marketing meal kits well takes collaboration
Restaurants should be aware of what it takes to market a kit. Butler said what he learned at Chef'd was that restaurants need to be actively engaged in marketing these meal kits for them to succeed.
Whereas the company would often take high quality photos of the food and of the chef involved in the menu at the start of a partnership, the involvement of the chef ended there, Butler said. These chefs and restaurants didn’t have a good way to drive traffic to the website or other digital channel to purchase the meals, he said.
"There are lots of captive eyes in a restaurant and lots of opportunities for employee engagement to actively sell meal kits," he said.
Restaurants should also be wary of meal kits' low repeat customer rates and how to combat that. Meal kit companies will often spend $80 to $100 to acquire a customer, but that cost is really high, especially since many of these customers don’t stick around, Ginimav said.
Instead, his meal kit company will provide promo cards and marketing materials to restaurants where wait staff will hand them out to customers. The added incentive for wait staff is they receive a commission if the customer buys a kit.
"The restaurant will be our champion as well," he said. "That will help customer acquisition costs be a lot lower."
The platform also provides access to a wide variety of meals, which can help retain customers, since they will have the chance to try a new menu item each week from different restaurant partners, Ginimav said.
Having a marketplace with hundreds of different menu options also helps keep customer acquisition costs down, Ginimav said. As that network grows, it can attract more customers and ultimately lower marketing costs, he said. Airbnb grew rapidly using a similar marketplace model without having to spend a lot on marketing, he said.
"The restaurant will be our champion as well. That will help customer acquisitions costs be a lot lower."
Founder, Chef Meal Kits
Pricing and prep time can be stumbling blocks
Restaurants also need to be careful with their approach to meal kit pricing. Meal kits that are priced over $10 per person don’t create enough value for the consumer to buy instead of just going to the restaurant, Stuckey said.
One meal kit based in the Bay Area, Din, offered kits from high-end restaurants in San Francisco from 2014 to 2016. Stuckey said the quality was very high and offered gourmet meals like duck confit with blueberry reduction, but the price was also high. For two meals per week for two people, it cost $60, meaning it was $15 per person per meal. Comparatively, Chick-fil-A’s meal kits cost about $16 for the entire kit.
"There are only so many consumers willing to pay for that and they still have to cook," Stuckey said.
The price of a meal kit on Chef Meal Kits would be the same as the price in the restaurant, Ginimav said.
Consumers will buy and re-buy meal kits at a higher rate if prep time is low, typically between 10 and 30 minutes, Butler said.
"That speaks to the need to balance home-cooked meals with convenience," he said.
On Chef Meal Kits' website, current recipes have a wide range of prep and cook times, from 20 minutes to an hour, making it clear to consumers how much time the kit will take.
Restaurants that do meal kits also have to be smart about recipes because home cooks don’t have the same equipment as restaurants, so recipes that require deep frying aren’t going to work, Stuckey said. That means meal kits aren’t necessarily ideal for QSR or fast casual. She said kits make the most sense for casual dining since this area is not as convenient and already takes longer to cook.
With Chef Meal Kits planning to partner with 10,000 restaurants over time, more restaurants will soon have the opportunity to try a meal kit. But so far, many haven't entered the game, especially as budget meal kits continue to show meager results.
"I don't think restaurants are looking at it as a parallel path and business model that can compliment their restaurant," Stuckey said. "It may just not be the time for meal kits."
Still, she believes there is still opportunity here.
"It seems like an obvious way to up check averages and to increase revenue in a way that is a totally incremental business," she said.
Alcohol pairs well with food delivery, but restaurants missing out
While more consumers are ordering meals for delivery, alcohol is not yet widely available and could be the next big growth area, Technomic says at the NRA Show.
By: Julie Littman
If sales from the top five third-party delivery providers were combined — a whopping $9.8 billion in 2018 — as a whole entity, they would fall within the top 10 U.S. restaurant chains, said Technomic principal Donna Crecca during a presentation at the National Restaurant Association Show in May 2019. To say that delivery is growing is an understatement. In 2018, delivery increased sales by 55%, on top of a 35% increase a year prior.
But as delivery grows, the nature of what items it offers continues to change as well. "The very meals delivered are different," Crecca said. Orders now include a lot more entrees, sides, appetizers, salads and even desserts. In addition, dinner is now the primary daypart for delivery. But she asked, "What’s missing?" Her answer: beverages.
Beverages are one of the most profitable areas of a restaurant, but very few deliver alcohol, Crecca said. The biggest obstacle has been understanding local and state regulations and training staff on how to be in compliance, but the regulatory environment is changing. States like Pennsylvania have recently eased up on their restrictions to sell alcoholic beverages at grocery stores and gas stations, and according to Bustle, the Keystone State has nothing in the books prohibiting beer delivery. The Takeout also reported that Alaska, Florida, Minnesota, and Washington, D.C., do not require permits to ship alcoholic beverages to shoppers.
The shift has allowed direct-to-consumer delivery to explode, Crecca said. Direct wine sales on platforms such as wine.com, for example, made up 10% of total wine retail sales in 2019. Amazon, Postmates, DoorDash and specialty delivery providers, including Saucy, Thirstie and Minibar, have all gotten into the game, in addition to grocers like Kroger and Giant Eagle.
Some restaurants have started to test the waters, but expansion has been slow because of the complexities of local and state laws. In recent years, Buffalo Wild Wings, Pizza Hut, TGI Fridays and BJ's Restaurant have added alcohol delivery.
Pizza Hut first tested alcohol delivery in 2017. The seeming success of that pilot led to an announcement in January 2019 that it would expand the service to 300 locations in seven states, with plans to get to 1,000 locations by summer 2019. Crecca noted that it's becoming part of the pizza chain's value proposition and is only likely to keep cropping up across the country. A possible key to Pizza Hut's continued expansion of its alcohol delivery is that it trains its employees on ID verification and proper handling of the product, which could help the growth run more smoothly.
On the casual dining front, BJ's Restaurant is delivering beers and bottled wine both directly and through its DoorDash partnership, and TGI Fridays tested it with Lash in the Dallas market in 2017 and has been considering this on a market by market basis to see how it can become an important part of the at home occasion, she said.
"No single service really owns alcohol delivery right now. [Consumers] are pretty much engaging with every model."
Despite all of these options, consumers don't have a preference on what service they like the most. "No single service really owns alcohol delivery right now," Crecca said. "[Consumers] are pretty much engaging with every model."
That means there are a lot of opportunities for both restaurants and third-party delivery providers to grow in the space. While a handful of third-party delivery providers, including Postmates and Grubhub, currently offer alcohol delivery, others are exploring the idea as well.
"We're very focused on food delivery, but alcohol is something that consumers want," Tyson Queen, Waitr's national sales director, told Restaurant Dive during the National Restaurant Association Show.
The company began delivering alcohol in Louisiana, where the company is based, in July 2019 following the passage of legislation making it legal.
Consumers benefit from having a one-stop shop and restaurants gain another touchpoint to reach their consumer base, he said.
And those that do order delivery, mainly younger consumers, are already primed to order alcohol. Eight in 10 consumers aged 21 to 34 years old are ordering food delivery at least once per month and about 47% purchase alcohol every or most of the time they order food, Crecca said.
This demographic also sees alcohol delivery more as an everyday occasion. They order adult beverages more frequently than older consumers for weekday and weekend meals, she said, with one-third buying it for a weekend meal compared to 21% of consumers 35 and older. During the weekdays, those numbers shift to 21% for younger consumers and 15% for older ones.
"This is something we need to keep an eye on," she said. "Anytime you see that younger consumer over-indexing on a behavior, you can assume that demand and that behavior is going to grow."
Alcohol delivery is a 'double-edged sword'
By pairing alcohol with food delivery, restaurants can boost takeout traffic. Nearly 70% of consumers said they would rather order alcohol and food from the same provider, and two-thirds of consumers said they would order takeout from a restaurant if they knew they could also order adult beverages, Crecca said.
This means that restaurants could benefit from an increase in patronage for takeout delivery and increase customer loyalty, she said.
It also could be a way to bring the in-store experience to the customer. While delivering spirits can be tricky in some states, customers have been asking for cocktail kits and directions on how to make it, Crecca said. They then use their own alcohol to make a restaurant or bar's signature drink.
Even with this potential increase in takeout traffic, Crecca said alcohol delivery is like a "double-edged sword." According to Technomic data she cited, 27% of consumers say they will order alcohol delivery instead of going out to a sports bar or restaurant, and 27% also say they are going out to restaurants and bars less often because they now have the option of ordering drinks. With younger generations, that statistic for both occasions increases to 33%.
"That is a little concerning because what it is doing is effectively decreasing traffic for a restaurant," she said. While for the most part alcohol delivery leads consumers to engage with restaurants more often, she said the industry needs to pay attention to this trend to see whether it has long-term impacts.
Creating a foundation before diving in
Launching alcohol delivery isn't easy. Crecca said before restaurants add the service, they need a good understanding of their food delivery customers first. How are they interacting with delivery? Is this something they actually want? When are they ordering and for what? There are a lot of questions operators will want to consider before putting alcohol on their delivery menu.
Perhaps the most complicated issue to navigate are the regulations both on the local and state level. Crecca also emphasized that restaurants need to make sure their delivery partners are compliant with liquor regulations as well.
Other considerations include ensuring beverages arrive at the right temperature so consumers can enjoy them right away with their meals, marketing and pricing. The cost can get tricky because if there is too much of a markup, consumers aren't likely to order it when they aren't getting the same benefits of having a waiter and the same level of service as in a restaurant or bar.
Gaining a better understanding of this segment could be beneficial in the long term, especially since demand for alcohol delivery isn't likely to decrease anytime soon. Over a third of younger consumers said they plan to order alcohol delivery more often in the future and 27% of consumers 35 and older plan to order more, Crecca said.
"A lot of people appreciate that convenience and this is likely to continue to grow," she said.
How restaurants are taking control of delivery in 2020
With doubts swirling over delivery's long-term profitability, this year will be marked by restaurants renegotiating commission rates, developing branded online ordering and adding virtual kitchen
By: Julie Littman
In the delivery game, tacos make an ideal menu item, and Texas-based Torchy's Tacos is using this to its advantage. With off-premise expected to drive over half of its sales within the next five years, taking control of its delivery channel will be key, CEO GJ Hart told Restaurant Dive.
"The consumer is going to continue to want what they want, when they want it, where they want it, how they want it," Hart said. "But it is going to continue to evolve."
Torchy's partnership with DoorDash places its restaurant on the third-party provider's platformbut also allows the taco chain to offer delivery directly from its own branded site, he said. Still, the cost of this arrangement adds up.
"Could it be better? Yeah. It's still expensive,” Hart said. "But none of those [third-party operators] are making money."
Torchy's situation is emblematic of a question that’s been eating away at the entire restaurant industry: is delivery actually profitable? Can third-party marketplaces function as they are with free delivery promotions and other discounting?
"Sooner or later someone is going to have to pay for this," Hart said. "The consumer hasn't been paying for it. Investors have been paying for it because it's hard to make those business models work."
Analysts predict that toregain the upper hand in delivery, more restaurants will adjust price models, expand into their own virtual kitchens, renegotiate commission rates and adopt their own branded ordering platforms this year. Delivery aggregators are also saddled with their own profitability problems and are working to improve their relationships with frustrated restaurants to hold revenue steady.
Menu price adjustments can help the bottom line
To squeeze more money out of their third-party delivery partnerships, many restaurants are listing different menu prices on places like Uber Eats and Grubhub than on their own branded channels to offset delivery costs, Noah Glass, founder of online and mobile ordering platform Olo, said during an ICR presentation in January. Consumers expect to pay more when they order for delivery and are willing to do so, he said.
"Delivery partners will allow you to post higher prices on your menus that show up on their website versus what you charge in the store," Sterling Douglass, co-founder and CEO of Chowly, told Restaurant Dive. His company offers POS integration software for restaurants using third-party delivery. "That is a huge help when you talk about profitability for the order that comes through those channels."
El Pollo Loco uses a bifurcated pricing strategy, CEO Bernard Acoca said during ICR in January. Full menus are only accessible through its branded app and website, but the cost of delivery is passed on to the consumer, allowing the company to retain 100% margins on these orders.
On third-party sites, El Pollo Loco diners access a limited menu and pay 15% to 20% more for items. Its menus on marketplaces emphasize family meals, premium items and meal combos, Acoca said.
"The intent here is to offset the commission that we pay with higher average tickets," he said. "So far we've met very, very little resistance."
The company deployed this strategy during Q3 2019 and has since bolstered delivery from 1% of sales to 3%. Digital sales also grew from less than 2% to 5% since Q3.
Just Salad, on the other hand, isn't willing to adjust menu prices online because it could lead to customer assumptions that those prices are the same for in-store or direct orders, CEO Nick Kenner told Restaurant Dive.
"I think it is a dangerous game to play," Kenner said. "I think ultimately, the consumer is going to have to pay."
Other chains have had success renegotiating commission rates. With all of the top delivery providers reaching into new markets across the country in 2019, they reached a level of scale that their delivery metrics are better overall, Douglass said. That has allowed commission rates to come down and they have since 2018, he said.
In 2018, full commission rates were as high as 30% but in 2019, it bumped down to in the 20s, he said. The average commission rates among Chowly's restaurant clients all came down lin 2019, he said.
Bonchon renegotiated with its third-party partners to cut commission rates in half in 2019, CEO Flynn Dekker said during an ICR presentation. The company is also working on developing its own online ordering channel. As part of its new agreement with Uber Eats, McDonald's also renegotiated its rates while Uber agreed to provide a contribution to support a national advertising campaign.
Branded online ordering is also growing among chains and restaurants, especially since it gives restaurants more control over their customer data as well as the option to farm out delivery to aggregators. This is an important aspect of Torchy's Tacos delivery strategy.
"The more you can drive people to your own sites and/or places where you have that information, the better off you'll be," Hart said.
"If you are a restaurant and you're on the third-party marketplaces that is a great start, but making sure you have a way for your frequent and loyal customers to order directly from you is incredibly important," Douglass said. "That allows the restaurant to provide a similar experience to customers that they want from third-party marketplaces without the high commission rate."
But Douglass doesn't think this will lead to a wholesale shift where restaurants start to provide their own delivery. Restaurants would need a lot of volume to make that work and volume has to be predictable, he said.
For those restaurants continuing with third-party delivery, the segment's future will come down to how well third-party providers work with them.
"I would love to see [third-party providers] partner more with restaurant groups to go into some of the new innovations," Douglass said. "Grubhub partnering with Lettuce Entertain You for a virtual kitchen is a great example in how a marketplace and a restaurant community can work together to provide a better experience to their customers to be a mutually beneficial relationship."
Restaurants shift delivery strategy for 2020
While shared kitchens are becoming all the rage among restaurant operators wishing to expand their footprint — and delivery radius — without paying for expensive real estate, other restaurants are using their existing kitchens to expand into virtual restaurants.
These operations allow brands to test menu itemsfor delivery or allow for cross-pollination of different restaurant brands under one portfolio. And delivery providers are helping restaurants develop them, too. Grubhub partnered with Lettuce Entertain You to provide branded Whole30 meals in 2019. The virtual restaurant, Whole30 Delivered, is operated by Lettuce and available to order exclusively on Grubhub's marketplace.
Just Salad also launched a virtual brand, Health Tribes, in October through a partnership with Grubhub. It allows the 50-chain salad brand to experiment with new items and then move those items to Just Salad's menu, Kenner said. The company prepares the salad in store for delivery or pickup through Grubhub's marketplace.
This option also creates a different daypart for the company, he said. While Just Salad skews more toward lunch, Health Tribes skews toward dinner. It is also attracting new customers that wouldn't necessarily go to Just Salad and can continue to evolve as dietary preferences change, he said.
FAT Brands is taking a somewhat similar route, using a virtual kitchen model where operators use their existing kitchens to offer other menu items from sister brands, such as having a Fatburger franchisee offer items from Hurricane's.
"It's all incremental revenue [for the operator]," Andy Wiederhorn, FAT Brands CEO, told Restaurant Dive. "There's no real estate to pay for. I think virtual restaurants give you a lot of lift."
How aggregators are making delivery work
In 2019, it became clear that delivery providers needed to improve their relationships with restaurants.
Because of this backlash, third-party aggregators are adapting strategies to improve their partnerships. Grubhub launched a tech suite focused on pickup orders that can work with any sized restaurant and offers POS integration, self-order kiosks, a kitchen display system and real-time order monitoring for guests. Postmates and Uber Eats also added group ordering and other customer-facing features that reduce total delivery costs.
As diners become more less loyal to where they order from, restaurants are finding it beneficial to work with multiple providers. McDonald's, Del Taco and El Pollo Loco are a few QSRs that expanded their delivery partnerships to multiple providers during 2019.
"Operators should work with however many marketplaces they want to work with that will play by the operators' rules."
"Operators should work with however many marketplaces they want to work with that will play by the operators' rules," Glass said.
He said restaurants that work with only one delivery provider is similar to saying they only accept Visa cards instead of working with multiple payment options, which limits customer options.
Uber Eats has already shifted its strategy away from focusing on exclusive partnerships with restaurants, exploring ways that encourage restaurants to work with it because of what they offer and not because they are tied to a contract, Janelle Sallenave, head of Uber Eats in U.S. and Canada, said during the ICR conference in January.
"We’re not wedded to the way things were done in the past," Sallenave said. "We're really interested in building … sustainable businesses."
That might mean more competitive take rates and working closely with its restaurant partners to find creative innovation or discussing geographic expansion or the benefits of using a virtual kitchen space, she said.
For example, it works with a bakery in New York that is a traditional cafe in the morning and then flips its kitchen during lunch to provide burgers through a virtual kitchen, she said.
Its strategy is also focused on making sure orders are delivered within 29 minutes or less. So far they have helped reduce defect rates, she said.
"There are many in the [third-party aggregator] space in the U.S. that were just about grow and figure it out later, and I think later has really arrived," she said.
A future with fewer delivery providers
With unchecked growth and so many regional and national players, analysts expect delivery will become profitable with consolidation. Multiple platforms and tech and service providers working alongside delivery are looking at M&A as a way to diversify and grow, Josh Benn, managing director and global head of consumer, food, restaurant and retail M&A at Duff & Phelps, told Restaurant Dive.
This will lead to more scale and diversity among larger payers with broader breadths of services, he said. And with increased levels of profitability, pricing models will get better, which could benefit restaurants in the end, he said.
"Less competition means a larger profit pool and potentially more regulation as the larger players get closer to becoming 'delivery utilities,'" Michael Schaefer, global lead, food and beverage at Euromonitor International, told Restaurant Dive in an email.
And plenty of M&A has already been rumored among the top four U.S providers within the last two years. Reports surfaced in January speculating that Uber Eats and DoorDash discussed a merger six months ago. Grubhub denied reports that it was for sale, but told Restaurant Dive that it anticipates strategic opportunities for acquisitions this year. Postmates has also had to squelch rumors of merger activity over the last two years.
Uber has been moving to consolidate and exit markets where it isn’t a top provider, leaving India and South Korea in the last 18 months. Schaefer said Grubhub could be an interesting potential target because its network of sellers often handle their own delivery and the company is profitable.
While he said he doesn't see Amazon buying a delivery provider this year, it is already active in the third-party delivery space, with its own network of drivers and contractors handling last-mile delivery of Amazon packages. Amazon left the food delivery business in 2019 in the U.S., but led a $575 million fund for Deliveroo, showing that the company still has interest in the space.
Despite the ongoing speculation of who is buying who, delivery providers will still continue to face pressure to boost profitability.
"Major investors, (SoftBank above all) are known to be pushing for consolidation in particular and a clear path to profitability more generally," Schaefer said.
In recent months, Uber Eats and Grubhub have leveraged Rachael Ray and Bon Appetit's star power to grow their virtual kitchen footprints. But will these concepts last beyond 15 minute of fame?
By: Alicia Kelso
As ghost restaurants haunt the American market in growing numbers, a second iteration of these delivery-only concepts is brewing. Looking to differentiate from rivals and drive fresh revenue, delivery platforms are partnering with celebrity chefs and lifestyle brands to launch flashy, limited-time restaurants with serious star power.
In just the past two months alone, Grubhub launched two such brands with the help of restaurant group Lettuce Entertain You. In August, the companies launched Whole30’s first branded restaurant that offers diet-compliant lunches and dinners online for delivery exclusively through Grubhub. A few weeks later, Lettuce and Grubhub announced a partnership with Bon Appetit to create a virtual restaurant called Bon Appetit, Delivered, which features the most popular dishes from the brand’s magazine, website and Instagram feed.
Then Uber jumped in. In late September, Uber Eats teamed up with Rachael Ray to open a limited-time, 10-city virtual kitchen featuring recipes from the celebrity chef’s new cookbook. Earlier this month, Uber Eats also launched a “Breaking Bad”-themed virtual restaurant, Los PollosHermanos.
These deals are a win-win for delivery platforms looking to gobble up more market share and for non-restaurant companies looking to grow brand awareness, Morgane Richert, senior foodservice analyst at GlobalData told Restaurant Dive.
"For the Rachael Ray/Uber Eats partnership, for example, it makes her food more accessible and more people will likely download the Uber Eats app because of it," she said. "The delivery companies have to think about getting more users to use their app and this is incentivizing people to do so. It is definitely about differentiation."
"For the Rachael Ray/Uber Eats partnership, for example, it makes her food more accessible and more people will likely download the Uber Eats app because of it... It is definitely about differentiation."
Senior food analyst, GlobalData
Virtual restaurants also offer significantly lower real estate and menu innovation costs, giving both delivery platforms and their partners the opportunity to experiment with new branded concepts with little risk. As operators navigate cost pressures like labor, saving on occupancy rates — which can take up to 8% to 10% of a restaurant's gross sales — can ease a significant burden on a low-margin business. And while traditional restaurants can risk around $800,000 to test new menu items, if a menu fails at a ghost restaurant, it costs about $25,000, according to Fast Company.
Though limited-time partnerships in this space are relatively new, this co-branded iteration within the segment could have staying power, Richert suggested.
“The Rachael Ray partnership is a publicity stunt, but it also allows the ability to test things in a really short period of time to see if a cuisine is a trend or a fad, or to see if the Whole30 demand is really there for delivery,” Richert said. “At the end of the day, it doesn’t come at a huge cost to them and their partners to find out and to be nimble in a way restaurants can’t be.”
For Uber, the brand can also draw from its experience as a first mover in the ghost restaurant landscape. Kristen Adamowski, virtual restaurants lead at Uber Eats, told Restaurant Dive that the company began rolling out ghost restaurants in 2017 to “fill selections gaps between supply and demand.” The company now operates 2,100 virtual kitchens in the U.S. and Canada, and about 5,000 total globally.
Virtual restaurants have been a focus for Uber because they enable the company to leverage its technology and insights to help restaurants unlock new opportunities, increase sales and reach new customers without incurring the large costs associated with opening a brick-and-mortar location, Adamowski said.
Today, @rachaelray launches her first-ever restaurant, Rachael Ray to Go—exclusively on Uber Eats. ???? You can now order dishes straight from her new cookbook, Rachael Ray 50, in select cities. ✨ Yum-O! pic.twitter.com/Jgd13zByXN
Access, diversification and cross-promotional benefits
Perhaps the biggest benefit of these types of partnerships is providing access to brands or concepts that didn't exist before. Re-creating a recipe from Rachael Ray might not always be feasible for time-crunched consumers, for example.
“Rachael Ray is a rare talent — a household name who has achieved major success without ever owning a restaurant. Aside from cooking her food at home, her fans have never been able to taste her food until now,” Adamowski said.
But these extensions aren’t just about accessibility, but also differentiation and added revenue.
“Partnering with brands like Whole30 and Bon Appetit gives us the chance to provide our diners with new, exclusive options. Diners will always have their favorite go-to restaurants, but these concepts give diners the opportunity to try something new from the names they know and love,” Padma Rao, vice president of special projects at Grubhub, told Restaurant Dive.
This opportunity is also why Lettuce Entertain You entered a partnership with Grubhub, Bon Appetit and Whole30 for these virtual kitchen concepts.
“We think that accessibility is unique for both the Whole30 and Bon Appetit partnerships. Not everyone on the Whole30 diet has time to cook every single meal. Not everyone has the opportunity to cook Bon Appetit’s recipes,” Scott Barton, executive partner and divisional president of Lettuce Entertain You, told Restaurant Dive. “This gives people the opportunity to do that.”
There is no doubt a cross-promotional opportunity here as well. Rachael Ray has 4.4 million Twitter followers, for example, while Bon Appetit has 3.2 million. The Whole30 website serves 2 million unique visitors a month. Those are big exposure opportunities for Grubhub and Uber as delivery companies continue to jockey for market share.
These examples could be just the tip of the iceberg of potential. Rachael Ray is hardly the only celebrity chef, and Whole30 isn’t the only specialty diet. In fact, the International Food Information Council Foundation found that 36% of Americans follow a specific diet.
"We think that accessibility is unique for both the Whole30 and Bon Appetit partnerships. Not everyone on the Whole30 diet has time to cook every single meal. Not everyone has the opportunity to cook Bon Appetit's recipes. This gives people the opportunity to do that."
Executive partner and divisional president, Lettuce Entertain You
It’s clear there is symbiosis in this model; the delivery companies benefit from strong brand partnerships, while those brands benefit from the delivery and virtual kitchen infrastructure to get their food to the masses.
“Partnering with Grubhub gives brands the ability to successfully launch new concepts from their virtual kitchens by marketing to our vast diner base to drive orders and leverage our existing driver network to complete deliveries,” Rao said. “Additionally, for existing restaurants, an entirely new brick-and-mortar location may also not be economically viable. Shared kitchens and virtual restaurants can provide the convenience to drastically expand their delivery radius or create new concepts and overall business without the overhead costs of another brick-and-mortar location.”
Teaming up with Lettuce brings an additional benefit to Grubhub by working with a company that's been operating successful virtual restaurants in Chicago since 2017. Still, because of the cross-promotional opportunities with recognizable names like Whole30 and Bon Appetit, these models are different than Lettuce's existing virtual kitchens, as Barton and team have learned.
“It’s a wonderfully creative way to showcase their flavors and ingredients. [Whole30 and Bon Appetit] both have an incredible and supportive community,” he said. “We couldn’t be more proud to be serving these recipes. It’s been an enjoyable experience and the food is tremendous. At the end of the day, it’s all about the food.”
Opportunities for more diner data
Richert predicts these types of partnerships will become more common, as they provide those marketing and accessibility benefits for all players, as well as a significant amount of flexibility for trial and error. Rao seems optimistic about the growth and longevity of this subsegment as well.
“At the end of the day, it’s a win-win as our partners are driving more orders and ultimately additional revenue, while we bring more variety to our diners from brands they love,” Rao said.
And while the delivery companies are no doubt chasing more market share, their ultimate objective is gaining the data that comes from added users.
“The biggest winners with these partnerships will be the delivery companies because they’re gaining loads of consumer data and eventually they’re going to be able to map cities by demand points for different cuisines,” Richert said. “Their ultimate aim is to completely mechanize delivery so they become operators in their own rights.”
Adamowski said Uber isn’t adding more restaurant-adjacent partnerships at this time, but said there is a lot of potential for similar partnerships down the line.
“We love working with chefs and restaurant partners,” she said. “Virtual restaurants provide chefs the opportunity to be creative and enjoy the benefits of opening a restaurant without the investment and resources associated with brick-and-mortar establishments.”
"The biggest winners with these partnerships will be the delivery companies because they're gaining loads of consumer data and eventually they're going to be able to map cities by demand points for different cuisines."
Senior food analyst, GlobalData
Barton is also open to more of these types of models.
“They’re exciting and the guest response has been very positive,” he said. “Food delivery is popular and I think as more people choose that experience, they’ll want it to be different and unique. We don’t want to get ahead of ourselves, but hopefully we’ll be able to introduce new opportunities like these.”
Rao goes a step further, saying that Grubhub is "actively pursuing" similar partnerships.
"Working with restaurant-adjacent brands like Whole30 and Bon Appetit is a dynamic space and one we’re actively pursuing and excited to grow," Rao said.
Because of the opportunities that have already presented themselves, Richert is comfortable calling these partnerships a subsegment of the virtual kitchen space. Not only does she predict more will pop up, she believes they could promote further virtual kitchen growth and perhaps threaten some independent restaurants.
“When you have something that is not available to anyone except through the delivery companies, that’s a big win. The end goal is to expand these a lot,” she said. “Long term, delivery companies will accumulate all of this data with a goal to use that data and create their own brands. Smaller restaurants and chains that aren’t evolving or adapting as quickly as they should be could disappear.”
Restaurants are only getting smaller, and that's by design
With fewer customers eating at restaurants, operators are eyeing more compact locations with dedicated areas for takeout orders.
By: Julie Littman
Restaurants are shrinking. Even though more people are eating out than before, fewer are sticking around to eat their meal in store. With this shift, brands from Firehouse Subs to McDonald's and Dunkin' to Pizza Hut are rethinking design for bothfront- and back-of-house to better accommodate delivery and takeout — a strategy that often includes smaller formats.
When considering design, restaurants traditionally focused on minimum guest count and maximizing seats in a dining room, but these conversations are changing, Big Red Rooster Senior Vice President and Managing Director Josh Broehl told Restaurant Dive. Big Red Rooster is a JLL company that works with retailers and restaurants on experience design, brand marketing, design management and strategy consulting.
"It's now about throughput. It's now about how many customers can we serve," he said.
With multiple avenues to reach customers from delivery to mobile order pickups, there's less need for a dining room, he said. There's also financial incentive to reduce — or forgo — the physical dining space. Broehl estimates that dine-in accountted for about 15% of a typical restaurant's sales in 2019 compared to several years ago, when it was roughly 40%.
Restaurants are also analyzing customer traffic flow more closely to accommodate those that want to dash inside for pickup as well as others who want to mull over a menu and then decide onsite, Broehl said.
"We need to make sure those pathways are intuitive and easy, avoiding the bottlenecks," he said.
Restaurant design is starting to incorporate different zones where third-party deliveries can do pickups or wait for fulfillment of orders, he said.
"Delivery is a must-have these days," Pamela Flora, director of Americas retail research at Cushman & Wakefield, told Restaurant Dive. "How are [restaurants] balancing delivery prep space versus dining space? Do they have easy access for third-party pickups?"
Mobile orders fulfilled onsite are being brought toward the front for quick pickups and are separate from onsite ordering and dining, Broehl said. Shelves and lockers are increasingly popular as well, with the likes of Chipotle, Blaze Pizza and Cava adding shelves. While there were originally concerns about theft or tampering of food left on shelves, that has yet to emerge as a problem, Broehl said.
"Delivery is a must-have these days. How are [restaurants] balancing delivery prep space versus dining space? Do they have easy access for third-party pickups?"
Director of Americas retail research, Cushman & Wakefield
Needing less dine-in space is opening up options for restaurants. They don't need to spend as much on real estate costs and can instead use inline spaces within a retail block instead of a standalone location, Broehl said.
"You'll continue to see that trend where restaurants can take advantage of these more flexible spaces, which will definitely help their operating costs," he said.
While dining rooms are decreasing in size, kitchens are growing due to the addition of digital orders, he said. That often means having multiple makelines. Previously, there may have been a makeline for dine-in and drive-thru orders, but now some QSRs with drive-thrus are even adding a third makeline to accommodate mobile orders, Broehl said.
For an independent restaurant like fast casual Bamboo Asia in San Francisco, many of these design concepts, including a small footprint, were part of the plan from the beginning. The restaurant uses a commissary kitchen to prepare much of the Vietnamese, Japanese and Indian dishes that make up its menu offsite, and a sous vide to heat onsite. This allows for a smaller kitchen without heavy equipment, TRI Commercial Restaurant Specialist Erik Reese told Restaurant Dive. He has helped conceptualize restaurants, including Bamboo Asia, throughout his 20-year career in the industry.
The 1,800-square-foot restaurant only has 30 seats inside and eight outside, and most of its business is off-premise, he said. The restaurant serves about 550 customers between 11 a.m. and 2 p.m.
With less real estate needs, the restaurant was able to relocate in a prime area of downtown San Francisco, where retail rents are $450 per square feet, according to Cushman & Wakefield data.
"It really reduces our labor demands and allows us to get spaces that other companies can't take," he said.
Its location on a popular downtown intersection also serves as a marketing tool for the thousands of drivers who pass by, he said.
"The whole restaurant is an advertisement," he said.
Major QSRs are taking cues from delivery and carryout trends as well. Fast casuals including Cava, Blaze Pizza and Chipotle are testing out drive-thrus for mobile pickup orders. Others, like Firehouse Subs, Subway, Dunkin', McDonald's and Caribou Coffee, are eyeing complete remodels and smaller store formats.
Firehouse Subs rolled out a prototype in 2019 would be a dramatic design shift for the brand. It uses 25% less kitchen space and holds 28 seats compared to a traditional design of 50 seats.
Firehouse Subs has plenty of motivation to move toward this model. Its off-premise business now makes up more than half of its sales, according to Restaurant Business.
While McDonald's is nearing the end of a major renovation across its U.S. system that added self-order kiosks, it is also testing a McDonald's To Go format in London. Customers order using kiosks, staff is mainly back of house and there is no seating. The concept is meant to accommodate only diners on the go.
Pizza Hut began pilotingcubbies for pickup orders in California in 2019 with plans to expand the test into additional West Coast cities. These cubbies, aimed to complement its dine-in experience, are placed toward the front of the store and are meant to appeal to customers on-the-go who don't want to interact with restaurant staff. These moves seem to align with the company's strategy of closing 500 units and reopening them with its delivery and carryout-focused format that offers less dine-in seating.
Caribou Coffee is rolling out a small-format concept in Minnesota called Caribou Cabins. These 600-square-foot stores don't have any dine-in seating, but offer outdoor seating, a drive-thru and a walk-up window. The Cabin stores offer an expanded beverage menu and a selection of breakfast sandwiches and baked goods. Caribou Coffee is looking to add more locations thought 2021, with five opening up in Minnesota in 2019. The chain will also explore additional store formats in urban and suburban areas.
There could be even more design changes ahead for the dining experience as diner demand shifts.
"Restaurants are working to bring the dining experience to customerswhen and where they are," Broehl said.
Instead of being tied to a set kitchen, restaurants could potentiallyserve up meals in a local park or food hall or other community experience, he said. Several chains like Auntie Anne's and Shake Shack have already done so by launching fleets of food trucks and opening locations at airports and travel plazas.
For consumers, it will only become easier to order out — exactly what restaurants need.
Article top image credit: Firehouse Subs
Are off-premise channels a silver bullet for the casual dining segment?
Restaurants have experienced declining sales for the past decade, but delivery, catering and carryout are yielding positive results for major chains.
By: Alicia Kelso
Casual dining's downward spiral has been a narrative that's dominated the restaurant industry for about a decade.
According to Restaurant Business, sales trends at segment leaders such as Ruby Tuesday's and Applebee's began to slip around 2006 and have continued to decline since. Coincidentally, that's about the same time the auspicious fast casual segment emerged.
But fast casual's honeymoon phase isn't the only factor that's caused this segment's struggles. Oversaturation, changing consumer preferences, higher price points (and tipping obligations) and increasingly busy consumer lifestyles are all significant stumbling blocks.
In 2017, this trend came to a head when the casual dining segment's footprint shrunk for the first time, dropping by 1.5%,according to Technomic data. Ignite Restaurant Group (parent company of Joe's Crab Shack) and Romano's Macaroni Grill filed for bankruptcy last year, while Applebee's, IHOP and Outback Steakhouse have significantly pared down their systems.
Simply put, things have been dismal in the casual dining space, and analysts and investors have questioned whether or not this trend is reversible, especially as younger consumers favor speed, convenience and value.
But the last wave of industry earnings reports suggest that the pendulum may be swinging in a positive direction for casual dining. The silver bullet causing this growth? Off-premise business, including delivery, carryout and catering.
Casual chains are starting to leverage consumers' growing demand to get their food whenever they want and wherever they are. Consider delivery, for example. Despite stagnation in the U.S. restaurant industry, foodservice delivery posted sizable gains in both visits and sales throughout the last five years, according to The NPD Group. The 20% increase in delivery sales and 10% gain in delivery foodservice visits have been supported in large part by the growth of digital ordering, which now represents more than half of all delivery visits.
"Delivery has become a need to have and no longer a nice to have in the restaurant industry," said Warren Solochek, NPD's senior vice president of industry relations, in a press release. "Restaurants need delivery in today's environment in order to gain and maintain share. It has become a consumer expectation."
Casual dining has been losing share to limited-service fast casual and quick-service chains for years, simply unable to compete on speed and convenience. Off-premise business — facilitated through technology investments — levels the playing field for speed and convenience, and nearly every major casual chain is implementing these channels with mostly positive results so far.
During Dine Brands Global's second-quarter earnings call, for example, Applebee’s president John Cywinskisaid the company has experienced its best sustained performance in more than 10 years and is stealing share from competitors while outperforming all segments on both traffic and sales. He attributes off-premise as a major driver of this success —to-go sales, specifically, grew by 31% during Q2. Delivery is now offered in more than 500 Applebee’s restaurants, andCywinski said the company expects that number to increase "meaningfully" by the end of the year.
Applebee's sister chain, IHOP, also experienced positive results from its off-premise strategy. President Darren Rebelezsaid the average check for online orders increased by about 8% during Q2, while to-go sales now account for 7% of total sales. To pad these off-premise numbers even more, IHOP is rolling out delivery and expects 1,000 restaurants to be on the DoorDash platform by the end of the year.
"Also, on delivery, we believe it's simply a transaction with the guest. We try to build a relationship with them and that's hard to do through delivery."
Senior director of communications and public affairs, Texas Roadhouse
These impressive metrics extend beyond Dine Brands Global. Olive Garden's off-premise channels now represents about 14% of total sales at the brand, while Brinker International — parent company of Chili's — experienced double-digit increases in traffic and sales from its off-premise channels. Brinker CEO Wyman Roberts said the company's strategy to elevate its technology platform to improve its to-go business is working, according to the company's Q2 earnings call.Delivery is a small component of the business at this point, but the company believes "leaning more aggressively into delivery" throughout the fiscal year will drive positive results.
The story goes on while the numbers go up. But not every casual dining chain is going all-in on this new path to growth. During Texas Roadhouse's Q2 call, CEO Kent Taylor said that while the company is paying attention to the different trends in the industry, "we kind of do it the old-fashioned way." Notably, Texas Roadhouse's comp sales were still up nearly 6% in Q2, including traffic growth of 4.3%.
Travis Doster, senior director of communications and public affairs at Texas Roadhouse, told Restaurant Dive the company has always taken a contrarian approach.
"We don't franchise, we don't do national advertising. We have butchers on site. We also sell experience, with our bread, line dancing, music, peanuts. We just don't think you get that same experience from delivery," Doster told Restaurant Dive. "We also don’t think steak travels particularly well and we don't want our food to become a commodity."
Doster adds that Texas Roadhouse also considers itself to be a value concept, and delivery muddies that approach.
"If you look at a lot of these deliveries, the price jumps at least 15% and suddenly it's not as much of a value anymore," he said. "Also, on delivery, we believe it's simply a transaction with the guest. We try to build a relationship with them and that's hard to do through delivery.”
That doesn't mean Texas Roadhouse isn't subscribing to off-premise all together. The company has grown its carryout business, which is now up to about 6% of total sales.
"We're not actively pushing carryout, but it has grown and it is convenience-driven," Doster said.
Next generation marketplace
Since Texas Roadhouse heavily relies on the in-store experience, the old-fashioned way may work for that brand specifically, but it's unlikely to translate across the intensely competitive food space — particularly as consumers' dining habits change.
"Technology has changed the ways consumers engage with brands, including their dining behaviors. If brands are not driving sales through catering, carryout and delivery, they are missing out on revenue," Jennifer Crawford, director of off-premise sales at Fazoli's, told Restaurant Dive. "Delivery and technology are key drivers to the stay-at-home economy."
"Technology has changed the ways consumers engage with brands, including their dining behaviors. If brands are not driving sales through catering, carryout and delivery, they are missing out on revenue."
Director of off-premise sales, Fazoli's
Throughout the past two years, dine-in traffic has declined or remained flat across the industry, Crawford adds. Fazoli's has responded to this shift in consumer behavior by investing more in its off-premise business. Consequently, sales through these channels are up 18.5% over last year for the company.
Not only are we in a new consumer-driven, stay-at-home economy, we’re also solidly in the next generation of the restaurant marketplace, where brands are realizing they can centralize their operations around takeout, delivery and catering, according to Erle Dardick, CEO of MonkeyMedia Software.
"It's an incredible time to be in the food business. The only way forward is to take control of your off-premise operations," he told Restaurant Dive.
Catering, Dardick adds, is one way to differentiate and add value. Brands can create a specific menu for catering, for example, such as a burger bar, which is what Red Robin has done.
"It's an incredible time to be in the food business. The only way forward is to take control of your off-premise operations."
CEO, MonkeyMedia Software
"They've differentiated. If you cater through them, a burger bar is the only thing you can get and the kitchens aren't overwhelmed and the solution is brought out into the community where they can create a direct-to-consumer business. That relationship is critical now," Dardick saidof Red Robin.
Catering is estimated to be a $40 billion business for restaurants in 2018, according to the CHD Expert study. Sixteen percent of all off-premise orders are for catering, with 12% of those orders coming from businesses, the study said. Casual dining chains, including Olive Garden, are leveraging higher demand for catering.
“We like that [catering] business. And it's been very well received by the consumer set,” Gene Lee, CEO of Olive Garden's parent company Darden Restaurants, said during the company's last earnings call.
Off-premise is here to stay
What is perhaps most exciting for the casual dining segment is that it's on the ground floor for off-premise. Casual chains are mastering to-go/carryout and many have also offered catering for quite some time. But delivery is especially new, and growth is certain to keep rising as chains work out the kinks and figure out how to seamlessly implement delivery within their systems. Lee outlined some of those kinks during Darden's Q2 call: "How do we ensure that these delivery services will enhance our brands? Can it be flawlessly executed for our guests and our team? Can we create sustainable incremental growth at scale that's additive to our company? Can we agree on viable economics? Can we ensure we own the data?"
One company that has many of these questions answered already is Fat Brands. CEO Andy Wiederhorn said the company, which began delivery with Uber Eats three years ago, experiences close to 15% of orders via that channel.
Still, he adds restaurant companies have a long way to go to meet modern consumers' needs, whether through delivery or somewhere else.
"Consumers are busier. Their lifestyles have changed. They want to stay home and watch Netflix," he told Restaurant Dive. This is why he predicts delivery specifically will have a major impact on the casual dining segment.
"People like home-cooked meals and variety, but not everyone wants to go sit for an hour for a casual dining meal. Maybe fine dining, but not casual," Wiederhorn said. "If you could have a casual meal delivered, however, that is a win because it's more fulfilling than a fast casual or QSR meal. Delivery isn't going away and there is a lot of room to grow for casual brands.”