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As delivery booms, skeptics remain

Industry uncertainty about the service revealed itself at the ICR Conference, and sometimes within the same company, says RB's The Bottom Line.
icr 2020
Photograph by Jonathan Maze

the bottom line

Dan Accordino, CEO of big Burger King and Popeyes Louisiana Kitchen franchisee Carrols Restaurant Group, may well have summed up the restaurant industry’s overall views on delivery by explaining his own company’s approach to it.

Specifically, Carrols delivers from its Popeyes locations. It does not deliver from its Burger King units. The latter is a big deal, given Carrols’ overall presence—it operates 1,000 Burger Kings, or nearly one out of every seven of the chain’s units.

“I’m not at all yet sold on delivery,” Accordino said. “For delivery to make sense, you’ve got to have average check where it makes sense to cover delivery fees and costs.

“The franchisor will tell you it’s entirely incremental. I’m not entirely sold yet on that logic.”

The comments underscore a continuing uncertainty within the industry about the impact delivery can be expected to have on restaurants.

To be sure, most appear at least on the surface to be enthusiastic backers of the service. Clay Dover, CEO of 13-unit fast-casual taco chain Velvet Taco, couldn’t gush about the service enough on our “A Deeper Dive” podcast episode this week.

“Considering that it’s a good portion of our business, we think it’s here to stay,” Dover said, noting that 37% of Velvet Taco’s business is takeout and much of that is through delivery.

Del Taco, meanwhile, continues to add delivery capabilities to its restaurants. Shake Shack is shifting its restaurants to handle a greater number of delivery and takeout customers by separating walk-in from order-ahead customers in the front of house.

“Shake Shack was built around being there,” CEO Randy Garutti said. But the company has to change that model given the growth in delivery and takeout. “We have massive work to do” to address takeout consumers, he said.

Just Salad, the fast-casual salad chain, is also enthusiastic about delivery. “We love it,” founder Nick Kenner said on an upcoming episode of “A Deeper Dive.” “From a product standpoint, it holds well. We’re steadily winning customers, not losing them.”

Kenner, in fact, had good things to say about third-party providers, including Uber Eats, DoorDash and Grubhub. “I personally feel they are a benefit to the industry,” Kenner said. “They bring a lot of volume. Look, if [restaurants] don’t want to use them, they don’t have to, and in some cases they shouldn’t. If they do want to use them, use them.”

For all that enthusiasm, there are those who are much less enthusiastic, like Accordino, along with Gene Lee, CEO of Olive Garden owner Darden Restaurants and a longtime, well-known delivery skeptic.

The challenge isn’t simply profitability, either. Large chains in particular have seemed to adapt to that challenge, pushing for better deals with delivery companies while raising customer charges to offset their own costs.

Some executives emphasize quality. After all, a lengthy delivery can hurt the quality of food and potentially damage the brand’s reputation.

But that appears to be one of the disconnects between some operators and the delivery business. Most restaurants, as Shake Shack noted, were built based on the idea of consumers eating their food on-site or in the near future. Delivery is a fundamentally different occasion.

Younger consumers in particular are OK with a little lower quality, said Hudson Riehle, senior vice president of the research and knowledge group for the National Restaurant Association.

“There’s a certain segment of customers willing to accept that quality is not what it is on-site,” he said.

Incrementality, as Accordino noted, is another issue. The restaurant business as a whole is not growing. So companies with delivery are simply taking it from another restaurant, and that restaurant may be your own.

And then there are questions about the services themselves. Providers have struggled to generate profitability, and Grubhub is potentially considering a sale, as is Postmates. The possibility of consolidation or a pullback in some markets could leave restaurant companies without the delivery they’d been counting upon for sales.

Regardless, the continued uncertainty about delivery shows just how much that business continues to influence the industry.

“I can’t think of anything that’s disrupted or impacted our business as much as delivery,” Dover said.

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