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More delivery does not mean fewer locations

If anything, growth in takeout could pressure concepts to build more units, says RB’s The Bottom Line.
Photograph courtesy of Uber Eats

the bottom line

Growth in takeout and delivery means restaurant chains need fewer locations, or so the theory goes.

When the parent company of Papa Gino’s filed for bankruptcy protection last year, for instance, the company said that its shift from in-restaurant dining to carryout and delivery necessitated fewer locations.

But that’s not necessarily the case. If anything, more delivery and takeout may necessitate more locations, not fewer.

Consumers will only go so far to get carryout, after all. And fewer locations can hurt quality when drivers have to go further to get to a person’s home.

“There’s always going to be a decent amount of the population that doesn’t want to pay all the extra fees for delivery and wants to do carryout,” David Gibbs, president and chief operating officer of Yum Brands, said at a recent investor conference, according to a transcript of the presentation on financial services site Sentieo.

“I don’t think you’re going to see the demise of the physical asset anytime soon, just because of all the costs associated with delivery,” he added, noting that Pizza Hut’s new locations generate “good returns” after they open.

Brian Niccol, CEO of Chipotle Mexican Grill, also provided an ample argument for why fewer locations are not necessarily better.

He was answering a question about real estate and the potential use of dark kitchens to provide catering and delivery—his answer was no, at least for now, because the chain’s restaurants currently have the capacity to meet catering and delivery needs.

Niccol also said that Chipotle’s existing restaurants enable it to deliver more quickly.

“One of our things that’s great right now is we have 2,500 restaurants, so the delivery times are really attractive,” he said. “What you don’t want to do is put [a delivery-only location] in a location where your delivery times become 45 minutes to an hour.”

In other words, it might not be feasible for a single delivery-only location to provide all of that service in an area served by eight restaurants.

Niccol didn’t dismiss the idea of a dark kitchen, noting that if delivery grows so big that it exceeds capacity in existing kitchens, the company would have to devise a solution. But his comments suggest that fewer locations wouldn’t necessarily work when it comes to delivery.

The best evidence that delivery wouldn’t require fewer restaurants comes from the most experienced of the delivery players in the industry: Domino’s Pizza.

The Ann Arbor, Mich.-based chain is adding 2,000 additional locations in the U.S. in the coming years. Part of the reason is to increase that carryout business: Consumers will only go so far for their carryout pizza, after all.

But the company also says that it makes delivery more efficient to do it from more locations, improving delivery times and therefore the quality of the product once it is delivered.

Wingstop is also building more units in existing markets, believing that the additional locations improve awareness and therefore sales. Wingstop is mostly a delivery and carryout concept.

The sandwich chain Jimmy John’s, meanwhile, is so protective of its delivery quality that it has a narrow delivery radius and won’t use third-party services to expand its reach—even though sandwiches arguably hold better than, say, pizza.

The industry’s trend toward more takeout and delivery, and less dine-in business, has clear implications for real estate. Chains will need smaller locations, more drive-thrus and other strategies to bolster their convenience.

I’m not exactly a proponent of more locations, believing the industry to be saturated. But chains can’t expect to do the same business in fewer locations simply because they do more delivery.  

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