Delivery is the new fast casual, according to some industry experts. At least, that’s the growth curve it’s following—it has caught on fast and won’t be fading anytime soon. It currently makes up just a small percentage of off-premise dollars, but it’s posting the highest growth rate, says Hudson Riehle, SVP of research and innovation services for the National Restaurant Association. Here's how it's changing the landscape.
“The off-premise component has been primarily responsible for industry growth over the past decade, and it won’t be decreasing into 2018 and beyond,” Riehle says. In fact, Dunkin’ Donuts CEO Nigel Travis referred to delivery as “the holy grail in the next few years.”
Many operators see the potential dollars behind delivery—and the need to offer it to compete in today’s market—but incorporating delivery into a restaurant operation ushers in a wave of challenges. “Delivery is the biggest disruptor for our business,” said Jeffrey Amoscato, VP of supply chain and menu innovation for Shake Shack, at the NRA’s Restaurant Innovation Summit in October. There are some obvious upfront issues: the cost, making sure food travels well, which companies to partner with, etc. But more hidden challenges are popping up in practice.
Nuts and bolts
Delivery often requires some new technological infrastructure. While some operators can keep their tech needs relatively simple for delivery, others are integrating outside ordering platforms into their POS systems, and then making sure all of those plug-ins talk together and to the kitchen display system, so orders are seamlessly communicated to the front and back of house.
“The basic logistics of delivery can be a fairly complex operational matrix to solve,” says Riehle. The challenge, he says, is not just the cost of implementation of this technology, but the ability to manage the technical components on-site, in real time. “While operators are pretty adept at doing things like getting stoves fixed, because technology is a black box that they cannot literally fix and maintain on their own, they have to have very good support services, either on staff or with a partner.”
The virtual experience
Delivery has provided a noticeable bump in traffic for many brands, says Melissa Wilson, principal at Technomic, but operators are struggling with how to handle the execution and management. She predicts the complications will minimize over time, as long as operators balance the increased business without diminishing the experience for dine-in guests. “Long term, the industry needs to make sure we aren’t becoming just a distribution facility that takes the orders,” she says, warning against cutting back on labor due to slower in-store traffic, similar to what happened in the clothing-retail sector as more consumers started shopping online.
It’s not just the on-premise experience operators need to be mindful of. Apps and other technology facilitate the delivery experience for consumers, but they also move it out of the hands of the operator and onto an automated platform, often developed and run by a third party.
This kind of technology in the delivery space is a draw for consumers, especially with the ease of some apps, says Wilson. But these advances also help solve some of labor and service issues. “Operators have integrated a fair amount of technology, which allows a redistribution of labor,” Riehle says. When technology is applied, it can result in increased productivity and efficiency. Tech can free up some in-house labor to provide more hospitality, for example. “It also allows consumers greater flexibility and choice in how they have their foodservice experience,” he says.
Loss of control
Data shows that the majority of consumers blame the restaurant if something is wrong with the order, no matter who delivers the food. And blame still falls on the operator, even if the brand doesn’t have a relationship with the deliverer. But beyond potential degradation of food quality and temperature issues, Wilson says that there’s another real danger with drivers who haven’t been vetted by the restaurants themselves. “The industry has been lucky that we haven’t had a disturbed individual that has tampered with the food. It’s a very real danger, and that will come back on the brand,” she says.
While that is a worst-case scenario, operators also lose a number of touchpoints when a consumer’s experience shifts off-site. There are big differences from brick-and-mortar, says Scott Barton, executive partner and divisional president of Lettuce Entertain You Enterprises. Operators can’t easily ask customers how they are doing. And the feedback they do get, whether positive or negative, tends to be more reactive, so operators have to work hard to respond to guest feedback through channels like social media, versus in person, during the experience.
Shifting the footprint
Since many operators serve food that wasn’t originally designed to be eaten off-premise, they are now forced to consider—and pay for—packaging that keeps food warm, not soggy and visually appealing. But finding the correct packaging isn’t the only struggle, says Wilson. “Not only do operators have to look at different packaging, but they have to look at where they can store it all,” she says. While many casual-dining spots used to just have some boxes for leftovers, they now need to devote more square footage to containers, and work out where those should sit in terms of the flow of the back-of-house line.
This demand for space is just one reason she sees restaurants getting a new look. “There’s lots of talk about redesigning,” Wilson says. Some operators are cutting into the dining room space to make more room for production. Others, she says, are either adding or using commissary or catering kitchens, or even testing whole separate microsite prep kitchens that are attached to the main restaurant space but pegged only for off-premise orders.
But when it comes to space, operators are still in the experimental phase—with some taking action now. Mendocino Farms, for example, worked with a third-party deliverer, mapping out the whole delivery process. One result: The chain ended up redesigning its entry areas, so that there is enough space for drivers to wait with their large, insulated bags without impeding guests. McDonald’s also did some work on retooling stores, says Wilson, adding signage to designate an area for driver pick-up in some locations.
Working with these third-party companies makes sense for a lot of restaurant brands, even though the logistics and cost have often proven challenging. The delivery companies are really Shake Shack’s largest guest, said Amoscato. But one dynamic is starting to shift, says Wilson: the power. “In the early stages, operators weren’t feeling that they could negotiate with third-party providers,” she says. “Brands have a lot of power with their contracts; there is a lot they can negotiate.”
More than 40% of consumers say they aren’t using restaurants as much as they’d like in their daily lives, finds the National Restaurant Association. So restaurant operators are up against the challenge of nudging customers not just to their brands, but also to foodservice in general. Of all consumer spending, just 13% is allocated to food—and just under half of that goes to the restaurant industry. While that figure has grown substantially over the past decade, Riehle says, there’s still room to grow. “Consumers want to use the industry more, so the off-premise market is a logical extension of that pent-up demand,” he says.
The selling point: convenience. From the consumer perspective, there’s nothing more convenient than having the restaurant come to them, says Riehle.
No matter the age of the consumer, Technomic finds that these off-premise purchases aren’t replacing dine-in experiences. “There’s only a small cannibalization,” says Wilson. “It’s a lot of people who do not want to go out to a restaurant for the occasion. We hear from drivers how often people answer the door in their pajamas.”
Operators like Panera and McDonald’s putting a lot of efforts behind delivery in 2017 change the game, says Wilson. “They are creating the consumer expectations, and forcing everyone else.” While she admits that delivery has been a thorn in the sides of many operators—and some, like Texas Roadhouse, are strategically not offering delivery—many are re-evaluating their plans to build in this initiative.