The off-premise space–and opportunity—is vast. And it’s ever-evolving. While delivery is the hot topic, it’s just a small portion of the off-premise market, which also includes takeout, drive-thru, catering, meal kits and off-site options such as kiosks, food trucks and retail extensions of the brand. Off-premise sales now account for 38% of restaurant sales, or $198.7 billion. And its growth is outpacing the growth of overall restaurant sales, showing that in such a tight market, it’s a top opportunity to build revenue.
A number of brands across the different segments are increasing their off-premise offerings, with innovation driving a lot of the competition in the off-premise space. While tech-based amenities, from POS integration platforms to voice ordering, continue to arise and help restaurants execute, it’s developments in packaging, temperature control, food quality and more that are pushing operations forward.
And this development and innovation is helping drive off-premise for operations outside of quick-service restaurants. At this point, QSRs dominate the off-premise market, accounting for 78% of those sales. But fast casuals are adding nontraditional drive-thrus, while more and more full-service spots partner with third-party delivery companies.
Whether expanding or adapting an existing program or adding an off-premise option, what should operators consider? “In a nutshell, everything,” Melissa Wilson, managing principal with Technomic, told Restaurant Business on its “A Deeper Dive” podcast. “First and foremost, determine your strategy and how it fits into your brand vision.” And part of that means looking at the different off-premise avenues, as well as the current challenges with off-premise and how they can be addressed.
For many brands examining their delivery game plan, the question of whether those sales are incremental comes up. With catering, that’s far less of a question. These are typically larger-than-average orders that represent incremental revenue. For some brands, catering represents just 3% of revenue, according to Technomic. Some brands, however, derive as much as 24% of their revenue from catering, with 11% the average.
While catering hasn’t seen the same kind of boom as delivery in recent years, it’s still growing. Technomic estimates that the total market for off-premise catering in 2018 will reach $61.5 billion. That’s 7% of the industry’s $871.6 billion. Compare that to the $37 billion catering accounted for in 2011, or even just the $55.5 billion in 2016.
That growth is not expected to stop. Technomic estimates the off-premise catering market will grow 6% from 2018 to 2019, led by a 6% growth in business-to-business catering and 3% increase in business-to-consumer catering.
Business-to-business catering is especially booming, with 41% of businesses ordering catering at least once a week. While internal meetings and training sessions are popular workplace catering occasions, employee appreciation events and lunch-and-learn sessions are even more popular order-drivers.
That’s why catering is a part of Cracker Barrel’s three-pronged approach to off-premise. The chain announced earlier this year that in addition to testing delivery and promoting its “heat-and-serve” meals, it’s aiming to bolster catering by adding catering managers in some markets and testing items specifically for catering. At the end of May, off-premise represented 7.5% of its overall sales, and the goal is to grow that to 10% in the coming years.
When it comes to a strategy, catering should be treated differently than takeout, finds Technomic. While the orders obviously differ from the typical takeout guest, so do the priorities of catering customers. Just over three-fourths of B2B catering customers, for example, say that order accuracy is a top priority, with a majority also prioritizing ease of ordering and the availability of delivery. In fact, Technomic finds that the worst errors brands can make are being late and delivering inaccurate orders.
Drive-thru of the future
The drive-thru isn’t going away. But “it’s not just something the burger players can benefit from,” Subway’s James Walker, VP of North America, told Restaurant Business. Some brands, like Subway, are looking at it as another opportunity to add a layer of convenience for customers. Fast-food chains such as McDonald’s are upgrading to easier-to-navigate digital menu boards. And Panera Bread, for years, has been one of the early fast-casual adopters of a drive-thru to ease the guest experience. But others are shaking it up even more.
Chipotle, for example, announced over the summer that it’s adding a different kind of drive-thru to some of its new locations. Unlike the typical drive-thru, though, diners do not order through a speaker box. Instead, guests order through Chipotle’s app or online and are provided a pickup time. These customers then hit that mobile-order lane to grab their food without having to go in the store.
Dunkin’ Donuts is testing a similar drive-thru that is exclusively for customers who ordered ahead via the chain’s DD Perks app. The concept store, located in Quincy, Mass., also has a dedicated space inside for mobile order pickups.
“Delivery is shifting towards becoming a table stake and can help broaden the customer base,” finds Technomic. “Consumers see delivery as a separate foodservice occasion, and say that preparing a meal at home is the leading delivery alternative.”
That shift is happening, in large part, because of delivery’s growth. From full-year 2016 to full-year 2017, delivery sales grew 9.8%—that’s three times as much as drive-thru or takeout (which, at 47% and 35%, respectively, make up a much larger share of off-premise sales, compared to the 18% from delivery). While some brands, such as Outback Steakhouse and Panera Bread, are keeping delivery in-house, much of that growth can be attributed to the surge of third-party delivery sales, which grew 32.8% from 2016 to 2017. That double-digit growth is expected to continue over the next few years, too, finds Technomic.
The first two quarters of 2018 have proven that to be true. Sales through third-party delivery companies hit $5 billion during that time, a 55% jump over the same period last year.
According to Technomic, 28% of consumers are ordering delivery more than they were a year ago. While quick-service pizza players have been masters of delivery some time, sandwich concepts are currently performing the best with consumers in the fast-casual segment, said Robert Byrne, senior manager of consumer insights for Technomic. Jason’s Deli, Firehouse Subs, Corner Bakery, Newk’s Eatery and Jimmy John’s consistently come out on top, he said.
But the competition continues to stiffen. New news about brands adding or expanding delivery pops up on a very regular basis. Among the latest, KFC and Taco Bell announced plans to rapidly expand delivery beyond the 30% of U.S. units that currently offer it. David Gibbs, CFO of parent Yum Brands in fact said in its most recent earnings call that the chains have seen check growth and incrementality, which he called “encouraging.” But even more of a sign that the franchisor has confidence in the future of delivery is its $200 million investment in Grubhub earlier this year.
And because of that competition, restaurants have started to shift from quick implementation to a more calculated approach. Church’s Chicken, for example, spent a full year studying the logistics of third-party delivery before its rollout—and it’s that advanced fact-finding and investment in planning that the chain names as a key reason it was able to execute well. While the brand was prepared logistically, it did find some surprises: off-peak hours (especially late night) were prime for delivery and that most of its orders were for individuals versus families. But the big win? “Well north of 50%” of delivery sales have been incremental, global CMO Hector Munoz told RB.