When a person orders a Chick-fil-A sandwich for delivery these days, they are paying an average of 30% more for that sandwich than if they had ordered it at the restaurant.
That's the highest premium among chains analyzed in a recent report by Credit Suisse, which found that limited-service brands are hiking prices by an average of 20% on third-party delivery menus as they look to make the costly service margin-neutral.
Thus far, consumers have been willing to pay those steep prices in exchange for the convenience of delivery. But their willingness to do that might be waning, said Lauren Silberman, senior restaurant analyst at Credit Suisse.
“I’m thinking through the value equation, and it just seems that the cost is just too high for the level of convenience that delivery is offering,” she said—particularly as consumers are paying more at restaurants to begin with, not to mention at the grocery store and the gas pump.
“I think that we will start to see some levels of elasticity,” she said. “It’s impossible for people to be dealing with 10% increases in every purchase that they make.”
Average third-party delivery premiums
Source: Credit Suisse
When it comes to delivery, a little elasticity might not necessarily be a bad thing for restaurants, because it could push customers to order in more favorable ways. A price-sensitive Chipotle customer, for instance, might opt to pick up their burrito rather than have it delivered at a 21% premium. That scenario is not only more profitable for Chipotle but also allows it to capture the customer’s data, Silberman said.
In another example, a customer thinking about ordering Jack in the Box on DoorDash might balk at the 25% premium and instead choose to use the company’s white-label delivery channel, where prices mirror those in the restaurant. It might not necessarily be more profitable for the brand, Silberman said, but, again, it will get that valuable customer data.
The hikes come as restaurants have been doing a lot more delivery since the pandemic began. The service now accounts for as much as 20% of sales at restaurants covered by Credit Suisse.
But Silberman noted that restaurants are no longer pushing the service as much as they once did. Chipotle, for instance, has cut most of its discounts and promotions with third-party providers and has been limiting some new menu items to its own app and web channels in order to drive customers there.
“I don’t think that there’s any restaurant outside of a pizza guy that necessarily wants to do more delivery,” she said. “I think the preference would be coming in-store across the board. The in-store is going to be more profitable than delivery, period.”
That said, a mix shift away from delivery could hurt restaurants’ sales even as it helps the bottom line. The 20% delivery premiums have boosted quarterly comps, and doing less delivery could slow that growth, Silberman said.
Chains that cater to lower-income consumers are more likely to see customers moving away from delivery. Chipotle and Chick-fil-A, on the other hand, tend to have more affluent customers who are better able to absorb premiums, Silberman said. They're the only two chains analyzed by Credit Suisse that charged the same premium for both third-party and white-label delivery.
Pizza delivery chains are also in a good position because they offer better value than limited-service concepts and haven’t raised prices as much. Papa John’s third-party prices, for instance, are the same as on its first-party menu, though customers who order directly typically get about 20% off through discounts, according to Credit Suisse.