Last fall, Shake Shack CEO Randy Garutti made the memorable prediction that food delivery would be “one of the last luxuries people take away from themselves.”
“I don't think people are canceling their Netflix subscription, and I don't think they're going to stop getting delivery,” he said during the Barclays Eat, Sleep, Play conference in November.
His comments sought to explain why people were still ordering delivery at a steady clip, even though a delivered meal could cost more than twice as much as its in-restaurant equivalent.
Less than a year later, some customers are finally letting go of that last luxury as they realize they can get a better deal—and a better experience—by ordering a different way. Restaurant chains like Shake Shack and others don’t seem to mind. In fact, they’re welcoming it.
At the 471-unit burger brand, year-over-year delivery sales fell in the second quarter as more customers chose to order their food inside its restaurants. This was by design.
“In-Shack, and kiosk in particular, are our most profitable channels, and we continue to focus our efforts on shifting our sales here,” said CFO Katherine Fogertey during an earnings call earlier this month.
One way it has prodded guests to order in person is by ratcheting up delivery prices and keeping in-restaurant rates lower. And yet those on-premise meals are still more profitable because they require less packaging and don’t carry a delivery commission. In-store guests are also more likely to add on a drink or a dessert, Fogertey said.
A similar trend is underway at First Watch, where delivery transactions slipped 1.2% in the second quarter. That decline was more than offset by dine-in traffic at the breakfast-and-lunch specialist. And executives said they don’t intend to try to reverse it.
“Our marketing spend is much lower than most in our industry, and we're certainly not going to use those bullets on a third-party occasion,” CEO Chris Tomasso said. “So our focus is still going to be on in-restaurant.”
That’s because First Watch believes customers get a far better experience and are therefore more likely to return when they use the brand in person.
“Simply put, the totality of our in-restaurant service touchpoints generates a significantly better customer impression compared with that of off-prem,” Tomasso said.
Indeed, restaurants seem to be realizing that despite the growth in off-premise business, the heart of their brands is still within their four walls.
As Red Robin works to revitalize itself after years of sub-par performance, for instance, it has turned its focus inward, cutting ties with virtual brands like MrBeast Burger and investing in better food and service. Not surprisingly, delivery sales took a tumble there last quarter, while dine-in improved.
“Like many in the industry, we experienced year-over-year sales declines in the off-premise portion of our business, and the third-party delivery segment in particular,” said CFO Todd Wilson last week.
On-premise same-store sales, meanwhile, rose 5.9%. Executives credited this to investments in its food and labor model that have led to shorter wait times and better customer satisfaction scores.
“Dine-in is where most guests experience the improvements we have made to hospitality and food,” said CEO GJ Hart.
While these brands pull back from delivery, at least one chain is hoping to soak up whatever demand might be left over.
"We still think there's an opportunity as others retract and don't do as much in the area," said Denny's CEO Kelli Valade during an earnings call this month. "Whether it's a virtual brand or off-premise, we think it's a sweet spot for us in our space just because of late night and the capacity that we do have in our kitchen."
Despite its desire for more off-premise sales, those sales declined slightly at Denny's in Q2, to $6.2 million, from $6.5 million a year ago. On-premise sales, meanwhile, increased.
And yet third-party delivery providers like DoorDash and Uber Eats say the service is still growing. In fact, DoorDash set a new record for transactions in the second quarter with 532 million—a 25% increase compared to a year ago.