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How Restaurants Can Master Delivery

Restaurants are embracing all off-premise options including delivery, curbside and drive-thru services as critical components to their survival. 

A few years ago, the restaurant industry was one of the few sectors largely untouched by digitization, but the COVID-19 pandemic and consumer trends pre-crisis have pushed quick-service restaurants (QSRs) to prioritize digital adoption. Restaurants are embracing all off-premise options including delivery, curbside or drive-thru services as critical components to their survival.

Restaurants have long been at the intersection of where customers work, where they shop and where they live. Consumer working and shopping patterns have been disrupted and some new behaviors, due to COVID-19, will probably stick around after the crisis. With 86 percent of consumers using third-party delivery services at least once per month, according to a survey from Technomic, and U.S. online food delivery revenues projected to hit $26.5 billion in 2020, based on Statista data, delivery has gone from being a secondary revenue stream to major business for many restaurants.

Before the crisis unfolded, we saw three delivery patterns take root in QSRs:

  • Third parties: Uber’s proposed bid to acquire Grubhub highlights how lucrative restaurant delivery has become and why more third-party consolidation is likely.
  • Own and transform: QSRs that had robust delivery programs before the pandemic are thriving in the current environment as delivery stocks like Domino’s and Papa John’s are up 25 percent year-to-date. Domino’s has experimented with drone delivery and a new pizza car with an oven on board in recent years to improve food quality and delivery time while winning customer satisfaction.
  • Buy: Inspire Brands, the United States’ fourth largest restaurant company by sales, bought Jimmy Johns in 2019 in part because of its in-house delivery program.

North America has more than 10 online food-delivery companies, the largest being Grubhub with more than one-third market share, according to an analysis by Frost & Sullivan as detailed in a Forbes article in September. London-based Just Eat, acquired by Dutch company Takeaway.com in 2020, is the largest of Europe’s more a dozen providers, and also operates in Asia-Pacific and the Americas. But in terms of revenue, Asia accounts for a 55 percent share of the global online food delivery market. China alone had more than $34 billion in online food delivery revenues in 2018.

While many restaurants have had rocky relationships with third parties due to exorbitant commission fees, up to 15 percent or higher, restaurants also stand to benefit from this new era of delivery and impending consolidation.

“QSRs can improve their own delivery platforms while also working with third parties to be easily accessible to customers,” said Dan Lubetsky, senior director, customer experience and innovation. “Third-party consolidation will can bring new value propositions such as unique menus, personalized offers, multi-restaurant options and event services.”

Franchisees are also a big factor in how brands will address the future of delivery. “While third parties could benefit the corporate brand, franchisees can be negatively impacted through the use of third-party delivery services due to the high corporate-negotiated service fees which impact franchisee profitability,” said Scott Gorny, executive client partner at Publicis Sapient. “There’s also the brand impact of using third-party services – moving to a third party adds stress to the overall customer experience and removes both corporate and franchisees from this relationship.”

Key Delivery Considerations

More QSRs will own delivery: Many restaurants will re-focus on owned and operated delivery services to drive higher profitability post-COVID-19 rather than rely on third parties. Restaurants shouldn’t have a one size fits all approach as some markets are more sensitive to third party fees and prefer to order directly from a restaurant, according to one UK study.

 

Don’t forget third-party delivery differentiators: Delivery partner consolidation will heat up and new offerings will emerge, such as personalized menus and offers, suggested meals, multi-restaurant options and event services.

 

Mobile will remain the off-premise channel of choice: Ordering delivery on a mobile device also has to be easy, and ease in transparency will lead to more customers adopting a QSR’s platform. Integrating loyalty offers with delivery is key for QSRs to drive longer term value.

Ghost kitchens will be more efficient for some brands: Restaurants may also consider flexible production models that cater to the growing delivery market. The ghost kitchen, also known as a dark kitchen, is a virtual restaurant or commercial space that operates as a delivery-only kitchen.

Meal kits will be a competitor and potential innovation for QSRs to adopt: More people are cooking at home. One survey shows 55 percent of U.S. consumers’ meals have been home-cooked during the pandemic, compared with 33 percent pre-COVID-19. Chick-fil-A was one of the first QSRs to offer meal kits in 2018 and has rolled out new kits during the crisis.

Who uses delivery well?

The National Restaurant Association estimates that three percent of U.S. restaurants have already closed due to the crisis and up to 20 percent could close in the coming weeks and months.

Pizza has long been core to the growth of food delivery and that is no different during COVID-19. Domino’s, one of the world’s largest pizza delivery chains, said its sales have grown more than seven percent in April and announced that they would be hiring an additional 10,000 employees to meet the demand. Other QSR brands like Dunkin, Chipotle and McDonald’s have prioritized scaling their delivery programs and partners while also honing in on mobile services to ensure they are providing convenience, speed and consistency. They’re also ensuring they are addressing safety and health necessities by offerings options like contactless delivery.

Direct-to-consumer trends and competition

Retail and grocery offer delivery lessons, and Amazon isn’t the only online retailer with a sophisticated delivery ecosystem. Digital-first retailers likely have strong offerings to succeed during and after the crisis as they drive awareness, customer engagement and revenue through digital channels, such as web, mobile, and social. We have seen consumer product brands go direct-to-consumer and grocers expand their online presence to capture digital revenue streams.

In the pet space, Chewy has made a mark with strong customer-facing digital e-commerce experiences and subscription services that have gained consumer trust. They are poised to succeed now and into the future via predictable revenue, and rely on delivery services to ensure they meet their customers’ expectations with convenience and consistency. Many grocery chains such as Whole Foods have diversified their offerings to compete against restaurants during the crisis, with Whole Foods opening more online-only dark stores for delivery only.

Driving delivery forward

Some QSRs are still in the early stages of an owned delivery program and remain reliant on partners. But third-party services are here to stay, and the way that QSRs fully adopt and evolve their offerings will greatly impact their future growth. QSRs need to embrace delivery as another option to engage with customers, consider unique experiences and determine how to run their own program directly to drive the greatest return.

Those QSR brands who have reached critical mass must continue to innovate, assess current and future competitors and strive for a balance of owned and third-party solutions. At the end of the day, the QSR that can deliver the best service themselves, with the strongest customer experience, can grow customer engagement, customer satisfaction and profitability for the brand and franchise network.

Dan Lubetsky
Dan Lubetsky
Senior Director, Customer Experience and Innovation

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