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Chains are turning to delivery to boost sales
- Chains including Panera, Chipotle, and McDonald's are making a major push towards delivery.
- Delivery is a boon for restaurants as it increases how much people spend, brings in new customers, and fosters loyalty.
- However, it's also becoming increasingly expected - putting some chains in an uneasy position.
As restaurants struggle to bring in new customers, chains are turning to delivery to boost sales.
The past week brought an endless stream of delivery news.
Panera revealed it had completed its national delivery roll-out on Tuesday. On Wednesday, Chipotle reported delivery sales had skyrocketed 667% after it struck a deal with DoorDash in late April. GrubHub announced it was taking Jack in the Box delivery nationwide on Thursday, adding a new chain to its portfolio of partnerships that includes Taco Bell and KFC.
As foot traffic flattens, delivery sales have increased by 20% over the last five years, according to industry research firm NPD Group. Chain after chain, from McDonald's to Moe's Southwest Grill, has mentioned delivery as a necessary sales driver.
However, delivery is increasingly being seen as less of a way to boost sales, and more as a requirement.
"We do make money with delivery, but a lot of the restaurants that are using third parties, they don't make that much more," Panera CEO Blaine Hurst told Business Insider. "What it is, is they don't believe they have a choice."
As more restaurant begin delivering, Hurst says, those who don't are in danger of simply being left behind. That's especially true for fast-food and fast-casual chains, which tend to rely more strongly on regular customers.
"Consumers go in and out of habits," Hurst said. "If I decide I want to try delivery and they don't have delivery as an option, I'm going to try another restaurant."
Soon enough, the new restaurant that has delivery has become the new habit, and the restaurant that previously had customers' loyalty is completely forgotten.
A delivery revolution
Panera
Panera is doubling down on delivery
In an "over-restauranted" country, American chains need to turn to new channels to grow sales. Delivery provides that, especially as digital ordering goes mainstream.
Applebee's, for example, managed to grow sales 3.3% in the most recent quarter in the US due primarily to an increase in orders.
"What's feeding it is the growth of carry-out and delivery, which is up double digits," Stephen Joyce, the CEO of Applebee's parent company Dine Brands, said to Business Insider.
Across the industry, most executives report that customers spend more when ordering, especially online. According to Moe's Southwest Grill president Bruce Schroder, groups are more likely to order delivery or catering at the chain, meaning a larger check size.
Plus, an online ordering system "upsells perfectly," Joyce says.
Delivery, catering, and carry-out orders also clear up room in restaurants. At Chipotle, "second lines" dedicated to making burritos, bowls, and more for off-premise customers create an opportunity to grow sales without overcrowding in stores.
"One of the first things I uncovered was the second make line," Chipotle's recently appointed CEO, Brian Niccol, said this week. "I was just like, this is a huge ... capability that we have not been taking full advantage of."
More generally, the growth of delivery reveals the changing role that restaurants play in the US as Americans' lives feel increasingly hectic.
"It's certainly convenience," Schroder said. "In my early days in the industry, we used to say 70% of America, at 5 o'clock, doesn't know what they're going to eat for dinner. I don't know what the latest statistics are, but I think that's still prevalent. The busier we are, the more technology makes life more frenetic, you don't want to cook."
Basically, Americans are hungry for convenience - but also have an overabundance of options.
It's getting increasingly difficult for chains to grow sales by bringing in more customers for a traditional, sit-down meal. Chains want to increase the proportion of delivery meals, as well as catering and take-away, because that is one of the only ways to grow sales. That explains why some huge chains, such as Taco Bell, KFC, and McDonald's, have made such significant moves to expand their delivery services across the US over the last year.
Chains that win on delivery have the chance to drive sales and grow customer loyalty. On the other hand, losing on delivery is no longer an option if a restaurant wants to survive. Delivery is an opportunity - but it's increasingly less of a choice than a requirement.
