Customers, on the other hand, don’t see it that way. Delivery is convenient. It’s usually pretty fast, and perhaps best of all, they can do it through an app — without ever having to talk to a person.
Although dine-in restrictions in most places have eased, delivery rates remain higher now than they were pre-Covid. In 2019, delivery accounted for about 7% of total US restaurant sales, according to Euromonitor International. After a spike in 2020, it settled at nearly 9% in 2021, according to Euromonitor’s forecast for last year (The company’s 2021 foodservice data has not been published.)
So whether restaurant owners like it or not, delivery is here to stay.
“Consumers have become accustomed to getting products delivered to their homes,” said Joe Pawlak, managing principal at Technomic, a food service consulting company. Now, restaurants “have to figure out what to do to make it profitable.”
For restaurants, fixing delivery means not only making it work better, but also finding ways to convince customers to choose carryout or drive-thru instead.
The problem with delivery
During the pandemic, restaurants had to shift to a delivery or takeout model to survive, said Tom Bailey, senior consumer foods analyst at Rabobank.
“They didn’t necessarily do the most efficient adjustment,” Bailey noted.
For some restaurants, the economics of delivery simply don’t add up. Third-party providers charge fees which can be as high as 30%. Restaurants, particularly independent ones, already have thin margins. For some, delivery fees can mean operating in the red.
“Our third-party delivery providers had Omicron-related staffing shortages, impacting their ability to fulfill a portion of our distribution needs,” he said. “This required us to greatly increase the use of much more expensive … alternative delivery solutions in order to meet strong customer demand,” he added. Ultimately, the disruptions meant “a rapid increase” in costs.
One way to tackle the delivery challenge is to separate the service from regular restaurant operations, and use it mainly to attract new customers. That’s especially important for casual dining brands such as Applebee’s and Chili’s, which are designed to serve diners primarily in their restaurants.
The pandemic prompted these chains and others to set up online-only concepts designed specifically for delivery.
Online-only brands allow restaurants to promote products that travel well for delivery, such as sandwiches and wings, helping turn the service from a burden into an competitive advantage.
Those virtual brands “offer some really unique opportunities to explore … urban and smaller take-out delivery-centric prototypes,” said Wyman Roberts, Brinker’s CEO, during a February analyst call.
For fast casual and fast food restaurants, which were already designed to get people out the door quickly, better drive-thrus and incentives for carry-out may be the way to go.
Better drive-thrus and easier pick up
As customer habits change, restaurants are rethinking their layouts. For many, that means more drive-thrus.
“What we’ve seen with the Chipotlane [is], our digital business goes up, our delivery business goes down as a percentage and the order pickup percentage goes up,” the company’s CEO Brian Niccol told CNN Business in a recent interview ahead of the opening of the chain’s 3,000th location. “From an economic standpoint, the best margin transaction for us is in order ahead, and then the customer comes in,” he said.
If chains can’t convince customers to use speedier drive-thrus, they might try something else, like a small bonus for skipping delivery.
If all else fails, companies may see delivery fall off naturally as the service becomes pricier.
To make delivery more profitable, companies have been making it more expensive.
At many restaurants, “menu prices are higher for delivery than they are .. when somebody goes to the restaurant,” said Pawlak.
Companies have been raising prices on everything from menu items to consumer goods and are saying that so far, customers are sticking around. But that won’t last forever.