Fast-food chains using delivery to stay competitive

Fast-food, however, with its quick counter service and drive-through windows, hadn’t really bought into the delivery game until McDonald’s took an interest. Image: McDonald's Website

Delivery, once the domain of pizzerias, is now fresh terrain for fast food as it strives to meet changing demands of its customers.

Also read, US-based food delivery startup Favour abruptly shuts down Toronto operations.

Just this month, Wendy’s launched began testing delivery service with partner DoorDash in Columbus and Dallas, while McDonald’s chose central Ohio as one the first markets to offer delivery service, through UberEats.

Delivery is nothing new in the restaurant business. For example, Cafe Courier in Columbus has been delivering food from mostly independent casual restaurants for decades.

In recent years, as consumers became accustomed to having more everyday items delivered, a rash of third-party restaurant ordering and delivery services spread across the country. Some of the names include Postmates, GrubHub and Amazon Restaurants.

Increasingly, restaurants have felt compelled to embrace delivery to meet customers’ demand and avoid losing sales.

“It is survival,” said Bob Welcher, president of Restaurant Consulting Inc. “There is no standing still or you’ll be left in the dust.”

There’s a lot at stake. The overall restaurant market is stagnant. For every Domino’s Pizza cheering sustained double-digit sales growth, there are chains like Bob Evans, Bravo Brio and Applebees reeling from losses.

Many are counting on technology to increase sales and that boils down to mobile apps.

Delivery and carry-out, thanks to mobile apps, are proving to be successful tools. Digital orders soared from 22 percent of all delivery orders in 2011 to 48 percent, or 2 billion orders in 2016, according to NPD Group, a market information firm.

Fast-food, however, with its quick counter service and drive-through windows, hadn’t really bought into the delivery game until McDonald’s took an interest.

“When McDonald’s highlighted (delivery) in its investor day in March,” said John Gordon, principal of Pacific Management Consulting Group, a restaurant analyst, “it became a headlong rush.”

Young adults, especially millennials, are leading the charge. They account for more than half of all delivery orders, NPD Group said in an April report.

Wendy’s is one of the fast-food crowd giving delivery a serious try.

DoorDash spent 16 months wooing Wendy’s and showing them data, such as how almost 95 percent of delivery orders are sales the store would not have gotten without the service, said Prahar Shah, DoorDash’s head of business development.

“This can add significant sales,” he said, “but first and foremost, it is something that customers demand.”

Before landing Wendy’s, DoorDash’s largest client was Taco Bell.

The chain took annual surveys of its customers and year after year people told Taco Bell that the one thing they wanted above all else was delivery, Shah said.

“No single trend in the restaurant industry is as big as delivery,” Jonathan Maze, financial editor at Nation’s Restaurant News, a major trade publication, wrote after the National Restaurant Association Show recently.

“The wave of third-party services and clear demand from consumers has just about every major restaurant chain headed in that direction.”

Even venerable White Castle, which was the subject of an epic road trip in the film “Harold and Kumar Go to White Castle,” is dabbling with delivery. DoorDash serves some of its locations.

“It’s an exciting time to be in the restaurant business, because technology is offering opportunities and solutions to meet customer needs,” said Jamie Richardson, White Castle vice president. “Anything that helps us learn more about solving customer problems is of interest to us.”

Using a delivery service comes with challenges, though.

Making sure the food stays hot and fresh is one.

DoorDash employs “hot bags” to keep food warm. At McDonald’s, UberEats sends the restaurant a notice when a driver is three minutes away so French fries can be made fresh, and they’re the last item to go into the bag.

Pizza and chicken travel well. Ice cream cones and milkshakes do not, Welcher said.

Embracing delivery comes at a price for both the restaurant and the consumer. The services take 15 percent to 20 percent of each order, which cuts into a store’s profit. The services also charge a delivery fee to customers, around $5 on average.

“Those are found sales. You wouldn’t make those sales without it,” Welcher said, “but you may be giving away your profit.”

Analysts said the average check rises with delivery, as it does with carryout, mostly because the orders are for more than one person. That can help offset some of the costs for both consumers and restaurants.

At recent industry meetings, Gordon has heard that third-party delivery services might be a bridge for big operators like Wendy’s and McDonald’s to figure out how to do it themselves.

“The majority of the industry feels restaurants somehow have to build the delivery capability to improve economics,” Gordon said.

But for now, it’s delivery any way they can do it.

“The new market is, ‘Bring it to me,’” Welcher said.

SOURCE JD Malone, The Columbus Dispatch