What FRANdata Thinks

Delivering the Goods, Fast Food Industry look at Off-Premises Sales for Future Growth

May 11th, 2018 by Ritwik Donde

Within the past two years, the demand for delivery services has exploded in the fast food industry. However, home delivery is no longer exclusive to pizza and Chinese food. The delivery fever is fast gripping a significant number of restaurants, as they shift focus to off-premises sales from avenues such as catering, online ordering or home delivery, and increasingly outsource the service aspect to third-party vendors.

Chipotle, for instance, experienced a 700% increase in delivery orders in its first week of launching this service; and it has outsourced the delivery system by partnering with DoorDash.[1] McDonald’s, meanwhile, has partnered with UberEats for fast-food delivery. However, third-party vendors may come with issues like compliance and maintain brand standards, etc. which is why, Yum! Brands, which franchises concepts like KFC and Pizza Hut, earlier this year spent $200 million to buy a 3% stake in food delivery company GrubHub, that way the company can make sure its customer service standards are maintained even by delivery services.[2]

But, there is a downside. Often third-party operators take a big cut, as much as 30% of sale price, for their services. So, not every company is bucking to the third-party trend. Panera Bread, which has expanded its now 2-year-old delivery program to more than 1,300 locations, has built its own fleet of delivery drivers in about 897 cities across the country, and has about 13,000 drivers and employees supporting its delivery program.[3] Another such company is Firehouse Subs, which partnered with a former Domino’s franchisee to develop a delivery model for the company. So far, the model is in place in 6 of Firehouse’s 37 owned restaurants.[4]

Whichever way the industry goes, one thing is for sure: while the process of vetting potential franchisees has largely remained the same for many years, the process of distributing food to customers is amidst a foundational change.

[1] “Chipotle: Deliveries Up 700 Percent Thanks to DoorDash Deal”, QSR Magazine, May 2018

[2] “Pizza Hut expanding beer delivery test in Arizona and California”, Reuters, May 2018

[3] “Panera Bread grows in-house delivery service to 1,300 locations”, Nation’s Restaurant News, May 2018

[4] “Delivering the Goods”, CFO Newsletters, May 2018

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