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As Fast-Casual Chains Add Delivery, Are Third-Party Services The Way To Go?

This article is more than 5 years old.

Chipotle Mexican Grill recently promoted a new service allowing customers to order food delivery on its app or website. As an added incentive, the delivery fee is waived for orders of $10 or more for a limited time.

The restaurant industry has been in a low-growth position for several years, shifting operators to compete in a "take share" environment. Consumer behavior is evolving away from traditional dining at restaurants to ordering food for off-premise consumption. This trend includes takeout, catering and delivery.

Fast-casual restaurants have seen lower traffic and same store sales decline because of the increased saturation of new restaurants. To keep pace with sales moving in a positive direction, operators are faced with expanding consumer ordering options and shifting more focus toward direct and third-party delivery. That means making it easy and keeping it simple, leveraging technology and new delivery platforms.

The seamless integration of delivery options into a traditional dine-in and takeaway restaurant is becoming the norm, especially for fast-casual chains. On-the-go consumers are looking for simple, convenient options that provide an opportunity to eat when they want and — more importantly — where they want. With the rise of contemporary food-delivery services, restaurants can now offer delivery using third parties without having to manage or employ drivers.

In a recent study by Off-Premise Insights, restaurant sales for takeout, delivery and catering were forecast at $209 billion for 2018, with delivery representing $45 billion, or 22%. Third-party delivery will comprise $13 billion and is expected to rise at a rate of 13% annually over the next five years.

With the overall growth rate of restaurant sales expected to be much lower, the increase in delivery will cannibalize in-store dining occasions. Consumers are looking for the convenience of restaurant-quality food brought to their door while they binge-watch TV or entertain. The convenience of delivery appears to drive consumer value as patrons are willing to pay the delivery fee, and often tip drivers for the service.

Speed and on-time delivery are important factors for consumers in their decision to order. According to Off-Premise Insights' 2018 Takeout, Delivery and Catering study, food quality is the most important driver, and there are important considerations to make when using third-party delivery.

Representatives of delivery services need to represent the brand appropriately. Drivers will need to maintain a professional appearance and hygiene and handle food items in a manner that is consistent with the restaurant's standards of food safety. Often, that means maintaining temperatures for both hot and cold foods.

Many drivers have worked in the foodservice industry, and some have likely received food safety certifications like the NRA ServSafe program. But who gets the blame if there is a problem with the food delivery? According to the study, 82% of consumers will blame the restaurant, not the delivery service.

Many chain restaurants like Panera Bread have chosen to provide direct delivery that follows the pizza industry model. But can a restaurant chain that focuses on creating quality food offerings manage the logistics of delivery? The direct-delivery model can be more cumbersome in recruiting, hiring, training and retaining good staff.

Often, delivery orders can be sporadic outside of peak breakfast, lunch and dinner periods. Restaurants will need to find ways to leverage the staff's time when not out on delivery and manage their pay to keep drivers engaged and employed long term.

Restaurant operators that go with third-party delivery will pay a higher cost (often 30% of their sales) but can avoid additional complications and continue to focus on food. Those operators that avoid delivery completely may miss the bus and lose share to the competitors that modernize and follow the consumer demand trend.

As I see it, early adopters of delivery services will give customers what they want. The convenience of delivery and the increased use of technology will build loyalty and frequency with on-demand consumers who tend to be younger, technologically savvy and willing to pay for the services.

Although most delivery will be available only in urban and suburban markets, the pizza industry will continue to have increased competition from restaurants that traditionally have not offered pizza. Sandwiches, burgers, chicken and burritos will become the norm, and as the availability of drivers and the technology to manage them improve, drones and self-driving vehicles may be just around the corner.