Chains making a big push for delivery and to go, but will it be enough?
Casual-dining chains finally have a solution to the decade-long problem of fewer customers dining at their restaurants:
Take the food directly to the customers.
Just about every large casual dining concept of note is currently working on some form of to-go and delivery strategy — including Outback Steakhouse owner Bloomin’ Brands Inc., Olive Garden owner Darden Restaurants Inc., Red Robin Gourmet Burgers Inc., Applebee’s Neighborhood Grill & Bar, Chili’s Grill & Bar and Cheesecake Factory Inc.
While many of these chains have been hoping to increase their to-go orders for years, technology is making these efforts easier. And by adding delivery, they’re throwing their considerable weight behind one of the biggest restaurant industry trends in years.
To some operators, to-go orders represent a huge opportunity for casual dining, giving them the ability to erase the convenience advantage their quick-service rivals have used to their advantage for decades.
“Off-premise [orders] represents the first structural tailwind in the industry in quite some time,” Liz Smith, CEO of Bloomin’ Brands, said in February.
“We intend to capture our fair share of these incremental occasions when dining at home is preferred.”
Indeed, casual-dining chains have little choice but to focus on to-go orders.
No one wants to eat inside a restaurant
Casual-dining chains have been losing customers for nearly a decade. A recession, followed by a slow recovery, and the proliferation of higher quality limited-service options, conspired to drain the traffic the segment enjoyed for years.
But the biggest problem is that consumers simply do not want to eat inside of restaurants anymore.
According to the market research firm NPD Group, 61 percent of all restaurant visits were for to-go orders in 2016.
Without an effective to-go platform, casual-dining restaurants cut themselves off from a huge — and growing — number of customers.
“The only part of casual dining that’s growing right now is the off premise side,” said Bonnie Riggs, foodservice industry analyst for NPD.
Yet it’s not making up for total lost traffic, at least not yet. While casual-dining chains have been losing traffic for years, that decline sped up in 2016 amid a generally difficult market for the restaurant industry.
On-premise visits, for instance, fell 4 percent in 2016, Riggs said. But off-premise visits increased by 1 percent to 920 million total visits. That represented 16 percent of the 5.9 billion visits to casual dining concepts last year. So while off-premise is gaining, it’s gaining at a much slower rate and represents an even smaller portion of the casual-dining pie.
There’s worse news: The off-premise visit is not as lucrative. According to Riggs, the average on-premise check is $15.16. The average carryout order is $12.11.
“You’re not getting those high-profit alcoholic beverages,” Riggs said. “You’re not getting those add-on items like dessert.”
The question is whether off-premise orders are incremental, or whether they replace dine-in business.
Delivery is incremental
Many concepts argue that off-premise orders generate additional business, and they say that’s especially the case when it comes to delivery.
Cheesecake Factory is rolling out delivery to its locations, and the company argued in February that delivery generated additional to-go business — especially in areas where delivery is already proven to be popular.
“We’re seeing some incremental sales in many locations,” CEO David Overton said on the company’s earnings call in February.
Bloomin’ Brands, meanwhile, says that it is generating higher sales on delivery orders than it would otherwise, which runs counter to other chains’ experiences. The company has delivery at 116 stores in its Carrabba’s Italian Grill and Outback Steakhouse brands.
Smith, in fact, believes delivery could offset a problem more casual-dining brands are experiencing late in the year: Declining retail traffic during the holiday shopping season.
Same-store sales weakened at many concepts in December, in particular, as customers simply stayed home and shopped online more.
“People are very house proud,” Smith said. “They want the quality of casual dining, but sometimes they want the privacy of their own home. We think there is a huge opportunity during the holidays, when you’re gathering with friends and family, and you have a desire to have that occasion but you don’t want to go out, per se.”
Buffalo Wild Wings is working with third parties to deliver its food at 180 locations. The company plans to expand that service to 250 by the end of the year.
In the first quarter ended March 26, 18.2 percent of Buffalo Wild Wings’ company-owned sales were take-out and delivery. That was up from 16.6 percent a year ago. The restaurant said delivery in those 180 locations amounted to $2.7 million in sales.
“We’ve seen our take-out continue to grow in restaurants that offer delivery,” chief operating officer Jim Schmidt said on the company’s earnings call in April.
Delivery is not a big percentage of business in the restaurant industry overall. But it is quickly growing.
At 8 pm on a recent Friday night in Minneapolis, for instance, a steady stream of delivery drivers from various services walked into a retail development that contained only a couple of restaurants, including a Famous Dave’s of America Inc. location.
“Casual dining getting into delivery has a ton of potential,” said Noah Glass, founder of the online ordering platform Olo. “It’s in its infancy. Only a tiny, tiny fraction of restaurant transactions are delivery — just over 3 percent of total restaurant transactions.
“If you strip out pizza from that, it’s 1.1 percent. It’s very small. But it’s potentially largely incremental for casual-dining operators and others who have not done delivery.”
Chicago-based online food ordering marketplace Grubhub Inc., for instance, saw revenue increase 39 percent through the first three months of the year. And the number of active diners in the system increased 26 percent. Much of that came from a steep increase in delivery orders.
Smith said that Bloomin’ Brands’ experience is that delivery is 85 percent incremental.
Consumers decide whether to eat in or eat out first, before deciding the brand, rather than the other way around.
“The exciting thing is, it is moving our brands into an occasion, eating at home, that’s four times the size of the dinner business that they’re eating outside,” Smith said.
Take-out takes off
Not everybody is jumping in as enthusiastically on delivery, at least not yet. Brinker International Inc., for instance, has “several delivery tests,” but has not devoted as much energy as others.
“We think the opportunity is there, but it’s shaking itself out,” CEO Wyman Roberts said in April.
Roberts said the company has spent more of its energy on the takeout business. “It’s by far the biggest part of that outside-the-restaurant opportunity,” he said. The company is testing curbside pickup. “Guests really want the ability to not have to get out of their car,” he said.
I
ndeed, Olive Garden has used to-go to help the restaurant outdistance other casual-dining competitors.
The chain’s to-go business increased 17 percent in the most recent quarter, and is up 60 percent over the past three years. That has helped Olive Garden’s same-store sales improve despite overall segment weakness — its same-store sales increased 1.4 percent in the three months ended Feb. 26, for instance.
Olive Garden, owned by Orlando-based Darden Restaurants Inc., does have large-order delivery. And Darden executives believe the company’s experience in generating more to-go orders could help their newest acquisition, Cheddar’s Scratch Kitchen, do the same.
“There is a huge opportunity for to go and Cheddar’s, and I think that the management team is just starting to seize that opportunity to understand what they have to do operationally to deliver on that,” Darden CEO Gene Lee said in March.
But it’s not a panacea for many chains, at least not yet. Buffalo Wild Wings has done as much as anybody to boost to-go orders. Yet the increase in takeout in its most recent quarter was barely enough to offset declines in dine-in business: Same-store sales at company locations increased just 0.5 percent.
In other words, takeout and delivery are as much a defensive measure for an industry that is losing customers in droves.
“You’re seeing a shift from in-restaurant dining to take-out and delivery,” Schmidt said. “That drop has been more severe than we anticipated as we came into the year.”
An intrinsic advantage
That said, casual dining has advantages that other sectors rushing into delivery do not: Namely, their menus.
Glass believes casual-dining chains’ diverse menu offerings could give them an advantage in this area, especially when it comes to large order delivery or family orders.
“They tend to have a more diverse menu than fast casual or QSR concepts,” Glass said. “If you’re thinking about a family, you can get something that appeals to everyone. Group ordering is a no brainer for delivery. Everybody piles in and schedule a delivery at 6.”
Yet Riggs, for her part, said chains have to be careful about what they offer. Not all menu items, after all, travel well. If a food item can’t keep its quality, it might hurt the chain in the long run.
“They can’t make their whole menu available,” Riggs said. “Not all their menu items are going to travel well.”
Curbside service, as chains like Chili’s, Applebee’s and Red Robin are working on, could help with online to-go orders by providing customers a place where they can get their food.
To be sure, chains have worked on such efforts for years. But connecting these efforts with online ordering and mobile apps could help curbside service work better.
As for delivery, most chains appear to be using third-party services. Glass, for one, believes that is the smart move.
“I don’t think every restaurant brand should be running out to create their own delivery fleet,” Glass said. “They should tap into the delivery fleets that are out there.”
But some companies are working on their own fleets. One of them is Bloomin’ Brands — where the chief financial officer, Dave Deno, is a former executive at Yum! Brands Inc., owner of Pizza Hut, which knows a little about delivery.
“We have a fair number of people in our company that have significant delivery experience, including myself,” Deno said. “So we know how to do this.”
By creating a fleet itself, he said, “We control the experience. We know the customers. We can do some surprise-and-delights very directly with the customers, and we think that these things offer some nice potential for the company going forward.”
Contact Jonathan Maze at [email protected]
Follow him on Twitter at @jonathanmaze
