Chains ramp up delivery, explore options in battle for sales
If 2017 was the year of delivery services, 2018 will be more of the same and then some.
In a roundup of conversations with CEOs from a number of national and smaller restaurant chains at Fastcasual.com, a news site that covers fast-casual restaurants such as Chipotle, Panera and others, many said delivery is a big part of the future. Blaine Hurst, the incoming CEO of Panera, told Fast Casual that 2018 will be about, “helping guests get the food they crave, when and how they want it.”
Delivery is more or less how customers want it.
“It is obvious that the trend is delivery and convenience,” John Gordon, principal of Pacific Management Consulting Group and an independent restaurant analyst, told The Dispatch. “It is also obvious that there is a lot of unmet customer demand for it.”
Always hunting for growth, restaurants have discovered that delivery services offer new streams of revenue. Even players like Wendy’s and McDonald’s, which do most of their business out of drive-thru windows, are not just entering the fray, they are expanding delivery.
“All the publicly traded chain restaurants are saying, ‘Delivery delivery delivery,’ “Gordon said. “What isn’t clear is whether they can make money on it.”
As delivery grows, it will become more difficult to manage the added cost of third-party services such as DoorDash and UberEats, Dennis Lombardi, principal of Insight Dynamics and a restaurant consultant, said in an interview, adding that 2018 might be the year that companies figure out how sustainable third-party delivery services are.
Other trends for 2018 that CEOs
in the Fastcasual story noted are the continued adoption of technology, such as self-service kiosks and online ordering, and the resurgence of the value menu.
“It’s hard to say next year will be a breakout year (for things like kiosks and mobile ordering), but it will continue to grow,” Lombardi said.
Gordon sees store closings as a trend in 2018. The pace of restaurant construction has outrun population for years, and has left the industry with too many stores.
Lombardi sees the flood of restaurants as one part of the problem. Another part is the fight for consumer dollars, which has been particularly tough because grocery prices have been favorable, and more and more alternatives to restaurants are popping up. Meal kits, prepared foods in grocery stores, food trucks and even convenience stores have siphoned off regular restaurant visits.
“The fight for share of the consumer’s wallet will continue and it will intensify,” Lombardi said.
There also will be more pain for casual chains, such as Bravo Brio and Bob Evans. These full-service chains, which also include the likes of Applebee’s, Chili’s and Outback Steakhouse, have suffered for years with declining sales. Bravo Brio, once a star
in the space, has seen its stock price decline by more than half this year, and the company announced that it was looking at “strategic alternatives” — which often is code for putting itself up for sale. Bravo Brio also attracted an activist investor.
Bob Evans battled an activist investor for two years before selling off its restaurants to a private-equity firm and agreeing to merge its prepared-foods division with Post Holdings.
Gordon thinks more restaurants need to close before casual dining sees a rebound.
“The die is pretty much cast for casual dining,” Gordon said. “They are trying very very hard, but there are just so many of them.”
Another trend for next year is the comeback of the value menu. At one time, every fastfood chain had cheap offerings, such as $1 hamburgers. They are back. Wendy’s kicked off the trend last year with the success of its four for $4 offering, which it has continued and updated with new items.
“There is no doubt it is coming back,” Lombardi said. “They tried to wean the consumer off of it, but it didn’t work.”
The new twist, though, is having value items while also running premium offerings as well. Wendy’s CEO Todd Penegor calls it the “barbell” strategy, balancing low and high items.
“Wendy’s is the perfect example of this,” Gordon said.
The psychology behind it is that some consumers will come in for the value items, but leave with the premium ones instead.
“You get drawn in by the dollar menu, maybe,” Lombardi said, “but you see the premium item and say, ‘ That looks good.’”