Digital and delivery – which ‘D’ matters most to the fast food industry? Two contrasting views.

By Stuart Lauchlan August 16, 2017

SUMMARY:

Digitally-enabled delivery is a big thing in the fast food industry, but is it a long-term competitive differentiator for everyone?

The fast-food industry has been one the more recent sectors to talk up its digital channels, fuelled in part by the rise of specialist disruptor brands, such as Deliveroo, Just Eat and now, the big threat, Uber Eats.
Recent months have seen the likes of McDonald’s, Domino’s Pizza and Papa John’s drill down not only on their digital platforms, but also on how to tap into a consumer trend toward digitally-enabled delivery models. It’s the ‘other D’ – delivery – that’s emerging as the biggest priority, with McDonald’s, for example, pairing up with Uber Eats to provide a ‘to the home’ service.
So it’s interesting to see the views of Lenny Comma, CEO of Jack in the Box, which appear much more skeptikal about the long-term importance to the competitive landscape of being able to offer such functionality. Comma argues:

I think what we are really going to see happen with delivery over the long-term – and I will just compare it short-term to long-term – I think in the short-term, we are all going to drive some additional purchase occasions through delivery. We are all going to get more incrementally out of it than not.
But essentially once the entire industry across all segments is delivery-enabled and what’s enabled is also digitally enabled through their apps and other means, I don’t think this is going to be a competitive advantage. I think it’s just going to be another means to an end for all consumers across any segment.
At that point [the differentiator] will go right back to what your brand is known for. Is it cheaper food, is it higher quality food, is it incredible flavors, is it late-night, munchie meals, what is it? Essentially this trend towards delivery to meet the consumer demand I think is somewhat of a temporary phenomenon as far as incrementality is concerned. We don’t bank on this as a long-term driver for us as compared to our competitors. I don’t think that you are going to have any specific restaurant brand including Jack in the Box that will have a competitive advantage over the long-term based on delivery.

What matters is how your brand is perceived in the market and how the service you provide to customers matches up to that. Jack in the Box is more accessible in the physical retail environment than many rivals, states Comma, and this will have an impact on the desire/need for home delivery:

Brands are known for what they are known for. The consumer believes that Jack in the Box is a late-night destination and that’s why I think we are going to be in their primary considerations that when they are looking to use delivery during late-night.

In contrast, rival brands are likely to have a greater need to offer delivery channels to expand their reach, he adds:

Most of the competitors do not have as many locations open 24/7 as we do. So the availability may not be there from all those competitors, even if the consumer wants to consider them.

There’s also a cautionary note struck around adding new items to the menu rather than sticking to the secret sauce that defines your business. Comma suggests:

Driving that type of [new] equity for the brand to make sense [of] opening those additional hours is really difficult to do, just like you have seen as other competitors have tried to get into the breakfast business. It’s a long-slow process to get the consumers to change those habits and to understand that you now have sort of new equities associated with your business.

This isn’t to say that Jack in the Box doesn’t have its own digital plans in place, adds Comma:

For the Jack in the Box brand first and foremost the digital platform is being tested now in the form of mobile app. [This] provides a lot of functionality, it really helps to expand the convenience factor of the brand. We expect that with a single platform Point of Sale, we will be able to move relatively quickly, once that test is [over], to get it into the hands of our consumers and throughout the entire system. So digital is a big piece of what should be launched in 2018.

Mention of the mobile app does bring delivery back into the picture though:

The consumer is demanding it. That also relates to the mobile app and the digital platform because that will make it easier to use delivery.

Catching-up

Delivery is also on the mind of Denny Marie Post, CEO at Red Robin Gourmet Burgers, who states that not being “a player in carry-out or a delivery” has had a negative impact on the company’s fortunes:

We have been cautious about expansion of third-party delivery services based on their high cost and uneven guest experience. That said, guests are clearly interested in more delivery options.

Meeting this interest has become a strategic priority, with the off-premise business now 7% of total revenues, compared to 5.2% a year ago, with a 70% increase in the past three months as resource has been put behind this. Post says:

This growth was driven by the launch and adoption of online ordering nationally, which now represents approximately 20% of off-premise sales. Third-party delivery also represents a significant amount of sales, almost 10% of total off-premise traffic despite being in only 118 of our locations. We are continuing to roll out curbside to locations where it is possible and to add call center support. By early in Q4, all corporate restaurants will be on the call center and have designated in-store pickup areas. Roughly two-thirds of all of our units will have curbside delivery.

Part of Red Robin’s reticence to get into off-premise delivery was a basic fear of not getting the orders right! But this also represents a growth prospect, says Post:

To understand what we could do, what we could control to improve the delivery experience, we conducted research with third-party users and found that our biggest opportunity was in accuracy of order…Immediately the off-premise team partnered with operations to develop and train in new procedures for double checking orders at pickup. This check, double check and handoff benefits both guests who carry out and those who choose to order through third-party delivery. If it gets home and it’s missing something, it’s hard to recover.

This new process has resulted in a boost in confidence about digitally-enabled third party delivery with Post confirming:

As a result of strong guest demand and higher confidence in our ability to deliver an accurate order, we have decided to expand to a total of 198 unique locations with the three services we already use, Amazon, DoorDash and Grubhub. To qualify all of the 80 new locations we have added had to have high guest experience scores. These operators have demonstrated that they are ready to capture more sales.

Beyond that, Red Robin is looking to technology investment to create “entirely new approaches for the future. Much of that innovation will require a new level of technology”, says Post. To that end, the firm has hired Dean Cookson, formerly the CTO at Virgin America Airlines, as its new CIO, charged with finding “new ways of being and interacting with the guest”.
One immediate challenge is likely to be gathering more customer data around digtally-empowered delivery options, as Post admits that the firm can’t accurately assess the incremental value of the model as yet:

It’s hard for us to say, because we don’t have access to guest data and we do not offer our Red Robin Royalty program to third-party delivery, because we don’t have the integrations we would need to do that. So we don’t have as much visibility, which is why we went out and did our own research to try to get at it…But the guest is demanding [delivery options] And if we’re not there, a lot of folks [do] show up there, a lot in the burger market in particular. So, I think [third party delivery is] a good way for us to hold our own in delivery while we explore other options.

My take

Fast food businesses haven’t been the fastest to takeaway the disruptor lessons around digital that we’ve seen in other parts of the retail landscape. The activity seen in recent months suggests that this is changing now. What will be interesting is to see how the digital focus plays out at different points of the market – from the cheap and cheerful burger, fries and a soda for under $5 through to the higher price point, restaurant-centric gourmet burger space.
I have some sympathy for Jack in the Box CEO Comma’s view that the digital delivery trend isn’t likely to be a significant long-term opportunity for his business. Personally I can’t imagine the desire to get online and order a cheap burger and fries from a fast food outlet. You’d need to be a Jack in the Box junkie (or McDonalds, KFC etc etc). On the other hand, Red Robin’s higher-end burgers cry out for a delivery option, a need that hasn’t been met to its optimal potential to date.