OCTOBER, 2024
ARE DELIVERY APPS DELIVERING? P. 16
HTTPS://YOUTU.BE/YBWDTW3J6ZC
JONATHAN MAZE EDITOR-IN-CHIEF RESTAURANT BUSINESS
Restaurant Business Editor-in-Chief Jonathan Maze is a longtime industry journal- ist who writes about restaurant finance, mergers and acquisitions and the economy, with a particular focus on quick-service restaurants. He writes daily about the factors influencing the operating environment, including labor and food costs and various industry trends such as technology and delivery. Jonathan has been widely quoted in media publications such as the New York Times and the Washington Post and has appeared on CNBC, Yahoo Finance and NPR. He writes a weekly finance-focused newsletter for Restaurant Business , The Bottom Line, and is the host of the weekly podcast “A Deeper Dive.”
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RESTAURANT BUSINESS OCTOBER 2024
CONTENTS OCTOBER 2024
FINANCE THE FORMER CEO OF JENI'S SPLENDED ICE CREAMS WANTS ANOTHER BITE OF A GROWTH CHAIN ...................................04 THE POST-PANDEMIC FAST-FOOD BUSINESS: MORE BEVERAGES, SNACKS AND CHICKEN, LESS PIZZA AND SANDWICHES .......................................06
LEADERSHIP WHATABURGER ENTERS A NEW ERA .........41 UNDER DAVID MCKILLIPS, THE 'E' IN CHUCK E. CHEESE MIGHT AS WELL STAND FOR 'EXPERIMENT' .......................................44 EMERGING BRANDS ANGIE'S FOOD CONCEPTS AIMS TO BECOME THE WALMART OF RESTAURANTS .............................................50
DELIVERY APPS ARE DIALING UP DISCOUNTS FOR PRICE-CONSCIOUS CONSUMERS ..................................................24 7 SURPRISES ABOUT CONSUMERS AND THIRD-PARTY DELIVERY .....................26 OPERATIONS SOLVING THE CHILDCARE PUZZLE WOULD BE A GAME-CHANGER FOR RESTAURANTS ..............................................30 SHAKE SHACK REINVENTS THE LABOR DEPLOYMENT MODEL ..................................34 MENU QUICK-SERVICE CHAINS ARE TURBOCHARGING MENU INNOVATION TO DRIVE TRAFFIC. IT’S WORKING ............36
IN A SMALL ILLINOIS CITY, RED LOBSTER LEAVES A BIG VOID ..............10
EVERYTABLE RESETS ITS TABLE ................53
TECHNOLOGY ARE APPS DELIVERING? ...............................16
PODCASTS WHAT ALL THESE BANKRUPTCIES SAY ABOUT THE STATE OF RESTAURANTS RIGHT NOW ...................................................60
BATCHED DELIVERY ORDERS TAKE LONGER, HURT FOOD QUALITY ...................20
WHICH RESTAURANT DELIVERY APP IS BEST? CONSUMERS WEIGH IN ...............22
PANERA BREAD IS MAKING A MAJOR CHANGE TO ITS BAKERY MENU ..................40
US OPEN CHEFS, LEBANESE WINES AND KHACHAPURI VARIATIONS ..................61
FROM OUR COLUMNISTS
THE BOTTOM LINE: SUBWAY AND THE SHADOW OF THE $5 FOOTLONG ......................................................14 REALITY CHECK: RESTAURANTS ARE BEING BURIED UNDER NEW PAPERWORK REQUIREMENTS ..........28
TECH CHECK: DYNAMIC PRICING IS A CASE OF RIGHT PLACE, WRONG TIME ..................................58 BEHIND THE MENU: NYC'S FAMED DELMONICO'S ADDS ITS FIRST PLANT-BASED ENTRÉE .....................62
Cover illustration by Midjourney/Nico Heins
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OCTOBER 2024 RESTAURANT BUSINESS
FINANCE
THE FORMER CEO OF JENI'S SPLENDED ICE CREAMS WANTS ANOTHER BITE OF A GROWTH CHAIN
JOHN LOWE HAS FOUNDED A PRIVATE-EQUITY FIRM THAT WILL TARGET EARLY-STAGE RESTAURANT AND CONSUMER PACKAGED GOODS CHAINS, HOPING TO GET THEM TO THE NEXT LEVEL. BY JONATHAN MAZE
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RESTAURANT BUSINESS OCTOBER 2024
J ohn Lowe loved his time at Jeni’s Splendid Ice Creams so much that he wants another bite at an early-stage growth company. The former CEO of the chain, who joined the company ear- ly in its history, has formed a new private-equity group, Amok Con- sumer Growth Fund. Its goal: Find other early-stage growth compa- nies in the restaurant and consumer packaged goods (CPG) sectors and guide them to the next stage, one in which they become a target of a larger investment firm. “We had a great run,” Lowe said of his time at Jeni’s. “I loved my time there. As I decided to step out of the CEO role and become a board member, I dreamed of getting to do that all over again. It’s where the fun is. It’s an exciting time.” Lowe’s career trajectory has not been what one would call con- ventional, at least in the restaurant world. He worked with GE for many years in the aviation business and during the financial crisis of 2008 did a lot of merger and acquisition work. “It was a wonderful job profes- sionally,” he said. “Personally it was taking a huge toll. I moved five times in eight years.” He then got the opportunity to jump to Jeni’s. The brand at the time had four shops and $1.2 million in annual revenue. Lowe guided the chain for 14 years, until it had more than 90 shops and $150 million in revenue. It also sells pints of ice cream in gro- cers in all 50 states. “I met a number of entrepre- neurs along the way that needed the same help Jeni’s needed,” Lowe said. “I assembled a team, raised money and now we’re ready to jump in with early-stage brands.” That team features people from the restaurant, CPG and invest- ment industries, including Rachelle Lynch, a Jeni’s alum who has also worked with companies like Burt’s Bees and Plum Organics. Timmy McCarthy was the first franchisee of Raising Cane’s and grew his port-
folio to 44 locations. Ryan Parish spent 25 years in investment bank- ing and private equity. The goal, Lowe said, is to find good, proven companies that need help getting to the next stage. Amok is targeting restaurant chains with two to 10 locations, with a proven product and which have demon- strated they can successfully oper- ate multiple units. Those concepts typically need capital to grow fur- ther. Amok is also looking for CPG companies that have established themselves as a regional niche but also need capital and expertise to grow further. “We think of ourselves as an early-stage private-equity growth fund,” Lowe said. “We are not a venture fund. We are not betting on a bunch of good ideas and hoping that two of them go to the moon and it makes up for all the losses. “We are picking winners. Things to be entering the market and begin growing comapnies. It's a wonderful time
that are already proven. Then we’re coming in with capital and expe- rience. Our model is to help them get big enough so they can receive a much bigger investment from a big- ger private equity fund.” To be sure, this isn’t necessarily a great time to be banking on restau- rant industry growth. A number of larger private-equity firms that have traditionally invested in restaurants are walking away from some of their investments after years of fi- nancial challenges. But Lowe also believes this is an opportunity. He doesn’t think these firms will remain out of the game forever. “The industry has been through a reset over the last two to three years,” Lowe said. “But there’s more than $3 billion in dry capital in these premier private-equity funds just sitting on the sideline because everybody is trying to figure out where the new valuation metrics are.” “It’s a wonderful time to be en- tering the market and begin grow- ing companies,” he added, “be- cause three, four or six years down the road when interest rates are closer to historic norms and the market has stabilized, those pre- mier private-equity funds will be back looking for companies to in- vest in.”
PHOTO: SHUTTERSTOCK
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OCTOBER 2024 RESTAURANT BUSINESS
FINANCE
THE POST-PANDEMIC FAST-FOOD BUSINESS: MORE BEVERAGES, SNACKS AND CHICKEN, LESS PIZZA AND SANDWICHES FAST-CASUAL AND QUICK-SERVICE RESTAURANTS ON THE TECHNOMIC TOP 500 HAVE GROWN SALES BY 33% OVER THE PAST FIVE YEARS. BUT THAT GROWTH WAS NOT CREATED EQUALLY AS CONSUMERS SHIFTED THEIR SPENDING.
HERE'S A LOOK AT THE SECTORS AND THEIR GROWTH OVER THE PAST FIVE YEARS: QSR/FAST CASUAL SALES BY SECTOR CHICKEN AND OTHER BEVERAGE AND SNACK CONCEPTS HAVE LED GROWTH OVER THE PAST FIVE YEARS WHILE SOME TRADITIONAL SECTORS HAVE GROWN MORE SLOWLY.
BY JONATHAN MAZE
S andwiches and pizza are out. Smoothies and chicken ten- ders are in. That’s at least based on a look at limited-service restau- rant sales over the past five years, using data from the Technomic Top 500 Chain Restaurant Report. Over the past five years, for in- stance, fast-casual chicken sales have grown nearly 87%, thanks largely to the strength of brands like Raising Cane’s and Dave’s Hot Chicken. On the other end of the spec- trum: Quick-service sandwiches, where sales have grown just 6% over that period. Overall, limited-service restau- rants on the Top 500 have grown total sales by 33% over the past five years. But the data shows that con- sumers have shifted their spending away from some legacy concepts to- ward newer, hotter brands in differ- ent sectors. Or they shifted spend- ing away from full meals to snacks and drinks.
We probably don’t appreciate Tropical Smoothie Café nearly enough. The smoothie chain has more than doubled in size over the past five years, ultimately justifying its sale to Blackstone earlier this year for $2 billion—a rare, for this year anyway, sale of a restaurant chain at a premium valuation. The chain has led growth in the “other beverage and snack” category of the quick-service sector. Cookie chains have surged, led by the ultra-fast growing Crumbl, which has grown by more than 1,800% over the past five years. But there are other, more under-the-radar concepts like Nothing Bundt Cakes, which has grown consistently for years and is 72% bigger than it was in 2019. And consumers are also buying a wider array of beverages from a growing group of restaurant chains seeking to provide them. For instance, the sector includes some of 2023’s fastest-growing chains such as HTeaO (54%), Swig (39%) and Gong Cha (29%).
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RESTAURANT BUSINESS OCTOBER 2024
Breaking: The chicken busi- ness is thriving. Consumers clearly love chicken right now and they re- ally love chicken in limited-service formats. The fast-casual chicken sector includes some highly successful and fast-growing concepts. Aver- age growth last year alone was 17%, for instance, thanks to chains like Dave’s Hot Chicken, which doubled in size and has grown by a ridiculous 6,800% over the past five years. But it also includes both Raising Cane’s and Wingstop, two of the best performing large chains in the U.S. Yet quick-service chicken con- cepts aren’t to be forgotten, either, even if bone-in chicken chains like KFC and Church’s have strug- gled. Sales at those chains are up 53% over the past five years, led by Chick-fil-A, up 78%.
CHICKEN RULES THE ROOST LIMITED-SERVICE CHICKEN SALES HAVE INCREASED OVER THE PAST FIVE YEARS, BOTH AT FAST-CASUAL AND QUICK- SERVICE CHAINS.
On the other hand, sandwich- es. The quick-service sandwich sector remains fully dominated by Subway. The Miami-based giant has 20,000 units and accounts for two-thirds of sales in that sector. Its sales last year were down 2% com- pared with five years ago. The remaining competitors just aren’t big enough to make up for the loss of more than $200 million in sales. That, indeed, is one of the chal- lenges of analyzing sectors: Some of them are entirely too dependent on the large chains at the top. Fast-casual sandwich chains have performed better, thanks to Jersey Mike’s (up 150% the last five years) and chains such as Paris Ba- guette (up 129%). But the sector’s growth, 26%, was still under aver- age for limited-service restaurants, where sales are up 33% over the past five years.
SUBWAY'S U.S. SYSTEM SALES SUBWAY'S U.S. SYSTEM SALES HAVE YET TO RECOVER FROM THE PANDEMIC, DESPITE IMPROVEMENTS IN AVERAGE UNIT VOLUMES SINCE 2020.
CONTINUE READING ON PAGE 8
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OCTOBER 2024 RESTAURANT BUSINESS
THE POST-PANDEMIC FAST-FOOD BUSINESS CONTINUED...
FINANCE
PHOTO: ENVATO
Where did all the pizza sales go? If there’s one surprise from this data it’s the 18% growth by the quick-service pizza sector. You know that group, the ones that basically printed money in 2020 and 2021 when everybody was stuck at home ordering pizza deliv- ery? But that sector’s growth has been overstated. Most of it during those two years took place among four chains: Domino’s, Little Caesars, Papa Johns and Marco’s. If we add another of the five biggest pizza chains, Pizza Hut—which shed units and saw sales fall 1% between 2019 and 2021—average growth was 21% in that period. The rest of the QSR pizza sec- tor grew just 2% between 2019 and 2021. For the most part, pizza chains simply lost steam coming out of the pandemic. Average sales growth in the sector was just 3% last year.
For the most part, pizza chains simply lost steam coming out of the pandemic.
PIZZA CHAIN SALES GROWTH SINCE 2019 THE TOP SIX PIZZA CHAINS IN THE U.S. HAVE VARIED IN PERFORMANCE SINCE 2019. BUT THE ENTIRE SECTOR HAS BEEN SURPRISINGLY SLUGGISH DESPITE STRONG PANDEMIC RESULTS.
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RESTAURANT BUSINESS OCTOBER 2024
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OCTOBER 2024 RESTAURANT BUSINESS
FINANCE
F or many residents of Danville, Illinois, the Red Lobster on North Vermilion Street was the go-to spot for special occasions. If there was a birthday, anniversary or other celebration on the calendar, chances are a basket of Ched- dar Bay Biscuits and a plate of shrimp or lobster would be part of the plan. Not only was the food good and the service friendly, but the seafood specialist also had little competition in the central Illinois city of about 28,000 people. On weekends, customers could expect to wait for a table, and on holidays like Mother’s Day, it was typical for the line to stretch out the door. For more than 30 years, Red Lobster filled this unique role in Danville, a working-class community perhaps best known as the hometown of Dick Van Dyke. Then, all of a sudden, it was gone. IN A SMALL ILLINOIS CITY, RED LOBSTER LEAVES A BIG VOID THE SHUTTERED SEAFOOD RESTAURANT HAD BEEN A MAINSTAY IN DANVILLE, WHICH IS WORKING TO OVERCOME PAST ECONOMIC CHALLENGES. BY JOE GUSZKOWSKI
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RESTAURANT BUSINESS OCTOBER 2024
PHOTO BY ROLAND LIM
The restaurant was one of 93 Red Lobsters around the country to abruptly close on May 13. A week later, the chain filed for Chapter 11 bankruptcy. In the filing, CEO Jon- athan Tibus wrote that Red Lob- ster had deemed the closed stores “non-performing” because of rent costs and/or financial performance, calling the closures a “difficult deci- sion.” The bankruptcy capped years of difficulties for the 550-unit chain, a casual-dining pioneer that strug- gled to bounce back from the Great Recession and was sold by Darden Restaurants to private-equity firm Golden Gate Capital in 2014. By 2020, Bangkok-based seafood sup- plier Thai Union Group had taken the reins. One of its last moves be- fore deciding to exit its investment this year was an ill-advised all-you-
“I'm so sad for myself and all my seafood loving friends,” another said. “They were always busy so I really don't understand.” The closure doubled as a psycho- logical blow to a community that is working to reimagine itself after years of economic challenges. Located about 160 miles south of Chicago, Danville emerged as an in- dustrial hub in the late 19th and ear- ly 20th centuries, bustling with coal mining and manufacturing jobs. But by the late 20th century, many of those businesses had begun to disappear. Large employers like General Electric, Hyster and Pills- bury shuttered factories in the area, mirroring a trend happening across the Midwest at the time. The last straw came in 1995, when General Motors closed a mas- sive foundry that had been the ar-
can-eat shrimp deal that put a huge dent in Red Lobster’s profits. The chain is now hoping to revi- talize itself with a refreshed balance sheet and a new owner. But in plac- es like Danville, it leaves a void that will be difficult to fill. “They had good food, good ser- vice, and it was one of the nicer sit-down restaurants in town,” said Mayor Rickey Williams. “It’s been tough to not have that all of a sud- den.” Residents took to Facebook to lament the loss of the dining scene staple, which now sits fenced-off and empty on a busy stretch of road lined with other restaurants and re- tailers. “Always used to go to Red Lob- ster every year for my birthday,” one wrote. “Danville needs a few more nice restaurants.”
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OCTOBER 2024 RESTAURANT BUSINESS
RED LOBSTER LEAVES A BIG VOID CONTINUED...
FINANCE
ea’s main economic engine since the 1940s. The loss accelerated Danville’s population decline and created a ripple effect for other busi- nesses that depended on factory workers. Subsequent closures have further dampened local morale. “People have been down and kind of saddened lately with any closures, especially with a big busi- ness like [Red Lobster],” said Jenni- fer Bailey, a reporter for the Vermil- ion County News-Gazette who has lived in Danville for 25 years. When Red Lobster closed, Dan- ville was already reeling from news that PepsiCo planned to shut down its Quaker Oats granola bar plant in the city, erasing more than 500 high-paying union jobs in an un- comfortable echo of GM’s depar- ture. Losing Red Lobster felt like adding insult to injury, said Mike Marron, CEO of Vermilion Advan- tage, which acts as the economic development agency and chamber of commerce for Danville and the surrounding area. “It was like, ‘Re- ally? We gotta deal with this too?’” he said. But the closure has just as much to do with the state of the restau- rant industry than with anything inherent to Danville’s past or pres- ent. Older full-service brands like Red Lobster have struggled in re- cent years as consumers increas- ingly look for either convenience or an experience when dining out. Three years of historic inflation have been particularly hard on sit- down restaurants, which tend to have lower margins to begin with. Chains that haven’t responded well to those changes have seen custom- ers migrate elsewhere. Danville is in many ways a mi- crocosm of that shift. The city has enjoyed a mini boom of modern quick-service concepts and is now home to a Jersey Mike’s sandwich shop and a pair of fast-growing drive-thru coffee chains, Scooter’s
PHOTO: ROLAND LIM
and 7 Brew. A Sonic Drive-In is also reportedly on the way. “It’s a changing taste,” said long- time Danville resident Mark Fred- erickson, himself a former Red Lobster bartender in Chicago. And it is part of an ongoing ef- fort by city leaders to re-energize Danville. In February, the city un- veiled a new logo with the tagline “You decide what’s possible.” Amid the recent closures, there has been growth as well. “I can take some sense of solace in knowing that right next door to the Red Lobster restaurant that closed, we have a brand-spanking- new car wash,” Frederickson said. “But a lot of people were very woe- fully disappointed by the closing of Red Lobster.” As for the now-vacant restau- rant, Vermilion Advantage is work- ing to secure a new tenant but has not made much progress, Marron said. Large, full-service locations like that tend to be harder to fill, especially given the tough environ- ment for those concepts. “It’s just the reality of the situation we face,” he said. Residents have long hoped for an Olive Garden or a Cracker Bar- rel in town, said Bailey, who noted that whatever replaces Red Lobster
should receive a warm welcome. “You just see packed parking lots [at restaurants],” she said. “People definitely like going out to eat.” Indeed, after Danville’s food and beverage sales plummeted in 2020, they bounced back 15% the follow- ing year, outdoing 2019 spending, according to data from Vermilion Advantage. Sales increased 2% in 2022, the last year for which data was available. In Red Lobster’s absence, Wil- liams said business has picked up at other establishments, including an Applebee’s up the road. There are new, locally owned Italian and Vietnamese restaurants, and a Salt- grass Steakhouse inside the recent- ly opened Golden Nugget casino could serve as a special occasion destination. Residents also have high hopes for development at the Village Mall, where a new owner plans to add a dine-in movie theater and a sit-down restaurant. Still, those looking for their Red Lobster fix will have to travel to get it. The nearest location is in Cham- paign, a 35-minute drive west on In- terstate 74. “I think people don’t like having to go out of town for all that stuff,” Bailey said. “We want it in Dan- ville.”
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RESTAURANT BUSINESS OCTOBER 2024
FINANCE
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OCTOBER 2024 RESTAURANT BUSINESS
THE BOTTOM LINE
PHOTO: NICO HEINS
SUBWAY AND THE SHADOW OF THE $5 FOOTLONG THE BOTTOM LINE: THE MARKETING CAMPAIGN WAS ONE OF THE MOST SUCCESSFUL IN RESTAURANT INDUSTRY HISTORY. BUT THAT PROMOTION IS STUCK IN CONSUMERS’ MEMORY, MAKING ITS OFFERS MORE DIFFICULT.
BY JONATHAN MAZE
O ne of the most successful marketing campaigns in restaurant industry history was Subway’s $5 Footlong. That campaign carried the sandwich giant through the Great Recession, when consumers were cutting back dramatically on dining. The campaign was so successful that it helped speed the decline of rival Quiznos, whose franchisees could hardly afford such discounts. And it established the $5 price point as a key driver of value traf- fic to restaurants. It was too successful, in fact. Subway and its franchisees have struggled to emerge from the shadow of its $5 Foot- long promotion in the more than a decade since it last ran. Consumers remember that $5 price point when they visit the chain’s restaurants and see some subs priced at $14. They remember it whenever the company tries offering a discount on that sub. And they remember it almost any time news comes out that Subway is struggling. To wit: Last week news emerged that Subway was facing sales challenges. Invariably, people bring up the $5 Foot- long promotion that ran for years.
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RESTAURANT BUSINESS OCTOBER 2024
In some respects, this has to be a marketer’s dream: Create an idea that works so well it helps your en- tire brand thrive during one of the worst economic downturns in histo- ry and spawns a memory that lasts for well over a decade. But to Subway franchisees—and, increasingly, the brand as a whole— that promotion has been a night- mare for more than a decade. The $5 Footlong dates back to 2003. Think about that for a minute. Stuart Frankel, the Subway fran- chisee who created the promotion, used the $5 price point 21 years ago to lure customers to his location on weekends. It spread to more stores and was ultimately adopted chainwide. Sub- way used its marketing might to push the offer heavily, and the $5 Footlong jingle became ubiquitous. The offer itself became a $30 billion brand. But the company ran with it en- tirely too long. It had to shift away from it in 2012 following a run-up in food costs that made the price point untenable. Fast-food brands do need some value to get customers in the door. Subway in particular needs a lot of customer traffic, because it oper- ates 20,000 locations. That many restaurants requires a lot of custom- ers. But it struggled to find the right type of value since then. And every so often the chain would come back to some form of $5 Footlong offer. In 2018, for instance, franchisees re- volted when the chain tried a $4.99 Footlong offer. (It’s also worth noting that, as that offer was proposed, its creator Frankel said the deal had long run its course.) The company tried something similar in 2020, “$5 Footlongs when you buy 2,” a 2-for-$10 offer that franchisees vehemently opposed. Price-based promotions are risky because eventually costs make those prices obsolete. Consider the $1 menus many chains had during the heyday of the $5 Footlong. No- body has $1 menus any longer, opt-
ing to promote menus that are under $3 or something along those lines. Mc- Donald’s, for instance, has a 123 Dollar Menu, but few if anything is actually priced at $1 right now. The cost of operating a restaurant is a lot more expensive than it was 21 years ago when Frankel created the offer. In today’s dollars, in fact, that $5 Footlong should be priced at $8.67. If we just went back to 2012, the last time Subway had the deal, it should be priced at $6.94. That makes the $6.99 footlong offer the company plans more tenable. Subway is a franchise. If it were a company-run operation, the brand could theoretically run a $5 Footlong promotion of some form and tolerate lower overall margin, including losses at many locations, in exchange for traffic. (Even then it’s only advisable in extremely limited amounts.) But Subway is 100% franchised. Those franchisees generate low average unit volumes, $490,000 in 2023, according to Technomic. Most of these op- erators have one or two locations and rely on their profits for their income. What’s more, many of these franchisees have watched their system close 7,000 locations over the past eight years, the result of a brand that has strug- gled to generate sales. Part of the reason that brand is struggling to generate sales is the success of the $5 Footlong promotion. It has established Subway as the low-priced competitor. And customers haven’t forgotten that. Like every fast-food brand, Subway needs some permanent value to get customers in the door. But it would help the brand if people weren’t still stuck on a promotion that has been out of date for 12 years.
Price-based promotions are risky because eventurally costs make those prices obsolete.
PHOTO: ENVATO
ILLUSTRATION BY MIDJOURNEY/NICO HEINS
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RESTAURANT BUSINESS OCTOBER 2024
RESTAURANT CUSTOMERS
REALLY LIKE THEIR DELIVERY SERVICES AN EXCLUSIVE LOOK AT THIRD-PARTY DELIVERY SERVICES FROM INTOUCH INSIGHT SHOWS HIGH CUSTOMER SATISFACTION WITH THE SERVICE, EVEN IF IT COSTS A BIT MORE. BY JONATHAN MAZE
This story is part of a series based on The Path to Third-Party Excellence, a secret shopper study from Intouch Insight conducted exclusively for Restaurant Business and its sister publications CSP Daily News and Nation's Restaurant News. Click here to see our full report.
F ees and higher menu prices do not appear to be dissuading consumers from ordering third-party delivery, even as they visit restaurants less often overall, and here is a big reason why: They really like the service. Nine in 10 restaurant customers were satisfied with their orders from the country’s three major third-party delivery services, according to a first-of-its-kind secret shop- per study from the consulting firm Intouch Insight for Restaurant Business and its sister publications. A generally high percentage of customers were satisfied with their restaurant orders throughout the day. And, while DoorDash generally performed better than rivals Uber Eats and Grubhub, on balance consumers seemed happy with all three. The results provide some insight into the persistent growth of third-party delivery de- spite concerns about the price of such services and declines in customer traffic hitting a wide range of concepts.
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OCTOBER 2024 RESTAURANT BUSINESS
RESTAURANT CUSTOMERS REALLY LIKE THEIR DELIVERY SERVICES CONTINUED...
TECHNOLOGY
At the end of the day, the ease of ordering third-party delivery and the convenience of having some- one bring food to your home trumps concern about prices. Ninety-six percent of customers said placing orders on third-party delivery apps was easy. For the study, Intouch used shop- pers who ordered delivery from restaurants and convenience stores using one of the big three services. They did not use a paid tiered ac- count or priority delivery. They made 600 shops from April to June between 5 a.m. and 11 p.m. EST, and the orders were spread across the U.S. Each delivery ser- vice had 200 shops, 100 from a con- venience store and 100 from a lim- ited-service restaurant. Third-party delivery followed growth of businesses such as ride- share services, emerging in the years before the pandemic as a rapidly-growing source of sales for restaurant operators. That growth took off during the pandemic. Some 193 million people are ex- pected to use these services by 2029. The study examines both lim- ited-service restaurants and con- venience stores, given the growing competition between the two sec- tors. More than half of consumers consider convenience stores to be
quarter. That’s lower than it had been more recently, but it is still higher than the traffic posted by most restaurant chains over that same period. DoorDash, meanwhile, per- formed better on most metrics. It had shorter delivery times than its two rivals, for instance. It had 90% accuracy, compared with 83% for Uber Eats and 79% for Grubhub. And it had higher overall customer satisfaction, 90%, compared with 87% for Uber Eats and 79% for Grubhub. Each of those data points include both restaurants and convenience stores. Customers were particularly sat- isfied with speed of service, with 91% satisfaction on that metric, in- cluding 94% for restaurant orders. Each of the three delivery services scored more than 90% on that met- ric. Indeed, orders were more likely to arrive early, with 72% of orders showing up before the promoted delivery time. All that said, customers gener- ally don’t shift from one service to the other. More than eight in ten customers said they either typically use one app or are loyal to one app. Only 19% said they switch between platforms. ILLUSTRATION BY MIDJOURNEY/NICO HEINS
a viable option for made-to-or- der food compared with fast-food restaurants, according to Intouch. But the study’s results show that delivery at convenience stores is be- hind restaurants, at least in the view of customers. Overall satisfaction was higher at restaurants (90%) than convenience stores (80%). One huge reason: accuracy. The study found 90% accuracy among restaurant orders, but just 77% at convenience stores. Third-party delivery does cost customers. Typical fees charged by the different services were about $6 per order, from $5.67 from Grubhub to $6.38 by Uber Eats. Generally speaking, one-third of those fees went for delivery, the rest for ser- vice. Restaurants themselves marked up the menu prices. The study ex- amined the higher prices charged for main items on third-party deliv- ery apps. Chains generally tended to charge more: an extra $1.90 for the main item in the order, com- pared with $1.25 at independents. On balance, however, higher prices were commonplace. That means an order could cost an additional $8 or so, at least. That clearly isn’t dissuading customers. Total orders at DoorDash, for in- stance, were up 19% in the second
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RESTAURANT BUSINESS OCTOBER 2024
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OCTOBER 2024 RESTAURANT BUSINESS
TECHNOLOGY
PHOTO: SHUTTERSTOCK
BATCHED DELIVERY ORDERS TAKE LONGER, HURT FOOD QUALITY SECRET SHOPPERS IN A STUDY FROM
INTOUCH INSIGHT WERE FAR LESS SATISFIED WHEN THEIR MEAL ARRIVED AFTER OTHERS WERE DROPPED OFF ALONG THE WAY— A COMMON PRACTICE FOR APPS LIKE DOORDASH, UBER EATS AND GRUBHUB.
BY JOE GUSZKOWSKI
T hird-party delivery providers’ practice of bundling multiple orders in one trip slows delivery times and hurts customer satisfaction. That’s according to The Path to Third-Party Excellence, a soon-to-be-published report from researcher In- touch Insight, which used secret shoppers to place 600 delivery orders from restaurants and convenience stores across the U.S. The orders were split evenly among the three big third-party delivery apps—DoorDash, Uber Eats and Grubhub—and restaurants/c-stores. The wide-ranging study provides a unique look at order batching, a tactic that has long been used by restaurant delivery apps but is rarely discussed on earnings calls or in the press. The Intouch Insight shoppers were instructed to order from whatever establishment they wished, but they weren’t allowed to use a paid membership or pay extra for direct delivery. The results showed that 12% of orders were picked
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up and delivered by a courier who first made other drop-offs on the way. Shoppers were notified within the app when this was the case. These batched deliveries typical- ly took longer to arrive and correlat- ed with lower-quality food and a worse experience for the customer, potentially reflecting poorly on the restaurant. Per the results, the last leg of a batched delivery took more than 42 minutes to complete, on average— or more than 13 minutes longer than orders that traveled directly to the customer. That delay tended to have a neg- ative impact on the food. When a meal was part of a batch, the tem- perature was correct 77% of the time, compared to 95% of the time when the driver made no additional stops along the way. Given the prevalence of long waits and cold food, it’s perhaps no surprise that shoppers’ experience was noticeably worse when orders were batched. Overall satisfaction on those orders was 79%, 10 points less than their satisfaction with nonstop orders (89%). In theory, batching allows de- livery apps to fulfill orders more efficiently, which helps lower their costs—especially in markets with minimum hourly pay requirements for couriers. And it can be appealing to couriers because it allows them to spend more time on the road earning money. According to the Intouch Insight results, batching was fairly com- mon, though frequency differed by app. Nineteen percent of orders placed with Uber Eats were part of a batched delivery compared to 12% for DoorDash and 5% for Grubhub. A DoorDash representative said there are several factors that dictate when orders are batched, but did not go into detail. In an interview at the Skift Global Forum last year, Uber CEO Dara Khosrowshahi said the company uses artificial intelli- gence to determine when to bundle orders, according to a transcript on financial services site AlphaSense.
Our priority is to provide a great experience for the consumers, merchants and delivery partners that rely on our platform. We're constantly optimizing to bring exceptional service to users across the country."
-GRUBHUB SPOKESPERSON
It’s up to couriers to decide whether they want to accept a mul- tipart order when it is offered to them in their app. For customers, there appears to be no way to avoid it without paying extra. The add-on charges range from $1.49 for Uber Eats’ Priority delivery to $2.99 for DoorDash’s Express option. Similarly, restaurants aren’t able to opt out of being included in a batched delivery. “[Batched delivery] is not work- ing for the customer,” said Sarah Beckett, director of marketing at Intouch Insight. “But also, the oth- er element of it for the restaurant or the convenience store is, how do they protect their reputation, their brand, when some of this stuff is re- ally taken out of their control?” One solution, she said, is to in- vest in better packaging to ensure food stays fresh during trips with multiple stops. The DoorDash representative said the Intouch Insight results do not match the company’s internal data on batched orders, but de- clined to share the data because it’s proprietary. The representative added that batching is designed to get custom- ers their orders faster, especially during busy periods. Uber Eats sometimes batches orders “to help keep delivery pric- es down and improve reliability for customers, enable couriers to earn more, and prevent restaurants from
becoming too congested,” a spokes- person said. Batching can also help reduce the number of vehicles on the road, the person said. A Grubhub spokesperson said 86% of the company’s overall or- ders arrive on time, but did not pro- vide a figure for batched orders. “Our priority is to provide a great experience for the consumers, mer- chants and delivery partners that rely on our platform. We’re con- stantly optimizing to bring excep- tional service to users across the country,” the spokesperson said. The findings highlight anoth- er potential pain point in the rela- tionship between restaurants and third-party delivery providers. Though the apps have become an important revenue channel for many operators since the pandem- ic, some have complained about high delivery commissions, a lack of data on their delivery customers and a loss of control once an order leaves their store. At the same time, many have said they feel they have no choice but to use the apps because they have become a key source of sales and exposure. But the results also show that consumers are generally quite hap- py with the third-party delivery ex- perience. Shoppers’ overall satisfac- tion with restaurant delivery across all three apps was 91%, a 4-point improvement from 2022, when In- touch Insight last measured it.
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OCTOBER 2024 RESTAURANT BUSINESS
TECHNOLOGY
ILLUSTRATION BY MIDJOURNEY/NICO HEINS
W hen it comes to restaurant delivery apps these days, Americans essentially have three choices: DoorDash, Uber Eats or Grubhub. These three companies dominate the U.S. third-party delivery market, accounting for virtually 100% of sales in March, according to data from Bloomberg Second Measure. DoorDash and Uber Eats owned the bulk of that at 67% and 23%, respectively. Customers tend to stick to one of the apps rather than jump around. According to a survey by researcher Intouch Insight, 31% of consumers stay loyal to a single app, 50% usually use the same app, and 19% switch between apps. So, if a consumer (or a restaurant) is going to use just one delivery app, which one should it be? Intouch Insight conducted a secret shopper study in which consumers placed 600 delivery orders split evenly across DoorDash, Uber Eats and Grubhub.* The shoppers then rated their experience based on speed, accuracy and other variables. The results show a clear winner among the three. Read on to see which app came out on top. SPEED DoorDash was the fastest delivery provider by a wide margin. The average DoorDash delivery took 26 minutes and 24 seconds. That compared to 35 minutes and 49 seconds for WHICH RESTAURANT DELIVERY APP IS BEST? CONSUMERS WEIGH IN SECRET SHOPPERS ASSESSED DOORDASH, UBER EATS AND GRUBHUB ON SPEED, ACCURACY AND MORE. THE RESULTS SHOW A CLEAR WINNER. BY JOE GUSZKOWSKI
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Grubhub and 38 minutes and 4 sec- onds for Uber Eats. However, when looking at the apps’ promoted and estimated de- livery times, it was a different story. In both cases, Grubhub was most likely to be early and least likely to be late. Promoted delivery time refers to the arrival time that is quoted by the app before a customer places their order. Among the three apps, Grubhub most often bested its promoted de- livery time. Three-fourths of Grub- hub deliveries arrived earlier than the quoted time. That compared to 72% for Uber Eats and 69% for DoorDash. DoorDash, meanwhile, was most likely to miss its promoted time. Twenty-nine percent of DoorDash deliveries were later than quoted, compared to 27% for Uber Eats and 24% for Grubhub. Three percent of DoorDash or- ders hit the promoted time exact- ly, vs. 2% for Uber Eats and 1% for Grubhub. Estimated delivery time, mean- while, is the time that is given after a customer places their order. Here, Grubhub was also the lead- er. Grubhub deliveries arrived earli- er than estimated 63% of the time. DoorDash was early 54% of the time and Uber Eats was early 47% of the time. Uber Eats was also most likely to be late, which happened with 48% of orders. DoorDash followed at 42%, then Grubhub at 35% Five percent of Uber Eats and DoorDash orders met the estimated delivery time. Two percent of Grub- hub orders were right on time. Conclusion: DoorDash was the fastest provider overall, but Grub- hub was most likely to exceed its promoted and estimated delivery times. ACCURACY According to Intouch Insight, order accuracy is the most important fac- tor for consumers when choosing a
fast-food restaurant. But when it comes to third-par- ty delivery, order accuracy is often out of the delivery person’s control. If an item is missing or wrong, it is likely a mistake on the restaurant’s part, though theft by couriers does happen, and it’s possible for couri- ers to forget items at the restaurant. And order accuracy did differ by app. DoorDash had the highest order accuracy at 98%, followed by 88% for Uber Eats and 85% for Grubhub. There are other elements of ac- curacy that the delivery providers had more control over, such as the temperature of the food when it ar- rived. On that front, Uber Eats scored highest, with 92% of customers saying they were satisfied with the temperature of their food. That compared to 90% for DoorDash and 89% for Grubhub. There was also the matter of whether the delivery was delivered to the right location. All three apps performed well here, but DoorDash led the way at 99%, compared to 98% for Uber Eats and 95% for Grubhub. Conclusion: Accuracy is not al- ways within the delivery provider’s control, but DoorDash tended to perform best on order accuracy and drop-off location, while Uber Eats led on food temperature. FEES Price is a key consideration in any dining decision, especially these days. And when it comes to deliv- ery, fees can have a significant im- pact on the total cost. All three apps charged two sepa- rate fees: a delivery fee and a service fee. These fees varied based mainly on the distance of the trip, as well as time of day and order value. Uber Eats had the highest total average fees at $6.38. DoorDash fol- lowed at $5.85, while Grubhub had the lowest fees at $5.67. Notably, those fees have come down since Intouch Insight last
measured them. In 2022, the aver- age fee was $6.87; this year, it was $5.96. Conclusion: On average, Grub- hub’s fees were lowest. But all three apps were in the same ballpark, and there are many variables that go into determining fees. OVERALL SATISFACTION The three above factors weighed heavily into consumers’ overall sat- isfaction with each delivery provid- er. And on this metric, DoorDash came out on top, with a 96% overall satisfaction rating. Uber Eats came in at 91%, while Grubhub trailed considerably at 85%. According to Intouch Insight, food temperature and order accu- racy were the biggest determinants of a satisfied customer. When food arrived at the right temperature, the customer was 49% more satisfied than when the temp was off. And accurate deliveries led to a 93% sat- isfaction rate. DoorDash performed well in both of those areas and was also the fastest of the three apps. Overall, consumers were happier with their third-party delivery expe- rience this year than they were two years ago. In 2022, 87% reported being satisfied compared to 91% in 2024. Conclusion: DoorDash left cus- tomers feeling most satisfied by a fairly wide margin. It performed well on key metrics including food temperature, accuracy and speed. Grubhub trailed the other two apps.
*The study included 300 or- ders from restaurants and 300 orders from convenience stores. For the purposes of this story, only restaurant results were con- sidered.
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OCTOBER 2024 RESTAURANT BUSINESS
TECHNOLOGY
DELIVERY APPS ARE DIALING UP DISCOUNTS FOR PRICE-CONSCIOUS CONSUMERS
ILLUSTRATION BY MIDJOURNEY/NICO HEINS
T hird-party delivery apps are pushing discounts as custom- ers become more price-sensi- tive. A study by researcher In- touch Insight found that nearly half (49%) of delivery orders have a discount attached. That included 65% of orders on DoorDash, 55% on Uber Eats and 27% on Grubhub. The study, The Path to Third-Par- ty Excellence, used secret shoppers to place 600 delivery orders from April through June. The orders were split evenly among the three apps and between limited-service restaurants and convenience stores. The shoppers were not allowed to use a paid subscription to waive their delivery fees or get other ben- efits. But they still found plenty of savings to be had, such as free deliv- ery, a dollar amount or percentage off their order, or a free item. Those discounts are funded by the restaurants, by the apps them- selves, or via a co-funding agree- ment between the two. NEARLY HALF OF ALL ORDERS ON DOORDASH, UBER EATS AND GRUBHUB FEATURED A DISCOUNT IN A RECENT SECRET SHOPPER STUDY. FOR RESTAURANTS, THE TACTIC CAN BE A DOUBLE- EDGED SWORD. BY JOE GUSZKOWSKI
BREAKING DOWN THE DISCOUNTS FREE DELIVERY WAS THE MOST POPULAR OFFER ACROSS BOTH RESTAURANTS AND C-STORES.
The discounting on delivery apps comes amid a surge of value offers across the restaurant industry as operators try to appeal to customers who have become more careful with their spending. Food delivery, with its menu price markups, fees and tip, is precisely the type of discretionary expense consumers tend to forgo when money is tight. And yet DoorDash and Uber Eats have continued to rack up sales and trans- action growth quarter after quarter, even as many restaurants struggle with traffic declines. That has been in part due to delivery’s convenience. Consumers got ac- customed to having meals delivered during the pandemic, and many hav- en’t stopped. The apps have also vastly expanded their selection to include not only more restaurants, but also grocery stores, pharmacies and retailers. And, as the Intouch Insight study shows, consumers really like the service: 91% of shoppers who ordered delivery from a restaurant said they were satis- fied with the experience. These benefits have apparently helped delivery apps overcome concerns about cost. But a greater focus on affordability could also be playing a role. For instance, the apps have quietly reined in their delivery and service fees in recent years. Average delivery and other fees declined from $6.87 in 2022 to $5.96 this year, a change of 15%, according to Intouch Insight. Lower delivery fees have been accompanied by more discounting. On Uber Eats, the number of merchant-funded discounts rose by 70% year
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over year in the second quarter, CFO Prashanth Mahendra-Rajah said during the company’s earn- ings call last month. Uber Eats has been encouraging restaurants to use discounts, expanding the types of offers available and making them easier to set up. Its website says that discounts can help restaurants at- tract new customers, increase order volume and get larger orders. “We see very strong coopera- tion from merchants in using mer- chant-funded offers to drive their demand,” Mahendra-Rajah said, according to a transcript from finan- cial service site AlphaSense. “It is actually a very helpful way for them to address their need to attack the affordability question that folks are asking.” DoorDash said the Intouch In- sight data did not match its own data on discount frequency, but declined to share how many of its orders feature a discount. Howev- er, the company said that discount activity on its app has not increased much: In July, it was up less than 3% year over year. But, like Uber Eats, DoorDash has been promoting more discount options for restaurants. In July, it in- troduced lunch specials and happy hour discounts designed to help op- erators get more orders during slow periods. DoorDash said restaurants that used item-level discounts saw an average sales increase of 33% during happy hour and 23% during lunch. “The revenue generated during these hours helps balance our labor costs while keeping our team mem- bers engaged during typically slow times of the day,” said Clinton Gray III, co-founder and chief brand offi- cer at Nashville-based pizza chain Slim & Husky's, in a press release announcing the new discount op- tions. “It's a great strategy for com- munity-based businesses looking to find new customers that will lead to increased revenue week over week.” Intouch Insight’s shoppers found fewer discounts on Grubhub com- pared to the other two apps. A Grub-
hub spokesperson said the company is focused on keeping prices low every day, and added that if a customer finds a better price on another third-party delivery app, Grubhub will make up the difference and offer $5 off the cus- tomer’s next order. Delivery apps may also be using discounts to compete against one another for customers. According to an Intouch Insight survey this year, only 31% of delivery app customers said that they always use the same app, which means the majority of users could be swayed. “For those who switch between apps, 50% of respondents said cheaper delivery fees influenced that decision, and 39% said promotions played a role, reinforcing the role that discounts can play in influencing those con- sumer purchase behaviors,” said Sarah Beckett, senior director of marketing for Intouch Insight.
TYPES OF DELIVERY DISCOUNTS BY APP THE OFFERS CUSTOMERS RECEIVED DIFFERED DEPENDING ON THE APP.
For restaurants, discounting can be a double-edged sword. While low- priced offers can help attract new customers, those orders are typically less profitable. And they can train customers to always expect a deal. “A consumer who only responds to promotions might not be a great con- sumer,” said Meredith Sandland, CEO of delivery software provider Empow- er Delivery. “They might be one that is complex for your business to handle and might not be as profitable.” Three-unit Crisp Salads in Portland, Oregon, frequently runs discounts on the delivery apps. Delivery makes up 45% of Crisp’s business, and discounts such as buy one, get one free help it drive sales and get better placement on the apps, said founder Emma Dye. She estimated Crisp’s average delivery costs range from 25% to 35%, which includes a 20% commission plus the discounts Crisp pays for. The discounts are usually effective at boosting sales, Dye said, and the revenue they gener- ate typically exceeds the cost. But they have also become hard to quit. If Crisp were to stop doing them, “I think our revenue would drop. I think we wouldn’t be seen in the apps as much,” Dye said. “I just feel like I have to be doing that to compete.” “It is a bit of a doom loop,” said Sandland, who noted that third-party de- livery discounts encourage customers to order through those platforms rath- er than directly from the restaurant, which is typically operators’ preferred method. “It’s not good for you, but you can’t stop.”
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OCTOBER 2024 RESTAURANT BUSINESS
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