On the heels of a new delivery test program from Burger King and teasing hypotheticals from McDonald’s, the idea of delivery in US fast food has become a hot topic. The market is home to vast demand in other categories and the worlds’ largest fast food category, but the two pools of demand have yet to intersect on any kind of grand scale.
Last week we took a look at why fast food delivery has been so successful in key markets in Asia Pacific, Latin America and the Middle East; now, we’ll take a look at why fast food delivery could be a worthy experiment in the US—and at what cost.
Burgers on demand?
American consumers are well familiar with easily accessible fast food, but delivery remains one channel that is still firmly the prerogative of pizza players, a few fast-casual pioneers and various independents. Still, demand for delivery is growing, and what was once a very fragmented market is beginning to consolidate.
Online delivery and takeaway hubs are expanding rapidly to new US cities, and leaders GrubHub and Seamless recently announced a merger that would bring their combined services to 500 US cities and 20,000 independent restaurant outlets. With such developments have come rising competition for chained outlets specializing in takeaway services, as the broader reach and ease-of-use gained by independents has started to level the playing field. Similarly, fast food outlets are still facing rising competition from one another as leaders fight to keep the attention of post-recession consumers and battle the ever-growing threat of the fast-casual revolution.
In the face of these challenges, delivery seems to make sense—just like new dayparts, new beverage innovation and premium menu items, it’s a path to comparable-store sales growth and a way to reach a wider potential consumer base. But it also comes with considerable risks, including higher operational costs, the need for additional employees and the potential to cannibalise sales through existing channels.
Beyond these, the reasons for why fast food delivery hasn’t caught on as well in the US as in other markets are twofold: pricing—and the discordant pairing of a low-priced category with an indulgent, premium service—and necessity, or more specifically a lack thereof. On the cost side, operators need to find a way to offer delivery service in a way that remains profitable to the operator and attractive to the consumer, especially in a category whose consumer base is highly price-sensitive. In terms of necessity, US consumers already have a hassle-free way to obtain fast food through the drive-through window, and delivery might not add enough incremental revenue to justify its additional costs.
Despite already being nearly synonymous with US fast food culture, drive-through demand is only gaining momentum. McDonald’s’ latest outlet designs call for double-laned drive-throughs with more efficient ordering systems and higher capacity, and even experience-based brands like Starbucks are making drive-throughs a priority. The specialist coffee shop has been steadily adding the service to US outlets and recently pledged that 60% of domestic outlets opened over 2013-2018 will have drive-through lanes.
And then there’s pizza
With all of that in mind, the massive demand for delivery pizza in the US proves that consumers are still willing to shell out for delivery costs, even when such a meal is just a short car ride away. But what is it about pizza that makes it uniquely conducive to delivery service? The answer is surprisingly simple.
Americans love to order pizza both because they can, and because the meal feels special enough to warrant a few extra dollars in delivery fees. The service is widely available, both in urban and rural locations, and the participation of large chained players has helped keep delivery costs low. On top of this, pizza has become a ritualized part of the local dining culture, as traditionally American as grilling burgers in the summer or cooking Turkey on Thanksgiving. This context is now a major driving force of the appeal—pizza is delivery, and the indulgent nature of an all-you-can-eat meal delivered directly to your door adds enough value to counteract the added cost.
This reasoning highlights both the opportunities and risks presented by the idea of fast food delivery. While American consumers are clearly open to the idea of having their food come to them even at additional cost, operators will have to work hard to build the idea of “fast food delivery” into the dining culture. Americans order pizza for delivery because it’s what they’ve always done, and they may refrain from doing so with fast food for the same reason. On the other hand, if fast food operators can find a way to make fast food delivery a worthy event, perhaps through shareable meals or bundled items meant for families, they may find similar success.
This undoubtedly sounds like a tall order, but many smaller chains have already found ways to grow delivery business in an unlikely category. Panera Bread Company, for example, has been successful in targeting catering demand despite its core role as a fast-casual lunch player. The company has prioritized its catering business as a major future growth area, and it has seen over 20% annual growth in the segment’s revenues in each of the last three fiscal years. In 2012, catering sales accounted for 8% of the company’s total, but management believes they have still merely scratched the surface of potential demand.
To address the pricing issue, Panera markets its delivery service specifically to large groups like corporate meetings, community gatherings, etc, and the program’s average check during the first quarter of 2013 was US$130. To keep the service profitable, Panera requires a US$50 minimum and charges a relatively steep US$15 catering fee, which nonetheless has yet to deter customers. This is due in part to the company adding value to their delivery experience by making it about a communal dining experience rather than just a meal. Panera’s catering menu is structured differently than those in its café bakeries, emphasizing shareable platters and pastry spreads, and items are packaged in order to be as conducive as possible to serving large groups with varying preferences.
At the other end of the price spectrum is Jimmy John’s, which has been able to find success in bakery products fast food by making simple food and speedy delivery central to their brand positioning. The brand’s delivery minimum is just US$3.99 (the price of a single sandwich), and orders are delivered “freaky fast” via bicycle riding employees. This positioning skips the usual “indulgent event” positioning and makes delivery about simple utilitarian efficiency, a strategy that appears to be paying off. According to Euromonitor International data, the brand achieved a value CAGR of 22% over 2006-2011, making it one of the fastest growing brands in US fast food.
Hurry up and wait
As evidenced by all of these success stories, the key to delivery success in the US is not through simple participation, but rather through adding enough value to justify the added cost of an indulgent service. This can be achieved through making meals feel special enough to justify delivery costs, like pizza operators or Panera have done so well, or on the opposite side, through making the service as lean and efficient as possible to address an extreme convenience that’s a novelty in itself. Either of these strategies could result in major opportunities for the right brand, but none of the fast food leaders have yet made a case for how, or when, they plan to pursue them. And with the breadth of options already available to US consumers, through independents offering delivery and the existing convenience of fast food through drive-throughs, there’s simply no room for large-scale success in between.