One of the biggest trends in restaurants today is the explosive growth in off-premise sales. According to Industry Trends and Data Expert, Darren Tristano:
“Everyone knows it’s no longer a question of whether to go off-premise — the question for restaurants is how to navigate the shift,” says Dardick. “With the global foodservice industry facing unprecedented change, the entire off-premise operating model is shifting under our feet. Restaurant and foodservice operators need to understand sizing and growth trends. Right now the opportunities are huge, and the stakes are high.”
The franchising community, which is slower to change at times, is looking to serve customers who are looking for more convenience. While not supplanting the drive-through, for many brands off-premise is the growth driver. In fact, some find the growth so fast, that they are struggling to keep up with demand. According to Restaurant Business Online:
“Tools such as DoorDash, UberEats, Caviar, Amazon and Yelp’s Eat24 allow visitors to review menus from a variety of restaurants, place an order and schedule delivery. Restaurants using these services enjoy a bump in orders that they can often absorb, and the apps expose them to potential new customers. The delivery services charge a commission on orders and a fee for delivery.”
While this can create many questions in a franchisors’ mind from consistent brand experience across markets to the potential for royalty avoidance, the opportunity for off-premise is vast.
Off-premise dining is most popular among 18-34-year olds. This is a combination of iGen, at the younger side of the spectrum and millenials at the older end. According to QSR Magazine:
“Millennial families are now commonly dual-income—often with the female as the primary breadwinner—and convenience is more important than ever. But millennials also value diversity, healthy choices, and denser urban living. There has been a significant increase in interracial couples, an increase in multi-racial neighborhoods, and an increase in the consumption of ethnic food (aka international cuisine). Organic food sales have grown more than 10x in a generation, with millennials being the most likely age group to seek out organic foods.
“And it is difficult, if not impossible, to build a new drive thru in a dense urban environment. As millennials come of age, convenience is redefined for the preferences and tastes of a new generation. The ultimate convenience—delivery—brings more options, healthier choices, and speed even in places where drive thrus cannot go.”
These digital natives value ordering online, and are all about experiences over possessions. Interestingly, the convenience of delivery helps these customers experience what is most important to them: family and friends according to QSR.
“After a long day at work with toddlers demanding attention, the ideas of going out or cooking are not that appealing. Having food show up as ordered through the same interface one uses to get toothpaste is. More, if these 20-somethings are in the middle of an experience with their friends or kids, they aren’t going to stop that experience to go get food. They want the food to come to them.”
Let’s explore how major franchisors and franchise aggregators are navigating this change.
Overview: In a very bold move into off-premise, Yum! brands including KFC and Pizza Hut has entered into a partnership with leading delivery service, GrubHub offering up the “best of both worlds”. In exchange, Yum! gets $200M worth of Common stock from GrubHub, among other benefits. Many Yum! brand restaurants were already offering off-premise sales, and Yum! wants to roll it out across the the system. In the joint press release posted on GrubHub, they say:
“We are committed to making our iconic brands easier to access through online ordering for pickup and delivery, and aggressively pursuing delivery as a strategic global growth opportunity, with nearly half of our 45,000 restaurants already offering it today,” said Greg Creed, Chief Executive Officer, Yum! Brands, Inc.
“We’re pleased to secure this partnership with Grubhub in order to drive incremental, profitable growth for our U.S. franchisees over the long term. Our partnership and strategic investment in Grubhub demonstrate our laser-like focus on two of our growth drivers: Distinctive, Relevant & Easy Brands and Unmatched Franchise Operating Capability.”
As part of the strategy, operators will have to make other changes, such as changing the batter that they fry with so it handles the humidity developed through car travel. CEO of GrubHub, Stan Chia says that the service was originally developed for independent restaurant locations.
In a recent article in Food in Demand News, he said:
“Chains that have multiple restaurants in close proximity can send the order to the restaurant that can accommodate it the quickest. “If you have three restaurants close to each other, does it really matter which store it goes to?” he asked. (With a franchise that could be a little more tricky than independents, since the same owner may not have all three restaurants.)”
All of these will be challenges to overcome over time.
Message Delivered: Rather than building, buying the service on a corporate level helps maintain brand consistency rather than franchisees “going rogue” and working with local providers.
Overview: Soups and sandwiches are going mobile… According to Restaurant Business Online,
“Panera Bread recently announced a commitment to adding more than 10,000 jobs, many of them for delivery drivers, as it expands delivery to 35-40% of its locations by the end of 2017, up from 15% of stores. The company is rolling out a new order tracking system that allows customers to track an order’s progress on a map and get a notification when the driver is arriving. The company decided to hire in-house drivers to maintain control.
The company believed keeping the delivery service internal was key to their delivery success.
“For us, hiring our own drivers was the only way we could ensure that our delivery guests get the same high-quality experience they have come to expect from our bakery cafés,” says Blaine Hurst, president.”
Message Delivered: As delivery becomes a bigger part of the brand experience, the delivery person becomes the only human touchpoint. Panera is betting big that this will make a difference.
Overview: Restaurant brands dream of one day being as iconic as Denny’s. But sometimes, creating change in the franchise environment is slower than that of corporate – and that is true for Denny’s when it comes to off-premise sales. According to Restaurant News:
“Denny’s CEO John Miller said company units fared better due to multiple partnerships with third-party delivery providers, which are driving incremental sales during late-night hours and among 18- to 34-year-olds… For the first quarter ended March 28, the Spartanburg, S.C.-based family-dining chain reported a 1.5-percent uptick in U.S. systemwide same-store sales. Results were dragged down by a 1.2-percent increase in same-store sales at franchised restaurants in the U.S. By comparison, same-store sales increased 3.2 percent at company locations.
“We think this is a tailwind for the brand,” Miller said during a Tuesday conference call with investors.”
Off-premise sales are a driver of growth, as the amount of in-restaurant diners diminishes.
“In March, off-premise sales accounted for 9.8 percent of total sales, an increase from 8.7 percent in December. Delivery sales drove the increase… Miller said franchised units, which represent a majority of Denny’s locations, are slower to adapt to delivery.”
Message Delivered: Being open to delivery partnerships, rather than closed, can help franchisees capture the 18-34-year-old market. While change typically happens at a slower rate in the franchising, watching and adapting to this change is important for growth perception. With its longstanding roots in the communities that they serve, surely Denny’s franchisees will continue to adapt and succeed.
What is the Future of Off-Premise?
The demand and technology driving delivery have also sparked growth in operations called “ghost” kitchens that skip the brick-and-mortar dining room altogether and simply prepare foods for delivery. Models similar to this have been proposed to supplement franchise operations where demand outstrips supply during specific day-parts. “Ghost kitchens” could also offer future franchisor opportunities to the next generation of entrepreneurs.
How FranchiseBlast Can Help
If you are exploring off-premise opportunities for your franchise, be sure that your customers get the same experience across locations with our brand consistency tools. Also – although we don’t want to focus too much on the negative, our tools also help prevent franchise fraud, which can take place among a small minority when any change takes place. Reach out to us to learn more.