The Secret Restaurant Sales Channel That’s 20 Times Larger than Delivery
On-demand ordering makes off-premise visits a major factor in today's restaurant industry
Over the past several quarters, articles about new restaurant delivery services, venture capital investments in new restaurant delivery services, and restaurant brands signing on for pilot programs with new restaurant delivery services have dominated the restaurant technology airwaves. By contrast, very few, if any, articles have been penned about new developments in restaurant takeout during that time period. And yet, NPD CREST data shows that delivery represents less than 3 percent of restaurant visits in total and less than 5 percent of off-premise visits. The takeout sales channel is more than 20 times larger.
This mindshare imbalance may be due to the fact that restaurant investors and many journalists live in the geographic regions where new delivery services are most active: major metropolitan areas like New York City, San Francisco, and Chicago. However, restaurant operators–many with store footprints outside of these areas—must look at the broader story.
NPD CREST reports the following data for the 12-month time period ending September 2015:
Out of 61 billion restaurant industry visits: 23.8 billion were on premise visits (39 percent) and 37.2 billion were off-premise visits (61 percent). And of these off-premise visits, 35.5 billion of these off-premise visits were non-delivery (67.2 percent of overall visits, and 95.2 percent of off-premise visits) and only 1.7 billion were delivery visits (2.8 percent of overall visits and 4.8 percent of off-premise visits).
More and more customers are placing their orders off-premise and dining off-premise, whether that’s at home (30 percent), in their car (18percent), at work (4percent), or elsewhere. It is, therefore, imperative for restaurant operators to sharpen their off-premise game and make technology and operational investments to meet the needs of the off-premise oriented customer. Merely bolting on a delivery pilot is not good enough.
Instead, restaurant operators must take advantage of the on-demand service layer that has become the major technology revolution of the past decade and use digital ordering capabilities to enable customers to place takeout orders from anywhere. Those orders then generate a prepaid transaction that the restaurant kitchen can have ready just-on-time when the customer arrives to collect the order and take it home, to their car, to their workplace, or elsewhere. Furthermore, restaurant operators must rethink the in-store environment for pedestrian customer and the immediate area around the store for car-based customers to ensure an ideal optimized pickup process in which the customer does not have to wait behind other customers to collect their order. Counter pickup at a dedicated pickup counter in-store and curbside pickup are significant changes to the status quo and the difficult changes for many restaurant operators to embrace; however, they are modifications that restaurant operators must embrace to meet the needs of the on-demand consumer.
Putting a digital ordering platform in place that integrates orders into the point-of-sale system and kitchen systems while accounting for meal make-times and capacity constraints is fundamental not just for improving takeout operations; it also serves as a foundation for delivery itself. With new technologies, digital ordering serves as the jumping off point for third-party delivery enablement. Restaurants no longer have to provide their own first-party delivery to meet the needs of a guest who wants food delivered. For operations, a takeout visit and a delivery visit look exactly the same: the order arrives in the kitchen prepaid and just-on-time, and the restaurant hands off the order at the counter or at the curb. In the takeout scenario, the restaurant hands off the order to the customer. In the delivery scenario, the restaurant hands off the order to the delivery courier acting as the customer’s surrogate.
In fact, one may correctly view all off-premise visits as delivery, by thinking about takeout merely as what I call “second-party delivery” (from the restaurant’s perspective first-party is the restaurant executing the delivery, third-party is a delivery service executing the delivery, and second-party is the customer executing the delivery). Imagine that you’re sitting on your couch and placing an order on your iPhone. Say that you want to order for delivery, but all of the delivery options are either too expensive or too slow for you. You can simply select “Pickup” to be your own delivery driver by driving to the location, picking up the order, and bringing it home. And according to NPD CREST, that’s how 35.5 billion restaurant visits happen every year.