As restaurants and consumers slowly emerge from a devastating lockdown of the economy, how restaurants serve guests — and how guests demand to be served — will be key areas of focus during the post-pandemic recovery.
Business models have been upended with a pivot to off-premise services. Reinvention on the fly has been the theme with some chains creating makeshift drive-thrus, developing in-house delivery, adding contactless curbside pickup and walk-up windows.
The changes have been especially brutal on casual- and fine-dining restaurants that are accustomed to face-to-face hospitality. Reopening dining rooms, currently underway in various states across the U.S., will require dozens of operational tweaks to meet government mandates for social distancing.
While there are many unknowns, operators know one thing: seating capacity will be limited for months, which means off-premise ordering will remain a crucial revenue channel. Taking cues from China’s recovery, industry watchers say cautious consumers will expect frictionless and contactless services until a vaccine emerges.
“Restaurants that offer the most reassurance will win when they reopen,” said IHOP President Jay Johns during the Glendale, Calif.-based brand’s latest earnings call.
Market research shows that brands offering drive-thru and contactless pick-up will have an advantage as stay-at-home orders are lifted across the country. Chains pushing contactless ordering include Pizza Hut, Taco Bell, Shake Shack, Habit Burger Grill, Taziki’s Mediterranean Café, Panera Bread and Starbucks.
According to a survey released May 1 by AlixPartners, 43% of consumers said drive-thru is the most preferred method for ordering restaurant food during the pandemic. Takeout and curbside pickup is preferred by 33%. Third-party delivery was the least popular, as most say they’d rather order directly from a chain.
Adam Werner, global co-head of the restaurants, hospitality and leisure practice at AlixPartners, said grab-and-go offers have been a key differentiator for restaurants.
But during the COVID-19 crisis, offering takeout and curbside went from evolutionary to a must-have option.
“It’s a means to survive,” he said.
Consumers take control
Taco Bell CEO Mark King said consumers have learned to control their ordering experience during shelter-at-home orders.
And that appetite for seamless, convenient and contactless ordering will only grow as the economy reopens. Restaurants like Taco Bell are adapting quickly.
“This crisis is really accelerating the future,” King said. “We will move much faster now. And we will be able to move faster because that is what the consumer is demanding.”
The pandemic has forced restaurants to become entrepreneurial by creating makeshift drive-thru lanes and adding curbside pick-up and walkup windows.
Take Starbucks. Early on when the pandemic started, the iconic brand closed its stores to carryout services because it was too hard to maintain social distancing for to-go orders.
As it reopens coffee shops, Starbucks is adapting to a new normal of social distancing.
By mid-May, 85% of company stores in the U.S. are expected to be reopened with modified hours and new procedures to control crowds.
One new off-premise service: entryway handoff.
The solution, much like a walk-up window at quick-service restaurant, allows customers to pick up their java without entering a store.
CEO Kevin Johnson said the brand’s proprietary app will do most of the heavy lifting in the recovery phase, as it will become the main channel for contactless ordering.
“Nearly 20 million customers are using the Starbucks app as part of their daily routines and as those routines evolve, we’ll be finding ways to tailor the app to customers’ individual needs,” Johnson said in a May 4 letter.
Habit Burger, Pizza Hut, Shake Shack, Taco Bell and Taziki’s are also betting big on curbside pickup.
Taco Bell, for example, began a small test of curbside pickup in late April.
King said sister brands in China advised Yum Brands that consumers, first and foremost, want to know your brand is safe. Contactless ordering and curbside pickup check that safety bucket.
“People want it easy and they want it fast,” King said. “I think [curbside] will become one of the bigger channels of getting the food to the customers, which is really great for us because we have been moving towards that in the last few months.”
Like Starbucks, Shake Shack closed its stores to carryout service in early May, and launched curbside pickup and makeshift drive-thru lanes to fulfill off premise orders. Those tweaks will remain when stores reopen, CEO Randy Garutti said in early May.
Some existing restaurants will be retrofitted to include drive-thru lanes and walk-up windows for mobile orders. Those off-premise focused locations are being called “Shack Track” experience restaurants.
Garutti said the company is investing in restaurant retrofits to take the long view on how the pandemic has changed behaviors.
“Diners and guests are looking around, and saying, ‘I want to eat out. But when I do, I need to trust that brand,’” Garutti said.
The rebirth of the drive-thru
During the latest round of quarterly earnings, which reflect the onset of mandated dine-in closures, many limited-service chains have noted that their drive-thru lanes have been a silver lining.
While delivery sales grew for most brands, many chains said consumers preferred carryout and drive-thru services, as reflected by the AlixPartners data.
Prior to COVID-19, drive-thru at McDonald’s accounted for about two-thirds of all sales in the U.S. Drive-thru now accounts for nearly 90% of sales in the U.S., the company said during its latest earnings call.
“The world is going to look different coming out of this crisis. Many of those changes will be enduring,” McDonald’s Corp. CEO Chris Kempczinski said.
While McDonald’s has reduced the number of Experience of the Future remodels during the crisis, the company said it won’t slow the pace of innovation like investments in AI-powered Dynamic Shield. The digital menu boards automate upselling of menu items, which has paid off in recent weeks.
“These digital investments enable us to give customers more choice and flexibility in how they order, pay and receive their food during this unprecedented time, and will remain important in serving customers as we think about our business beyond this crisis,” Kempczinski said.
Costa Mesa, Calif.-based El Pollo Loco said prior to the pandemic 45% of the chain’s sales came from the drive-thru. Now it’s well over 70%, said CEO Bernard Acoca.
Interest in the company’s digital channels is also swelling.
The company set a goal of having 13% of sales driven from its loyalty program by the end of 2020. With customers turning to contactless ordering through the brand’s established app, Acoca said they’ve already nearly met that goal during the pandemic.
“Quite honestly any silver lining in any of this is that [the impact of COVID-19 has] quite frankly accelerated the [digital] channels and the work that we were doing to continue to make progress in those channels,” Acoca said.
El Pollo Loco also plans to make more investments at the drive-thru, an ordering channel many QSR brands had ignored for years as they focused on third-party delivery.
Drive-thru systems are also paying off for fast-casual brands like the Habit Burger Grill and Chipotle Mexican Grill.
While delivery continues to be the fastest-growing part of Chipotle’s digital platform, the Newport Beach, Calif.-based chain said its average daily sales for “order ahead” has doubled during the pandemic.
The company’s 85 Chipotlanes, drive-thru pick up lanes for mobile orders, have also been performing well during the health crisis.
“This is part of the reason that we continue to shift our development pipeline more aggressively towards Chipotlanes, as it helps drive our high-margin digital order-ahead transaction,” Jack Hartung, Chipotle’s chief financial officer, said.
Tim Powell, managing principal at industry consultancy Foodservice IP in Chicago, said COVID-19 is rejuvenating interest in drive-thru and takeout windows, especially among fast-casual brands.
But “calculating the return on investment is important” as it could lead to cannibalization of dine-in once the economy reopens, he added.
Habit Burger Grill CEO Russ Bendel said the company’s 53 drive-thrus are helping sales during the pandemic. But the 270-unit chain, which was acquired by Yum Brands in mid-March, needed more options.
The Irvine, Calif.-based fast-casual burger brand began testing pop-up drive-thru lanes at 39 restaurants and curbside pickup at a dozen locations.
Both involve ordering food through the brand’s digital channels or through an employee working at a “makeshift” drive-thru set up in a parking lot.
“We're making a lot of adjustments each and every day,” Bendel said.
The pop-ups won’t likely stick around in a post-COVID-19 environment, but Bendel believes contactless curbside pickup is here to stay.
It’s been a “game changer” for the chain, which plans to increase curbside pickup system wide.
“It's hard to measure their sales, but the feedback that we're getting from our customers is amazing because it makes it safe. Basically, zero contact,” Bendel said.
Delivery, finally, on our terms
Prior to the COVID-19 pandemic, restaurant chains marked 2018 and 2019 with widespread adoption of delivery — hoping that instant scaling of third-party delivery would lead to incremental sales amid flagging restaurant visits.
Smaller brands played defense in the early days, unable to negotiate favorable terms, especially when it came to commission fees and sharing consumer data.
But with COVID-19, brands are seeing third-party delivery companies willing to negotiate during the crisis. Brands like Grubhub, Uber Eats, Postmates and DoorDash are also feeling the heat from local politicians and advocacy groups, who are pressuring them to lower commission fees to give the industry a fighting chance during the pandemic.
Dan Simpson, Taziki’s CEO, has experienced the 180-degree flip of third-party players during the crisis.
Before the health scare, Simpson spent a year beta testing two types of delivery programs: do it yourself, or third-party.
He concluded in January that both proved valuable depending on the scenario. In-house delivery worked best in markets where Taziki’s had three or more restaurants and a reliable labor pool.
But in markets where Taziki’s didn’t have as much brand recognition, outsourcing delivery was the better option.
The company went with Waitr because the third-party delivery company offered the best terms: shared data and lower commission fees. Waitr also allowed them to offer premium pricing, a tactic restaurants use to offset hefty commission fees.
But in the past, Simpson said the big delivery players wouldn’t allow Taziki’s to mark up their delivery menu.
It was a deal breaker until COVID-19 hit.
Simpson said when he decided to add more third-party delivery operators to his roster, he suddenly found the large players more amicable about premium pricing.
“They responded with flexibility,” he said.
During and after the crisis, Taziki’s restaurants are offer multiple channels of delivery, including in-house delivery. That has kept employees working and sales somewhat stable during the crisis.
But Simpson said the real surprise has been the emergence of curbside pickup.
Before the pandemic, the chain was dabbling with the idea of curbside. Now, it’s driving a large chunk of the brand’s revenue.
Overall, Taziki’s has seen mobile ordering jump 70%.
“It's been exciting to see how the whole world has adopted technology as part of the way to get through [the crisis], whether it's a Zoom call or using mobile ordering for the first time,” Simpson said.
As restaurants head into a long-term phased-in recovery, is contactless ordering here to stay or just a passing fad until things go back to normal?
“That's a big crystal ball question,” Simpson said. “The same guests are out there. It's just about meeting them where they are and adjusting our business models to where [if] that means more curbside or more delivery, we can do that.”
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