Off-premises sales heating up in restaurant industry

As forecasted, restaurants invest in off-premises business

Restaurateurs are placing more weight on off-premises sales for their businesses: takeout, delivery and catering are becoming bigger pieces of restaurants’ business as tech-savvy Gen Y and Gen Z consumers become the dominant purchasers of foodservice. Driving home this reality, the State of the Industry Report, published by the National Restaurant Association, found that nearly 40 percent of restaurant operators plan to invest more in food for consumption outside the restaurant. An even greater share—45 percent– of dining establishments in the coffee & snack category plan to invest the most in this off-premises opportunity.

Nearly 70 percent of sales in quick-service, coffee and snack businesses is derived from off-premises sales, according to NPD Crest data cited in the State of the Industry report. For some of the most prominent restaurant chains, takeout and delivery have become the new battleground.

Multi-unit operators size up off-premises opportunity

For Dine Brands Global, the franchisor of Applebee’s and IHOP, for example, off-premises has been a focal point of the restaurant company’s growth strategy. On a Q1 2019 earnings call, Dine Brands indicated that within its brands, 13 percent of sales were now off-premises.The chain’s executives plan to build to over 20-percent share in just two to three years.

With this goal, and a longer-term goal of a 30- to 40-percent mix of sales, Dine Brands executives are bullish on the potential of restaurant off-premises sales. For its near-term goal, management expects the off-premises mix would need to grow by about two percentage-points each year for the next few years,. This certainly not a significant challenge.

Dine Brands partners with DoorDash and other service providers to grow the off-premises business. As restaurant chains look to expand in this direction, they are turning to technology and third-party delivery service providers. Grubhub, Uber Eats and DoorDash have risen as top choices for order-taking and fulfillment.

Off-premises milestones

Within the business of third-party delivery providers, competition is heating up. In February, an Edison Trends report suggested DoorDash had overtaken Grubhub in market share of total food delivery orders from restaurants. DoorDash edged its top competitor 28 percent to 27 and has not looked back. In January, DoorDash said it had expanded delivery to all 50 states. What’s more, this year, DoorDash is testing autonomous vehicle delivery, in addition to grocery delivery.

Olo, a digital-ordering platform provider, received an $18M investment from Tiger Global Management to continue expanding its services to restaurants. Olo powers integration of online ordering with restaurant-based systems, including point-of-sale systems. In March, ezcater acquired Monkey Group catering software. ezcater is a business marketplace for ordering catering. The move will further enhance its capabilities in helping restaurants and caterers grow sales for business catering.

Voice technology is yet another feature that will facilitate online ordering and further expand off-premises sales . Expect more intuitive search through the use of voice-assisted technology in online ordering sites for restaurants, restaurant websites and digital assistants. It’s not surprising that a number of chains are now investing in voice-ordering technology. According to Restaurant Business Online. these include Domino’s, Panera Bread, Pizza Hut, and Starbucks.

Voice tech will continue to grow. Orderscape is one company that is working with digital ordering providers and restaurants to facilitate more intuitive search for consumers. McDonald’s is pushing into conversational ordering with its agreement to acquire Apprente. The technology company designed an AI for multilingual, multi-accent and multi-item ordering. The deal will create McTech Labs and further expand investment in consumer-facing technology. Apprente’s technology will power ordering at drive-thrus, and potentially mobile and kiosk ordering, as well.

Fast-casual moves

Fast casual is another restaurant segment that plans to expand off-premises sales with 39 percent of those operators planning to invest more in this category. Bakery-cafe operator Panera Bread invested heavily in its digital-ordering program, starting in 2014. By 2017, it had surpassed $1B in sales from online ordering, which accounted for 26 percent of total restaurant sales. Clearly, most of these orders would be to-go. Panera’s robust digital sales business was a reason it was acquired by JAB Holdings in 2017, the chain has said.

Related video: Panera expands delivery

Restaurants have been reconfiguring existing space. Additionally, they’ve been changing the way they design new space to accommodate the reality of delivery and takeout business. There’s a new cadre of fast-casual restaurants that are run by chefs, yet built for greater share of off-premises sales. These have have been labeled “polished fast casual,” or fast casual 3.0. Despite having elevated cuisine, beer, wine and liquor, there is a new reality. Fast-casual 3.0 restaurants understand that the majority of their sales could come from restaurant off-premises business.

Innovation, partnerships are keys to growth

Chipotle, which ushered in the first generation of fast-casual restaurant chains, recently completed its installation of takeout/delivery shelves. Drivers will go directly to the cubby shelves when they arrive at the restaurants to pick up orders, bypassing cashiers.

Nearly every week, fast-casual brands are announcing partnerships with third party delivery providers. Panera Bread was late jumping into third party delivery services. According to CNBC, the bakery-cafe chain will use Grubhub, Uber Eats and DoorDash to fulfill orders but use its own employees for delivery. For Panera, delivery accounts for about 7 percent of sales.