Fast-Food Chains, Upscale Restaurants Want to Bring You Lunch

By Julie Jargon Features Dow Jones Newswires

Restaurants are no longer treating lunchtime delivery as an afterthought.

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With online-ordering apps proliferating and many customers cutting down on eating out for lunch, the industry -- from fast-food chains to upscale restaurateurs -- is looking for ways to bring food to patrons without compromising their eating experience.

Wendy's Co. recently signed up with delivery service DoorDash Inc. to offer delivery in parts of Ohio and Texas, with plans to expand nationally within the year. "We fundamentally believe food at home is our number one competitor," Wendy's Chief Concept and Marketing Officer Kurt Kane said in a recent interview.

Rival McDonald's Corp. is now offering delivery in more than 2,000 U.S. restaurants using Uber Technologies Inc. "Restaurant delivery is a $100 billion dollar market, and it's exploding," Lucy Brady, McDonald's senior vice president of corporate strategy and business development, told investors in March.

But enticing customers to order in at lunch, which has been a tough spot for burger chains in particular, remains difficult. McDonald's Chief Executive Steve Easterbrook told investors on Wednesday that 60% of the chain's delivery orders come in the evening and late at night.

Getting burger delivery right -- keeping the patty warm and juicy, while preventing toppings from getting the bun soggy -- is notoriously tricky.

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DoorDash said its drivers keep packaged food warm by wrapping it in "space blankets" -- thin plastic metallic sheets originally developed by NASA to provide thermal control for spacecraft -- before placing them in insulated bags to ensure it arrives hot.

To keep McDonald's food as fresh as possible, Uber waits to notify the local restaurant of the order it receives on its UberEats app until the driver is three minutes away, an Uber spokeswoman said. Because french fries don't stay hot and fresh for long, they are the last item the restaurant makes and places in the bag for delivery orders. Since McDonald's is so ubiquitous -- 75% of the U.S. population lives within 3 miles of a McDonald's -- Uber drivers don't have to place the food in any special containers.

Even upscale restaurants are joining the delivery bandwagon. Some are so confident they are even eschewing tables and chairs.

Oyster Bah in Chicago recently opened Seaside's, a delivery and carry-out-only restaurant that operates out of Oyster Bah's kitchen so that it can expand sales without any additional rental cost. It only serves food that is designed to travel well, such as fried chicken, ribs and grilled lobster, as opposed to Oyster Bah's chilled fish and shrimp and raw oysters.

In New York, Ando, from Momofuku founder David Chang, was created to be a delivery-only restaurant.

Delivery only accounts for 3% of restaurant purchases nationwide, but it is growing fast. Non-pizza delivery purchases have risen by 30% in the past four years, according to market-research firm NPD Group Inc.

GrubHub Inc., one of many apps that have helped improve the online-ordering and payment process, said it has more than 10,000 delivery drivers, from just a few hundred less than two years ago. Its number of active diners, which it defines as those who have placed at least one order in the past 12 months, grew 26% to 8.75 million in the first quarter from a year earlier.

The exponential growth of delivery comes with a new set of challenges. Some restaurants are struggling to figure out how to properly staff their kitchens to handle both in-store demand and delivery orders.

Chipotle Mexican Grill Inc. has added a second food-assembly line to nearly all its locations just to handle "off premise" orders.

Working with third-party delivery services is an expensive proposition, because many of them charge restaurants a hefty fee -- usually a share of order sales ranging from 17% to 30% -- to participate and the restaurants lose out on high-margin sales like alcohol and soft drinks that people tend to order when they are eating on the premises.

It is also expensive for customers, who are already curtailing restaurant visits, especially during lunch, as labor costs have resulted in higher tabs. The fee that delivery services charge customers often exceeds the cost of the meal at fast-food restaurants. "We still haven't figured out how to get people delivery in an affordable, fast fashion," Taco Bell Corp. Chief Executive Brian Niccol told investors last week.

For example, a beef taco, burrito supreme and large fountain drink at a Taco Bell in the Los Angeles area costs $6.39, but with delivery and service fees added on, as well as a 10% tip for the driver, the order totals $15.18, with an estimated delivery time of 33 to 43 minutes.

Some, like Panera Bread Co., are running their own delivery operation. The fast-casual chain employs its own drivers and recently announced plans to add 10,000 more this year, on top of the roughly 4,000 it has now. Panera is rolling out a feature on its own app that will allow customers to track the location of their delivery driver, learn the expected arrival time and see a photo of the driver, much like the app for ride-share services like Uber.

Some restaurant executives say delivery goes against the very purpose of operating a restaurant. "We are selling hospitality as much as food," said Texas Roadhouse Inc. President Scott Colosi. "We are not in the delivery game."

Yet he concedes that delivery is the future: "As driverless cars and drones become the norm I think we'll all be emailing Amazon and getting a drone delivering a sandwich."

Write to Julie Jargon at julie.jargon@wsj.com

(END) Dow Jones Newswires

June 01, 2017 11:15 ET (15:15 GMT)