Restaurants Race To Deliver: Will Off-Premise Channels Help?

In order to capitalize on rising demand for their products, quite a few restaurant operators are focusing on growing their off-premise, online-ordering business via delivery, carry-out, and catering.

Particularly, restaurant operators are concentrating on the delivery channel, which is a growing area for the industry, driven by ease of access. By driving incremental sales at the companies, delivery services might turn out to be a strong revenue growth driver in the long term, given huge demand for the same.

Meanwhile, many restaurants are seeing an increase in their take-out business as customers are more willing to relax at home while enjoying their meal. Notably, both take-out and delivery increase a restaurant’s business without significantly raising its operational expenses or demanding an expansion of facility.

Red Robin Gourmet Burgers & Brew, Inc. (NASDAQ:RRGB) is one such company that is moving smartly on new revenue streams. Going forward, the company expects the off-premise orders to become a growth engine in the latter half of the year as it begins to actively promote the new offerings, reach out to more guests, thus driving improved profitability.

In sync with this, the company plans to expand its service to 198 locations from 118, with its current three third-party service providers like Amazon (NASDAQ:AMZN), DoorDash and GrubHub. By fourth-quarter 2017, Red Robin expects to put all corporate restaurants on the call center and have designated in-store pickup areas. In addition, the company anticipates roughly two-thirds of its units to have curbside delivery.

Red Robin currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

McDonald’s Corporation (NYSE:MCD) is also planning to provide augmented convenience to customers through increased focus on delivery. In fact, this Zacks Rank #3 company’s delivery service has now expanded to almost 8,000 restaurants across 47 countries. In this regard, McDonald's is also experimenting with different delivery models including partnering with third-party operators, like UberEATS.

Another restaurant operator, YUM! Brands, Inc. (NYSE:YUM) , has deployed an off-premise strategy at all three of its iconic brands. Evidently, Pizza Hut has developed a delivery network algorithm (DNA), which is a multi-faceted technology system that improves the accuracy and reliability of deliveries.

YUM! Brands’ KFC division is also aggressively pursuing its global delivery initiative as a strategic growth opportunity. Currently, the division offers delivery out of over 6,000 restaurants and given the fact that it is the fastest growing channel in the business, the brand anticipates expanding its services around the world.

The Taco Bell division follows the same strategy as well. In fact, nearly 20,000 restaurants across the entire Yum! Brands system offer delivery, which is almost 50% of the company’s total restaurants. YUM! Brands carries a Zacks Rank of 3.

Taking things one step further, BJ’s Restaurants, Inc. (NASDAQ:BJRI) has launched a pilot alcohol delivery program in partnership with DoorDash. Markedly, this initiative is in addition to the door-to-door delivery service that was launched earlier as an effort to boost off-premise sales.

Meanwhile, Darden Restaurants Inc.’s (NYSE:DRI) Olive Garden division and Brinker International, Inc.’s (NYSE:EAT) Chili’s segment are concentrating on their To-Go business. While Olive Garden’s To-Go business increased 16% year over year in the last reported quarter, Chili’s has partnered with Olo – a mobile and online food ordering service – for its To-Go platform. Chili’s has also launched a digital curbside platform to ensure simpler, faster, effortless experience to take-out guests, which should ultimately translate to higher check. Both these companies carry a Zacks Rank #3.

Further, Darden and Jack in the Box, Inc.’s (NASDAQ:JACK) Qdoba division have launched catering in the United States. In fact, catering remains a significant opportunity at Qdoba and the company plans to continue with this, which exceeded 11% of its sales in the fiscal third quarter. Moreover, the brand has prepared a new catering menu in a bid to expand this segment.

Also, the company’s Jack in the Box segment has expanded its partnership with DoorDash, which is now delivering from roughly 37% of this division.

Bottom Line

In addition to the ones mentioned above, there are many other restaurant operators like Starbucks (NASDAQ:SBUX), Buffalo Wild Wings, Cheesecake Factory, Dunkin’ Brands and Wendy’s that have indulged in growing their off-premise sales.

Notably, the restaurant industry’s sales trends in recent quarters have been strained, given the soft consumer spending environment. Nevertheless, off-premise channels could be the tide that lifts all boats in the industry, moving it higher from its current position at the bottom 15% among more than 250 Zacks industries.

On an average, off-premise sales represent about 10-11% of the industry’s total sales. Therefore, there lies a tremendous opportunity to grow the segment and earn good returns from it.

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