Everyone in the restaurant business knows delivery represents the wave of the future. One industry guru says offering delivery is an absolute necessity for a restaurant to grow or maybe even to survive. (An exception to this wave is Texas Roadhouse, which feels delivery will create quality issues for the restaurant chain’s menu items.)
The number one problem with delivery seems to be making money. Take, for example, Panera Bread. A Wall Street Journal article figures each delivery costs $5.00 for labor, gas and packaging but the company charges just $3.00 because it figures that’s the most a lot of customers will pay. The article goes on to state flatly that “Most delivery orders are unprofitable.”
Another cost question requires foodservice operators to choose between setting up their own delivery system vs. using a third-party firm like Grubhub. Most restaurants cringe at developing the necessary technology and hiring delivery staff. But having third-party delivery people, who the foodservice operator has no control over, become the face of their restaurants with their customers is an unappealing prospect.
Technological advances may solve some of the problems, but a lot of questions continue to surround the future of delivery, including robots, drones and driverless cars. Are they realistic? And, how soon before they are actually available?
Consumers desire delivery service and foodservice executives feel they must meet their customers’ needs. McDonald’s says 70 percent of delivery orders come from people who don’t come into the chain’s restaurants to eat and the check average for delivery orders is roughly twice that of in-store orders. Given data points like these, there’s no denying delivery will remain a center-of-the-plate issue for operators for a the foreseeable future.
Economic News This Week
- The Producer Price Index edged up 0.1 percent in February after falling by 0.1 percent in both December and January. The producer Price Index has risen 1.9 percent in the last 12 months. The index for final demand goods grew by 0.4 percent in February while the index for final demand services was flat for the month. Producer prices for food fell 0.3 percent in February.
- Initial-jobless claim increased 6,000 to a level of 229,000 for the week ending March 9. The 4-week moving average fell by 2,500 claims to a level of 223,750.
- The February Consumer Price Index increased 0.2 percent. In the last 12 months the index is up 1.5 percent. The “core” index, which excludes food and energy prices, rose 0.1 percent in February and is up 2.1 percent in the last 12 months. This indicates that inflation is not a major problem and the Federal Reserve will move slowly to raise interest rates.
- Sales of new single family homes were soft in January. The U.S. Department of Commerce and the Department of Housing and Urban Development report new home sales were at a seasonally adjusted annual rate of 607,000, down 6.9 percent from December and 4.1 percent less than January 2018.
- Industrial production increased 0.1 percent in February, per the Federal Reserve. Manufacturing production fell 0.4 percent, the index for production utilization rose 3.7 percent and the index for mining production was up 0.3 percent. Capacity utilization in industrial production was down 0.1 percent in February for a reading of 78.2 percent. This rate is 1.6 percent below its long-run (1972-2018) average.
- New orders for manufactured durable goods increased 0.4 percent in January, according to the Census Bureau’s advance report for the month. Excluding transportation, equipment new orders were down 0.1 percent. Shipments of manufactured durable goods were down 0.5 percent, driven by transportation shipments which were down 1.4 percent.
- The New York Federal Reserve’s Empire State Manufacturing Survey showed slower growth in March. The Index hit 3.7, a decline of 5.1 points. (Any number greater than zero shows increasing activity.) The New Orders Index was 3.0, a decline of 4.5 points from February. The Shipments Index totaled 7.7, a decline of 2.7 points. The Unfilled Orders Index rose 2.9 points which put the Index back in positive territory at 2.2. The Number of Employees Index jumped 9.7 points to a reading of 13.8.
- Private construction spending increased 0.2 percent in January, compared to December. Residential construction spending decreased 0.3 percent.
- The University of Michigan’s Preliminary March Index of Consumer Sentiment was 97.8, which was up from 93.8 in February. The Current Economic Conditions Index stood at 111.2 , up from 108.5 in February while the Index of Consumer Expectations increased to 89.2 from 84.4 in February. A university spokesperson stated that the economy’s expansion will set a new record length by mid-year.
Foodservice News This Week
- The Consumer Price Index for food increased 0.4 percent in February. In the last 12 months food prices are up 2.0. percent. February food-at-home prices increased 0.4 percent as did food-away-from-home prices. In the last 12 months food-at-home-prices rose 1.2 percent while food-away-from-home prices are up 2.9 percent.
- Baskin Robins opened a second location featuring its new store design. Called “Moments,” the new store design features bright colors, flexible and comfortable seating, upgraded menu boards and a drive-thru window. The new stores will have a modernized menu as well.
- A bill introduced in the Illinois legislature would allow the use of food stamps at restaurants. Currently the participants in the SNAP program (Supplemental Nutrition Assistance Program) can only use food stamps to buy groceries. If the bill becomes law, only recipients who are unable to cook (the homeless, disabled, elderly, etc.) will be covered and restaurants that wish to accept food stamps must be certified to participate.
- Just One More Restaurant, the company that licenses the Palm name, filed for Chapter 11. There are 20 plus Palm restaurants in the U.S. and Mexico. A month ago, a New York judge entered a judgement of $120 million in favor of minority stockholders who had sued majority owners claiming they had been cheated out of royalties for 40 years.
- Starbucks is challenged in China. A new Chinese coffee shop named Luckin is pursuing customers by offering fast delivery. Starbucks’ strategy was to attract customers by offering upscale locations where they can linger over expensive drinks. Now Starbucks is attempting to set up delivery service. McDonald’s is also setting up a delivery system, which includes coffee.
- DoorDash takes the lead in food delivery. According to the Wall Street Journal, Uber Eats and Grubhub each have more customer orders, but DoorDash serves more restaurants as well as more high-end operations, which results in more expensive orders.
- A restaurant chain claims Grubhub charges operators for phone calls regardless of whether the customer places an order. In their lawsuit, two restaurants in the Philadelphia-based Tiffin Indian chain said Grubhub “stole” millions from restaurants by charging for sham phone orders. Grubhub is attempting to move the suit from court to arbitration.
- Growth Chains: Barbecue chain Pork & Mindy’s will open quick-service versions in 28 Chicago Mariano’s supermarkets. Pork & Mindy’s will replace Todd’s BBQ in all the locations. Primanti Brothers will open two locations in Pennsylvania.
- Comparable Store Sales Reports: Casey’s General Store up 1.5 percent, Del Frisco Restaurant Group (Total up 0.1 percent, Double Eagle down 0.1 percent, Barcelona up 1.9 percent, Bartaco up 1.6 percent and Del Frisco’s Grille down 0.9. J. Alexander’s Holdings (J. Alexander’s up 0.3 percent and Stony River Steakhouse up 2.4 percent), Noodles & Company (System up 4.0 percent, company owned up 3.7 percent and franchised up 5.3 percent) Steak N Shake down 5.1 percent.
For details and same store sales of other chains, please click here for the latest Green Sheet.