E Restaurant Delivery Economics: What Could It Be?

Restaurant Delivery Economics: What Could it Be?

We all know restaurant delivery has become the opportunity du jour, hopeful talk on delivery has recently caused security analysts to lift their entire restaurant industry perspective (see:Morgan Stanley, John Glass, July 2017). Stronger and weaker brands everywhere are talking about it; the real and perceived consumer sentiments, eating at home, the Blue Apron (APRN) IPO and the Amazon (AMZN) purchase of Whole Foods (WFM) provided unmistakable interest. However, one brand (doing really well) isn’t doing delivery, no way: this week founder/CEO Ken Taylor of Texas Road House (TXRH) said he was happy to have his competitors deliver lukewarm food in an attempt to make up for years of their declining traffic[1]

Some restaurants have been doing delivery forever and their business model s is based upon it (the pizza majors - Pizza Hut, Dominos (DPZ), Papa John’s (PZZA), Jimmy John’s and still others. But when you have McDonald’s (MCD) working a massive delivery roll out, you know it is serious.

Many numbers and operations folks in this penny business are thinking about the delivery incremental sales and margins. At least four issues of concern are: (1) how does the restaurant handle the hoped for orders influx (2) any incremental staffing or CAPEX required(3) how much commission does the restaurant have to pay to the deliverer/app systems provider and (4) how do we retain quality control?Putting aside the quality issue for a moment, the economics can be speculated. The “standard” UberEats/ DoorDash commission is heard to be around 30% but no doubt some brands can get lower than that. I know it’s a big deal because several chains are noting that the commission is now “below” the restaurant P&L contribution line. We can all guess why: unit managers might not want the expense.

Clearly, the upside is: (1) more traffic (2) higher average ticket (3) later ticket ordering to leverage later day staffing. Let us see how the penny profit per transaction could work out for a typical QSR (Restaurant Brands International - Tim Horton's, Burger King, etc.) franchisee and a company-owned casual dining operator:

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Disclosure: The author has no positions in any stocks mentioned.

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