A lot of talk this year has been about the bifurcation of the restaurant consumer. Some chains, like Chipotle, Wingstop, Cava and others, have thrived, generating ultra-strong sales. Others have filed for bankruptcy and much of the casual-dining and quick-service space are losing customers in droves.
That kind of bifurcation is not uncommon. Difficult times often yield wide-ranging results as consumers pick winners and losers. They shift spending toward those brands that are meeting their brand promise, or at least those with the most effective marketing strategies.
But we also see that bifurcation in the way consumers are using restaurants. For this, we go to data from Revenue Management Solutions.
The firm noted that quick-service traffic in the third quarter was down 1.2%. But delivery traffic was up 14.7%. Delivery remains a tiny portion of overall traffic. But it is growing at a rapid clip. And that traffic appears to be coming from another major source of convenience, the drive-thru, where traffic was down 10.2%.
We can also tell from major pizza delivery chains that they’re not the beneficiaries of that type of traffic. Delivery same-store sales at Domino’s grew 1.3% last quarter. But carryout sales were up by more than three times that, and the chain is now getting 2.7% of its sales through its partnership with Uber Eats.
(Check out our report on third-party delivery apps.)
In the second quarter, meanwhile, delivery sales at Papa Johns declined, while that chain, too, is getting more sales through third-party delivery.
In other words, while consumers are visiting fast-food chains less often out of frustration with prices, they are a lot more likely now to order delivery from a third-party service.
That might seem a bit odd. If you believe fast-food restaurants are too expensive, why are you opting for a service that costs more? Between third-party delivery fees and higher menu prices charged by the restaurants themselves, a menu item delivered to a customer’s home can cost another $8.
But, as we’ve noted before, third-party delivery is a service, and one consumers are willing to pay for. When someone is tired after a long day at work, or perhaps they’re busy consuming alcoholic beverages with friends, they will attach a price to the ability to have food brought to their home. That kind of convenience historically wins in the restaurant business.
On top of that, consumers are clearly attaching a value to the simple fact that they can go to a single place for a selection of restaurant meals. That explains why consumers might eschew the Papa Johns app in exchange for ordering Papa Johns on Uber Eats or DoorDash.
But that is also a certain type of customer. That customer may be younger. But that customer also has more money.
On balance, the U.S. consumer is doing fine, even if that consumer is frustrated by high prices. People have jobs. Stock prices are up. So are home prices. As such, chains with higher-income consumers like Sweetgreen are doing just fine.
But lower-income consumers, who are less likely to order delivery in the first place, have been the ones more likely to cut back on fast-food dining over prices after years of inflation. Those lower-income consumers are cutting back, which is hurting overall fast-food traffic. And higher-income consumers are shifting toward third-party delivery.
That has some clear implications. Third-party delivery orders may be larger, but they are also less profitable in general, which has already had an impact on profitability of franchisees that dominate the fast-food business.
It also means that these services will gain more influence on the business going forward, particularly as more total delivery sales shift to those services.
Regardless, delivery has proven to be remarkably resilient coming out of the pandemic, even as the rest of the industry fights for customers.