7 reasons why McDonald's, Chipotle, and Shake Shack are embracing meal delivery

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McDonald's, Shake Shack, Chipotle, and other restaurant chains are embracing delivery as a way to reach more customers, gather more data, and make more money.
However, Darden Restaurants — owner of Olive Garden — argues the higher costs can eat into profit margins.
Watch McDonald's, Shake Shack, Chipotle, and Darden Restaurants trade live.

McDonald's, Shake Shack, Chipotle, and other restaurant chains are embracing delivery as a way to reach more customers, gather more data, and make more money.

However, implementing delivery can be expensive and disruptive. Darden Restaurants — owner of Olive Garden — also argues higher costs can eat into profits.

We've outlined five reasons why restaurants are pumping cash into meal delivery, and two reasons why others have reservations, below.

Delivery can boost sales and profits.

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Restaurant chains' main reason for embracing delivery is the potential for higher revenues and profits.

A key question is whether delivery leads to their customers ordering in rather than eating out, cannibalizing their existing business.

McDonald's has found more than 70% of its delivery revenues are incremental to existing sales, CEO Stephen Easterbrook said at a forum in March. The dollar value of its average delivery order was twice as large as a standard order, he said on an earnings call in April.

Sandwich chain Potbelly's has found delivery orders to be additive too, while the average delivery check at Jack in the Box is "consistently higher" than those for other orders, CEO Leonard Comma said on the chain's earnings call in May.

Denny's, which has rolled out delivery to around 90% of its restaurants, has found delivery orders boast healthy profit margins as well. Meanwhile, Popeye's — owned by Restaurant Brands, which also owns Burger King — has found its restaurants offering delivery outperform those that don't.

It can attract new customers.

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Introducing delivery can help restaurants to reach new customers.

"Two years ago, we could not imagine that we would have a customer that had never ever gone to a Burger King restaurant, although a huge fan and a frequent consumer," Burger King's Brazil CEO luri Miranda said at Restaurant Brands' investor day in May. "How? A delivery guest."

Delivery can also address changes in consumer behavior.

"People are not eating out as often as they were," McDonald's CFO Kevin Ozan said at the forum in March. He pointed to ageing populations, wider availability of delivery, and more people working from home. "That's why delivery has exploded as quickly as it has recently."

McDonald's has found delivery customers tend to be younger and a large proportion make repeat orders. Its restaurants close to college campuses tend to do especially well at night. "I won't surmise why that is or what they're doing prior to ordering McDonald's," Ozan said.

Similarly, Popeye's views delivery as a way to introduce young people to its food and convert them into regular customers. Bloomin' Brands, owner of Outback Steakhouse, has found delivery helps it reach new customers who are loyal to third-party delivery platforms such as Uber Eats rather than its brands.

The typical timing of delivery orders is also enticing. McDonald's receives 60% of them in the evenings, which is "really helpful for us from a capacity standpoint" as there's less drive-thru and in-store traffic and workers have time to fill orders, Ozan said at a conference last year.

Popeye's, Burger King, and Jack in the Box have also reported most orders arriving during non-peak periods, such as after 4pm on weekdays.

It's a mushrooming market.

Jules Rodriguez

Restaurant chains are eager to grab a slice of the burgeoning meal-delivery market.

The segment is growing 20% annually and could be worth nearly $50 billion by 2022, Burger King's Americas president Christopher Finazzo said at an investor day in May. The maker of the Whopper plans to offer delivery in more than 5,000 restaurants by the end of this year, he added.

Similarly, McDonald's earns as much as 10% of its revenue from delivery in markets such as the UK, Australia, and France, Easterbrook said on an earnings call last year. Delivery has generated between 20% and 40% of sales at some of its restaurants in China too.

See the rest of the story at Business Insider