In this segment from the MarketFoolery podcast, host Chris Hill and David Kretzmann of Supernova and Rule Breakers try to assess what McDonald's (NYSE:MCD) delivery option means for the fast-food giant. It's not everywhere yet, but the test run is expanding to a swath of large cities, and further growth appears inevitable. A lot of pundits see delivery as a vital service for all chains in the future, but the question is how that should be managed: Build an in-house service or hire it out to a third party?

A full transcript follows the video.

This video was recorded on May 17, 2017.

Chris Hill: I'm glad you mentioned McDonald's, because they're in the news not because of earnings but because of the delivery that they have been testing in a few locations in Florida. They are now rolling out delivery in Los Angeles, Chicago, Phoenix, and Columbus, Ohio. They're doing it through Uber's UberEATS service. I'm curious how you view delivery, and I think to the point you made about Selim Bassoul at Middleby and his comments -- for those unfamiliar with Middleby, they are mainly in the oven business, so chances are, if you've gone out to eat in the United States in 2017, chances are your food was prepared in a Middleby oven. I think he's definitely onto something. I mean, this is an industry he knows very well, so I'm not going to disagree with him about how crucial delivery is going to be. From your standpoint, David, I'm curious if you have a thought on what the better strategy is? In the case of McDonald's, they're partnering with UberEATS. You see some places that are opting to build out this delivery network on their own. GrubHub is essentially a business built on going to restaurants and saying, "Don't worry about delivery, we'll do it for you." And certainly, that stock is having a monster 2017. So do you see any particular strategy, one being better than any other? Or do you just look at it and say, look delivery is important, how you execute is up to you but you'd better have a strategy?

David Kretzmann: There was some interesting discussion on this in Red Robin's conference call. Up to this point, Red Robin has used three of those third-party delivery providers. So they're not doing it on their own.

Hill: Three separate ones?

Kretzmann: Three separate ones and about 138 locations. The CEO said, seamless is not exactly how I would describe our experience with those third-party providers, because integrating those third-party providers with their payment system, their ordering system, it's a little clunky. They said the delivery times have often been not as promised, which disappoints the customers, and obviously that's not great for Red Robin's brand. So it seems like right now at Red Robin, they basically said, "We're open to other alternatives, because clearly what we're doing now with these third-party providers isn't working as effectively as we would like." And I contrast that with Panera, which I think is a great example of a company that went from zero delivery and now they're going all in on their own in-house delivery. I really think that's the model that will reward these companies over the long-term the most. You look at how Domino's, which is crushing it quarter after quarter despite the restaurant slowdown, I think a huge part of that is because they developed their own point of sale system, essentially their own internal system, to manage payments and orders, their own proprietary system. Panera has started to do the same thing. 

And that just makes it a seamless experience for customers, wherever you are in the country or the city. You don't have to order through a separate delivery company, you don't have to change your payment information, especially, have a loyalty program like Panera, which has 25 million members, it makes it so much easier as a consumer when you have that consistent experience wherever you are, and I think it makes it a much stickier experience, too, when everything is done through the company. And that raises repeat orders, which is, at the end of the day, what these restaurants need to bump up their margins and volumes. So I think most companies probably won't go that route initially, because that's the tougher route, because you do have to reinvent yourself, especially if you're a casual diner like Red Robin or more of the fast-casual company like Panera. So I think, initially, you're seeing a lot of companies going with these third-party providers. But at the end of the day, to maintain full control over the brand, the experience, and ideally building a loyalty program, which, as we've seen with Starbucks and Panera and Domino's that's been a huge factor in their ongoing success, despite the restaurant slow down. I think keeping it in house is initially the harder move, but it's the one that makes the most sense. But it will be interesting to see how it shakes out. I'll leave it at that.

Hill: As you said, it's definitely the harder move. It also seems like if you do it right, it's the much more rewarding move.

Kretzmann: Yeah. If you can pull it off. And it really does require a reinvention. It can't just be a tack-on item to the business. That is one concern I have with Chipotle and some of the other companies that are just relying on these third-party providers. I just don't see that being a consistent experience. The economics of it don't really make a whole lot of sense for the company. Unless you have it going through your own internal system, where you can really promote additional offers or something, you don't want the third-party delivery orders to just be replacing people going into the store. Where delivery gets very profitable is if people say, "I'll buy the salad and the breadsticks in addition to the pizza." That's where you really get additional volume and your margins bump up. But if someone is just buying the same thing they would have gotten if they walked into the store, that's going to cost, because these companies have to pay the third-party providers, who need a cut of that transaction. That's some of the headwinds that Red Robin has run into. They mentioned, the economics of delivery are not that great, on top of everything else with the consistency of the experience, which have not been very consistent. So I like companies like Panera, even though they're few and far between that are deciding to go all in and keep it in house.

Chris Hill owns shares of CMG and SBUX. David Kretzmann owns shares of CMG, DPZ, MIDD, RRGB, and SBUX. The Motley Fool owns shares of and recommends CMG, MIDD, and SBUX. The Motley Fool has a disclosure policy.