Over the last few years, restaurants have suffered from either stagnant or declining traffic to their physical stores. As the world has moved toward online e-commerce, foot traffic to retail and other shopping power centers has suffered. In fact, former Starbucks (SBUX 1.09%) CEO and current presidential candidate Howard Schultz warned of this change back in December 2016. That prediction has unfortunately come true for many brick-and-mortar retailers, including restaurants.
However, the largest and strongest quick-service restaurants are finally starting to adapt. Using integrated digital ordering and delivery systems in combination with third-party delivery partners, Starbucks, Chipotle Mexican Grill (CMG 0.17%), and Mcdonald's (MCD 0.38%) have each rejuvenated sales growth, on the back of strong incremental delivery sales. Here's how they're doing it.
New delivery options are powering growth at these restaurants. Image source: Getty Images.
Starbucks
Starbucks stock had been facing investor fears up until recently due to its large exposure to China, as well as saturation fears in its home U.S. market. However, both geographies held up quite nicely in Q4. U.S comparable store sales surged 4%, accelerating over the prior year quarter's 2% mark. In China, comparable store sales increased 1%. That's actually an encouraging number, since Starbucks grew its store count a whopping 18% and the Chinese economy is under the cloud of the ongoing trade war.
Helping both metrics are Starbucks' new delivery initiatives. In China, the company partnered exclusively with Alibaba (NYSE: BABA), including Alibaba's newly acquired delivery service Ele.me and its Hema supermarket chain. On its conference call with analysts, Starbucks management boasted of a 19-minute average delivery time in China, and reported strong delivery transactions in Shanghai and Beijing.
Starbucks has also partnered with Uber Eats in the U.S. as it continues to work on integrating Uber Eats into its own Starbucks Delivery app. Starbucks began delivery in its second U.S. market -- San Francisco -- in the quarter, and aims to have delivery capabilities at one-fourth of its U.S. stores by April.
McDonald's
McDonald's, like Starbucks, also began delivery in its Asia-Pacific region, where it has been delivering food for 20 years. However, the company is just now rolling delivery out to many of its developed markets. According to management, "It took us almost 20 years to grow our annual delivery business in the Middle East and Asia to $1 billion. Over the past two years, delivery has become a $3 billion business for both McDonald's company and franchised restaurants globally."
Management noted the mature U.S., France, and UK markets had delivery growth in the "high double-digits," along with strong performance in Australia. Management also said that delivery was now available at about 19,000 restaurants, more than half of its massive global footprint.
Like Starbucks, McDonald's management noted China as its most developed delivery market, and said that it was applying lessons learned to new markets worldwide. Also like Starbucks, McDonald's is utilizing Uber Eats, among others, to bring delivery to developed-world markets.
New delivery initiatives helped power McDonald's to 4.4% comparable store sales growth last quarter, with positive comps across all of its geographic segments.
Chipotle
Finally, Chipotle benefited strongly from recent delivery initiatives, powering a quarter that has helped send shares up a whopping 38% year-to-date.
In the fourth quarter, Chipotle offered Free Delivery Bowls from December 17th to January 7th for college bowl games. Though delivery is now available through a variety of partners, customers can also order directly via the Chipotle app, which uses DoorDash as its exclusive partner, at about 75% of Chipotle restaurants.
While Chipotle launched direct delivery last summer, management said the late December promotion helped offset holiday seasonality, with continued use of the delivery app even after the promotion ended. Delivery sales increased an incredible 13-fold over the prior-year fourth quarter, albeit off of a tiny base.
Check out the latest Chipotle, Starbucks, and McDonald's earnings call transcripts.
CFO Jack Hartung had more good news for Chipotle investors, revealing that delivery sales are actually higher-margin than restaurant sales -- though not as profitable as pick-up in-store -- even though Chipotle covered the delivery fee during the promotion. That's because most Chipotles now have a smaller second-make line exclusively for delivery and pickup orders. That's probably higher-margin because it takes less food and labor to run this line than the main assembly line setup of Chipotle restaurants.
These delivery initiatives helped Chipotle achieve 6.1% comparable store sales growth, including 2% growth in transactions -- both positive indicators as the company continues to claw its way back from foodborne illness scandals of a few years ago.
Delivering big gains
While restaurant traffic continues to stagnate, the biggest and brightest quick-service chains are investing in best-in-class delivery offerings. They're late to the game, but as last quarter's earnings show, it's better late than never.
