Delivery is arguably one of the defining issues for retailers, bridging the gap of the last mile between a customer and a sale. Making the process of getting a product to the consumer as quickly and cheaply as possible is seen as a key to generating sales growth. But can delivery do for restaurants what retailers like Wal-Mart (NYSE:WMT) and Amazon.com (NASDAQ:AMZN) have achieved with it?
Darden Restaurants (NYSE:DRI) thinks so, and it's planning a nationwide rollout of a home delivery program with its Olive Garden chain.
Delivering the goods
Ever since Amazon broke open the value of free delivery with its Prime membership service, the retail industry has been wracked with worry over how best to meet the challenge. Online retailers have continuously lowered the threshold of how much a customer needs to spend before qualifying for free shipping, or dropping it altogether. Target, which previously had a $50 minimum order limit to qualify for free shipping, dropped it to $25 in February, but has now eliminated it completely for the Christmas shopping season.
Best Buy also got rid of its $35 minimum for the holidays while Toys r Us dropped it from $49 to $15. Wal-Mart still has its $50 minimum in place, but it offers customers the chance to pick up for free at its stores orders made online.
Ringing the dinner bell
Restaurant-food delivery isn't exactly a new concept, and there are plenty of established players helping stores complete the sale, whether they're like GrubHub (NYSE:GRUB) and DoorDash, which focus solely on on-demand food delivery, or like Uber, whose new Uber Eats service sees food delivery as ancillary opportunity for growth beyond ride-sharing.
In fact, food delivery has grown into a $70 billion industry in its own right, an outgrowth of the grocery-delivery business pioneered by Peapod, the delivery service run by supermarket chain Ahold and lately supercharged by the entrance of Amazon and Wal-Mart into the market.
Yet restaurant delivery is also taking on a life of its own as money pours in to finance big ambitions. It wasn't possible a few years ago to have these kinds of services operate outside of a local market, but now the likes of PostMates and InstaCart can be national in scale because of the merger of technology and the overwhelming demand by consumers for convenience.
It's that burgeoning growth that's led Darden to believe delivery can be another piece of the puzzle to bring its Italian restaurant chain back to health.
A case of agita
Olive Garden was in a protracted decline as consumers became increasingly concerned about the carb-heavy diet of pasta the chain offered. A battle of competing visions over which direction to take Darden led to an epic proxy fight between activist investors and the restaurant's board of directors, a clash that saw the latter come out on the losing end. With a clean slate, the new management team set about to fix the Italian eatery, and one of the key ingredients apparently is order delivery.
Darden says that about half of its 844 Olive Garden restaurants already have some sort of delivery option, but that they're all local in nature. What it wants to do is scale up the program and put it out on a national level so that 70% to 80% of the chain's restaurants are covered by a single delivery company. It will also mutually benefit financially Darden and the service provider because of the broad market they'll cover.
A big appetite
That kind of scale isn't offered by everyone, and Darden says it's actually looking at just a handful of companies that can handle the task, including PostMates and Google, which lets you place an order through your phone, and then through contracts with services like GrubHub, Seamless, and Delivery.com, has your food delivered.
Home delivery is also being tested by a number of national restaurant chains, from Yum! Brands' Taco Bell and KFC chains to Burger King and McDonald's. Even Starbucks is experimenting with delivering your coffee order.
While it might be a way for fast-food restaurants to boost sales, it may be a necessity for Olive Garden. While the Italian restaurant posted another quarter of rising comparable-store sales, it's still suffering from declining customer traffic, though it's been able to soften that blow through price increases and product mix.
It's likely not going to be a make or break development for the restaurant operator -- and that never-ending pasta dish might be a bit complicated to fulfill -- but food delivery has the potential to deliver higher returns right to Darden Restaurant's bottom line.