Merchant Innovation

QSRs Supersize Their Digital Ante

Digital-order-ahead

The second quarter of 2019 showed that the QSR digital and mobile innovation push has gained more fuel. Starbucks, McDonald’s, Dunkin and Chipotle are among the industry leaders that have posted big benefits from better delivery programs and other such initiatives. Much work remains to make QSRs even more digital, but fresh financials and original PYMNTS research show where these trends are headed.

The old QSR is dead.

Long live the new QSR.

OK, that’s a bit goof, but when it comes to the quick service restaurant (QSR) business — an industry that more or less coasted for decades on an analog business model — it’s becoming pretty reasonable to say that digital, online delivery and even mobile-order ahead services are defining that sector, at least when it comes to the leading participants. That trend continued in the second quarter and looks likely to be a dominant trait in the 2020s, only a few months away.

Starbucks Delivery

To take one example, look at the Starbucks results from Q2.

The company has also expanded Starbucks Delivers with the help of Uber Eats, which is in more than 2,700 stores in 11 markets. During a conference call with analysts late last week (July 25), Starbucks President and CEO Kevin Johnson said the company continues to learn as it expands and drives customer awareness of the new channel. He noted that the company believes delivery is an important long-term growth opportunity “given customers’ increasing demand for convenience.” Indeed, his comments provided extra support for the recent announcement that the chain announced “plans to make Starbucks® Delivers available throughout the U.S. in early 2020 through an agreement with Uber Eats.”

As if that’s not enough, McDonald’s — the granddaddy of the QSR industry, and which posted a better-than-average Q2 in terms of same-store sales both in the U.S. and abroad — is focusing on expanding its own delivery capabilities — and in doing so, is moving beyond the Uber ecosystem. McDonald’s recently made a deal with DoorDash this month to deliver food from locations in Texas. Previously, the company had an exclusive delivery arrangement with Uber.

Chipotle, too, is enjoying the benefits of investing in digital and delivery, at least according to its own Q2 2019 results.

The chain’s digital sales grew 99.1 percent and accounted for 18.2 percent of sales in the second quarter, while in the first quarter, digital sales grew 100.7 percent to represent 15.7 percent of sales. In a call with analysts late last week (July 23), CEO Brian Niccol said delivery remains a “key driver” of the firm’s digital growth, given enhanced app and website capabilities along with expanded reach. He also noted that the QSR still sees residual lift in delivery sales that last beyond any promotion, and that there is little guest overlap between the company’s in-app delivery and third-party delivery apps.

Beyond Delivery

Delivery is not the only way that QSRs are trying to reach more consumers, of course — especially younger consumers married to their mobile devices and who all but take for granted the availability of ever more robust digital consumer experiences. McDonald’s. For instance, is experimenting with automated kitchen equipment and ordering that is voice-activated in its drive-thrus. It also acquired Dynamic Yield, an Israeli digital startup, earlier in the year. The company’s technology was in place at 700 of the company’s stores in the quarter that was most recent. And the chain has also encouraged franchisees to bring upgrades through digital kiosks and new dining rooms.

More broadly, mobile-order ahead also is gaining more of a role in the QSR world, as PYMNTS research confirms. Between 2016 and 2018, for instance, the volume of orders placed through mobile apps grew by 130 percent, according to PYMNTS’ Mobile Order-Ahead Tracker. Mobile represents roughly 60 percent of all digital restaurant orders today. This rapid growth is expected to boost the market’s value to $38 billion by 2020.

Need more evidence of the rise of mobile-order ahead offerings as 2019 gives way to 2020? Just look to Google. It recently introduced the ability to order food for pickup or delivery via services like DoorDash, Postmates and ChowNow through Google Maps.

In fact, this change in consumer behavior has implications for the restaurant industry and beyond — to put it another (goofy) way, what happens in the QSR industry doesn’t necessarily stay in the QSR industry. Mobile doesn’t just mean apps – order-ahead technology is also increasingly being integrated into cars, and the rise in mobile ordering is affecting restaurants themselves. Some have been physically restructuring to accommodate mobile order pickup without estranging in-person customers.

Mobile-Order Ahead

That said, mobile order-ahead apps — as can be the case generally when comes to many types of retail innovations —  have lower adoption among smaller QSRs. PYMNTS’ most recent Restaurant Readiness Index found that only 30.7 percent have mobile apps for ordering, while 31.7 percent offer services via third-party apps. However, most restaurants are satisfied with mobile order-ahead pickup offerings. In fact, 91.4 percent of small QSR managers were satisfied, according to the Mobile Order-Ahead Tracker. Additionally, 86 percent of mobile app operators said their offerings boosted revenues, and 93 percent said apps improved guests’ experiences and encouraged repeat purchases.

For the immediate future, expect more delivery options and partnerships from QSRs. In early June, for instance, Dunkin’ announced that it is partnering with Grubhub on the launch of its Dunkin’ Delivers service. More than 400 Dunkin’ restaurants throughout New York City’s five boroughs are now offering delivery through Seamless, Grubhub’s New York brand. And there are plans to expand the service to additional markets in the coming months, including Boston, Chicago and Philadelphia.

For the longer term, you bet that more QSR operators will deploy or perhaps better mobile-order ahead services, along with other retail innovations, including those tied to the hot area of voice-assisted commerce. QSRs are quickly shedding their reputation for relatively sleepy operations and now helping to set the pace for technological progress.

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Latest Insights:

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The September 2019 Mobile Order-Ahead Tracker, serves as a monthly framework for the space. It provides coverage of the most recent news and trends as well as a provider directory that highlights key players across the mobile order-ahead ecosystem.

 

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