Dive Brief:
- Some major quick-service brands, including McDonald's, Starbucks and Chick-fil-A, have raised their menu prices for delivery orders, according to a Gordon Haskett analysis reported by Business Insider.
- The report find that average fast food menu prices are more than 15% higher for delivery versus pickup orders before delivery fees and tips.
- The analysis found that Chick-fil-A has the highest delivery pricing premium out of 25 chains, with menu prices nearly 30% higher for delivery versus pickup. Comparatively, Starbucks and McDonald's delivery menu prices are about 20% higher. Fast casual chains like Panera raise delivery menu prices by a little over 12% on average, while casual dining chains' delivery menu prices average about 3% higher.
Dive Insight:
Restaurants may have leverage to raise delivery menu prices now because dining rooms remain closed or are re-closing in many areas, and delivery remains one of the only access points to their food. As dining rooms closed in March, for example, delivery orders increased 67% while restaurant traffic declined 22%, according to data from The NPD Group emailed to Restaurant Dive.
Brands with a strong following have more "pricing power" to do this, which could explain why Chick-fil-A's delivery menu prices are the highest, according to the Gordon Haskett report. The chain has been named consumers’ favorite restaurant by the American Customer Satisfaction Index for six years in a row.
Of course, as restaurants rely more heavily on delivery aggregators to keep their businesses afloat during this crisis, they’re also on the hook for notoriously high commission fees charged by those delivery companies. Some cities have put commission fee caps in place to help operators, but those fees still exist in much of the market, and operators may not have a choice but to pass some of those added costs onto consumers.
Limited-service brands are more likely to adopt this pricing model than their casual dining counterparts, according to Business Insider, which is likely due to lower ticket, lower-margin items. Chipotle, for example, would make just $1.10 on an order of 20 burritos at a 15% commission rate (which is low for most aggregators), versus about $4.10 on the same order for pickup, according to the analysis.
During its Q2 earnings report last week, Chipotle's CFO John Hartung discussed his chain's plans to "experiment with delivery menu prices as a way to potentially offset this headwind and fully capture the margins at expected volume."
Chipotle is also working to incentivize delivery orders through its own app so it can "control more of the variables on delivery fees," CEO Brian Niccol said during that earnings call.
It's likely Chipotle isn’t the only chain experimenting with different pricing levels to find the sweet spot for profit margins on delivery orders. This current trend may stick around if customers continue to rely heavily on delivery and get used to paying such a premium for the channel, or it could it could incentivize them to choose pickup instead. What is clear now is that it remains a challenge to find a delivery fee compromise for aggregators, operators and customers on delivery fees.