Take-out and Delivery Franchise Industry Study

Food Take-out and Delivery Franchise Industry Report

This study is a brief review of the U.S. take-out and delivery franchise industry. It is based on data collected from the Franchise Disclosure Documents (FDDs) of 27 take-out and delivery food franchises and published industry sources.  

Definition
 

A food take-out and delivery business is defined as a business where food is intended to be eaten off the premises. Food can either be taken “to go” by the consumer or delivered to the consumer’s home or place of choice. For the purpose of this report the franchises selected all provide take-out and delivery services. Some of the franchised restaurants offer take out, delivery and catering services alongside the main “sit down” area of the restaurant whereas other franchises offer only take-out and delivery services. Whether a franchisee employs drivers or uses a restaurant delivery service, take-out and delivery offers the opportunity to boost sales by appealing to time constrained consumers.

Industry Background

Take out and delivery sales account for approximately 6% to 12 % of total sales in restaurant franchises that primarily cater for on premises business but who have a take out and delivery section. According to the National Restaurant Association, nine in ten family-and casual-dining operators and three-quarters of fine-dining operators offer food for takeout .  A second survey completed by the National Restaurant Association  indicated that 66% of quick service operators believed that food delivery would become more popular during 2009. 

Take-out and delivery is an effective way for a restaurant franchise to increase sales. According to the National Restaurant Association’s 2009 Restaurant Industry Fact Sheet, 69% of adults said purchasing meals from take-out and delivery restaurants makes it easier for families with children to manage their day-to-day lives.

Domino’s Pizza, one of the leading delivery and take-out franchises, has experienced increased success due to the rise in popularity of food take-out and delivery. Domino’s operates a worldwide network of nearly 9,000 franchised and company-owned stores and generated revenue of $1.37 billion last year. Net income as-reported was up 76.6% versus the prior year, 2008.* This is driven by improved operating margins, lower interest expense, international store growth and an increase in the popularity of take-out and delivery foods.

* www.forbes.com
 

Variety of take out and delivery restaurants

Take-out and delivery only
 

Certain establishments do not offer any sit-in facilities but cater entirely to consumers who want a food delivery or collection service. Delivery has long been a staple for many restaurants, especially pizzerias, which dominate the delivered-food category. For more information on the pizza franchise industry please click here.

An advantage to this type of franchise is the lower start up costs which have a low initial investment cost of $155,600 to an average high initial investment cost of $453,600. For example, the start up costs for a Little Caesars Pizza franchise is very competitive and the fees associated with franchising the brand are modest. The estimated initial investment required per franchise location ranges from approximately $185,050 to $519,000 for a standard Little Caesars carry-out location.

Full Service Restaurants

According to the National Restaurant Association, 37% of American adults have used “curbside takeout” – calling in their order to a full service restaurant for pickup . These franchises and businesses offer a full service dining area, a full menu and also a take away or delivery service such as Zio’s Italian Kitchen franchise. All of Zio’s to-go dishes are packaged in special containers designed to stay hot, hold their flavor, and travel well.  More relaxed fast food restaurant franchises such as Woody’s Hot Dog also provide a take away or delivery service.

Catering
 

Many established restaurant franchises and businesses do not offer individual orders for delivery or take-out. Instead these establishments offer catering for parties generally over 8 people. 
 
Delicatessen
 

Most delicatessens in the United States have a sandwich menu, most of which are made to order behind the counter at the time of sale, to be consumed off the premises. They also sell cold cuts by weight and prepare party trays to be consumed off the premises. For more information please click here.

Drive-thrus

Customers are hungry for choice in where, when and how their food is cooked and served. Drive-thrus have experienced increased popularity due to the convenience and cost effectiveness that they offer the consumer. When consumers decide on which drive-thru to visit, the key factors that they take into consideration are speed, menu, price and location.


Demand Determinants

Eating in is the new eating out

Consumers want the “eat out” experience of quality food but are saving money by eating food delivered to their home. According to the market research firm NPD Group’s 2009 study A Look into the Future of Eating, the number of restaurant meals eaten at home is expected to grow by 20% in the next 10 years. The increase of at home leisure activities has been a key growth driver in the take-out and delivery franchise sector. This market is largely being catered for via pizza home delivery franchises such as Domino’s Pizza. However there is an increasing consumer demand for take-out prepared meals.

Technology and Innovation

The internet offers restaurant franchises and businesses a new market in which to reach potential customers. Increased trust in online purchasing and the introduction of new e-commerce platforms offers the benefit of convenience to consumers. An increasing number of online users in the US will order food online. It is predicted that the internet, interactive TV and text-messaging will eventually overtake telephone ordering of collection and home delivered foods. It is therefore important for a business to promote themselves online and through new media. Pizza Hut, which ranked no. 5 in Franchise Direct’s Top 100 Global Franchises, has used a new smart-phone application in order to boost sales. The smart-phone application, which was released in July 2009, was responsible for $1 million in sales by the end of November 2009.

Take-out and Delivery Franchise Companies
 

The table below provides an overview of the estimated initial investment required to open a single unit of the 27 take-out and delivery franchises sampled in this report. It includes the initial franchise fee payable on signing the franchise agreement, and the ongoing sales royalties payable to each franchisor. It also contains a detailed profile of each franchise which presents these costs in more detail. The profiles are extracted from the Franchise Disclosure Document (FDD) of each of the 27 franchisors.

TaD= Take-away and Delivery

Challenges
 

Delivering food presents unique challenges, such as hiring and retaining reliable drivers and packaging food properly to maintain its quality. To become successful it is paramount that the delivery and/or carry-out services are done in a timely manner. Convenience, taste, texture and accuracy in ordering are very important. Many restaurateurs worry that their reputations will suffer if they deliver food. If the food is the consumer’s first delivery experience and it is poor, the consumer may never frequent that restaurant again. Little Caesars, for example, say that the delivery option began to interfere with the company’s business model and affected the quality of their food. For this reason Little Caesars offers only take-out pizzas. However, with take-out and delivery becoming ever more popular this is not a choice that many restaurant owners have. If a franchisee wants to make sales they need to be aware of, and respond to, the increased market demand for take-out and delivery.

Conclusion

Take-out and delivery is a thriving segment of the restaurant market. For traditional “dine in” restaurants expansion into take-out and delivery creates the opportunity to increase sales.  For franchises that only offer take-out or delivery, such as Domino’s, the long term and growing consumer demand for convenience and value creates a favorable business climate. As eating at home becomes more popular and advancements in technology make ordering food more accessible through different media, the take-out and delivery industry is forecast to continue to grow through 2010.
 

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