News
To-Go is developing a new consumer culture.
Speed, quality and convenience all in one package.
July 23, 2003
Thursday July 24th, 12:27 pm ETNEW YORK- Hoping to lure harried fast-food consumers away from the drive-through windows, casual dining chains are expanding their take-out operations.The eateries are refining their menus, improving their packaging and adding curbside delivery,all designed to offer a viable alternative to the more traditional on-the-go meal of a burger, fries and shake. "For many customers, casual dining is increasingly used like their parents used fast food," John Glass, CIBC World Markets analyst, said. "They're ordering to go, and restaurants are designating parking spaces and making sure menu items travel well." In that sense, companies like Applebee's (NasdaqNM:APPB - News) and Brinker International (NYSE:EAT - News) are trying to duplicate their success with in-store dining. Casual dining chains have thrived even in the current economic malaise, picking up baby boomer customers looking for higher-quality and healthier meals, while leaving fast-food chains to struggle with customer attrition and costly price wars.Casual dining companies are betting that patrons will opt for quality over speed."It's still not as fast as a drive-through, so the customer has to decide based on speed (of service), how much they want to spend, and the quality of the food," said Doug Brooks, president and chief operating officer of Brinker, which owns Chili's Grill & Bar.The chains are also running national advertising campaigns touting the convenience of the service."I don't think there's a consensus in the industry about how additive take-out is (to earnings)," Glass said. "But if you don't offer it, you're probably losing customers." In a research note this month, Lehman Brothers analyst Mitchell Speiser downgraded Darden Restaurants (NYSE:DRI - News), partly because the company has not developed a targeted take-out program at its family friendly Olive Garden and Red Lobster restaurants. At Applebee's, the latest chain to tap into this area, take-out sales increased by half in the first quarter, up to 6.8 percent of total sales, from 4.5 percent a year earlier. Take-out sales comprise 8.5 percent of Chili's sales. But the chains still have to make the service cheaper and faster before they'll be able to pull serious market share from take-out giants like McDonald's (NYSE:MCD - News) and Burger King, industry experts say. Last year, 86 percent of take-out meals came from fast-food chains and only 6 percent came from casual dining restaurants, according to consumer research firm NPD Group.Time and MoneyIt comes down to two factors, said Harry Balzer, vice president at NPD: time and money. "They're working against the drive-through," he said. Also, the average check for a fast-food take-out order is $12, compared with $19 for casual dining take-out, according to NPD. "In the end, Americans will never let food costs rise faster than their incomes," Balzer said. Steve Lumpkin, Applebee's Chief Financial Officer, said its prices are not prohibitive. "At Applebee's, you can get a salad for $6 or $7, and that's a legitimate competitor to fast-food options," he said. As for time, the company is aiming for a 5-minute to 8-minute experience. In response to analyst queries, Lumpkin denies that Applebee's is cannibalizing its in-store sales -- which are often higher, thanks to the addition of appetizers, drinks and desserts -- by making take-out an attractive option. Applebee's research has indicated that 80 percent of its take-out sales are incremental, Lumpkin said. Brinker's Brooks had a similar assessment. "We think we're picking up customer traffic from a regular casual-dining user who didn't have time that day for a sit-down meal. We've also picked up consumers who might have gone to a fast-food restaurant but wanted to upgrade the quality of their meal," he said.New DevelopmentsWith To-Go on the rise it is clear that these chains will need to offer a more effective way to reach their customers. Pull-up parking leaves for to much room for error and slow response times to patrons. In our recent review of these operations we uncovered a very unique development that seems to bridge the gap for the casual dining sector to reach the masses without compromising quality. Fuddruckers a 200-unit, 40 state chain led by Michael Cannon, a British entrepreneur has developed an operation that allows the customer to pull into a parking slot that is outfitted with a kiosk like system. This system enables the customer to speak directly to the servers inside. The process seemed to speed up the awareness for the staff inside and much to our surprise the orders were delivered in less than 5 minutes. If quality is maintained, the speed of this system looks to be the evolution of how To-Go systems could work in the near future. The kiosk also sported a small menu area that prompted us to add-on items once we arrived. Though I can't see this menu prompting me to place a fresh order, it did invite me to add-on to the order I had already called in. I am in hopes that this type system could offer a display that could show me specials and add-on offers or even allow me to pay by credit card.It is clear that To-Go is establishing a new dominanceand creative chains like Fuddruckers are out in front of the technology that is being created for such transactions. In reality the key to these operations will be the impact that it makes on the millions of young consumers that have grown to accept a culture of fast service. The one big question that all this To-Go business addresses is that convenience is king. If you can throw a little quality in with the mix they may well have the solution to the next wave of culture shifts that are occurring across our society.
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