Change is coming to the restaurant industry that will reshape how diners order food. In the coming years, food delivery will be “the most disruptive change in the restaurant industry in this generation,” says Hedgeye Restaurants analyst Howard Penney.
The winners and losers of this trend are becoming more apparent with each day. So far, early adopters like pizza chain Domino’s Pizza (DPZ) have been the prime beneficiaries. In the past year, shares of Dominoes are up 46%, with the company’s innovative food delivery technology bolstering the bottom line. Delivery accounts for 29% of the company’s business and annual digital sales total about $4.7 billion.
However, Domino’s competitive edge is fading fast.
There has been a spread of third party delivery services like DoorDash and Postmates which have received considerable venture funding, and partnered with many independents and large national chains. Historically, GrubHub has merely been an aggregator of orders. But now it’s diving into the delivery space.
Even more traditional restaurant chains like Panera Bread are getting in on the action, Penney explains in the video above. The bakery-café fast casual restaurant has been investing immense amounts of capital to push out their “Panera 2.0 initiative,” which is nearly completed in company-owned stores next frontier is delivery. The company anticipates it will be in 15% of units by the end of 2016, and ramping to 35% - 40% of the system by the end of 2017.
“We have no particular call on Domino’s right now,” explains Penney, “but the more money that’s invested in this business, and as long as companies like Panera continue to go on TV and start talking about delivery in their advertising, it’s going to change the story around the Domino’s business longer-term.”
It will be tough to unseat Domino’s as top-dog in delivery over the short-term. Over the long-term, the company will feel the pressure of competition. This should benefit new entrants, like Panera (PNRA), while squeezing companies with lofty delivery goals, like GrubHub (GRUB).
We are keeping a close eye on this trend.
