An idea that’s been floated a few times in diginomica’s ongoing analysis of digital transformation in the QSR (Quick Service Restaurants) sector is the notion that of all fast food categories, pizza providers are the ones who should be best placed to exploit the current focus on tech-enabled delivery services, given the ‘phone for a pizza’ operating model that’s been in place for decades.
Greg Creed, CEO of Yum! Brands, would disagree arguing that it’s one of his brands, KFC, that’s been waiting for this moment:
I always jokingly said, I think the Colonel 60 years ago invented the bucket realizing that one day we'd be delivering it because it's the perfect delivery vehicle.
Maybe so, but Yum! - owner of three mega QSR brands in the shape of the chicken company, Taco Bell and Pizza Hut - has hitched its delivery options to a third party platform provider in the firm of Grubhub. Such is the dependence there that Yum! last year splashed out $200 million to take a 3% stake in Grubhub as part of a five year partnership deal initially focused around KFC and Taco Bell. As Grubhub founder and CEO Matt Maloney said at the time:
This is big - the largest restaurant company in the world chose us.
Nearly 15 months later, it’s a big deal for Yum! as well. The company needs to get on top of the digitally powered delivery game and faces the same challenges as other major QSR providers - DIY or outsource to a third party aggregator? The former option takes time and money and dedication; the latter option means sharing data and paying commission to those aggregators, something that Domino’s Pizza CEO Ritch Allison took exception to last week, declaring:
It’s just not clear to me why I would want to…give up the data in our business to some third party who will ultimately use it against us.
But for Creed, the decision to work with Grubhub is a sound strategic move that’s paying off:
We now have 2,200 KFCs offering delivery and 3,200 restaurants available for click-and-collect on the Grubhub marketplace. We're excited about the operational ease and the increased check growth for our franchisees and we look forward to the nationwide launch of KFC delivery in the US later this year.
Early learnings from those first restaurants in the rollout have been encouraging in terms of the kind of consumer behaviors triggered, most notably that digital orders tend to be bigger:
I think what we're seeing is what we expected to see, which is sort of a focus on dinner, a focus on big packs. Obviously it's incremental. As I said, I think the bucket is a incredible delivery device. It really delivers piping hot, great tasting food. And I think that's also a benefit that the KFC customer is currently seeing, which is getting restaurant quality food delivered to your house.
Taco Bell meanwhile kicked off a joint marketing campaign with Grubhub in February which saw an uptick in business, says Creed:
Given it’s early days, we aren't going to provide specific data, but I will say that both traffic and check saw benefits from the launch. Customers are also loving a new way to get their favorite Taco Bell products. Feedback has been positive plus the strength of our partnership with Grubhub has allowed for real time feedback and learnings to continue to elevate the customer experience to even higher levels. Delivery is now live in over 4,000 Taco Bell restaurants in the US and opportunistic market expansion should increase restaurant coverage over time. Additionally, click-and-collect functionality is available on all tacobell.com and Taco Bell App while we're also expecting this functionality through Grubhub.
As for Pizza Hut, that brand wasn’t at the forefront of the partnership announcement last year, due to the fact that it retains a legacy image as a dine-in venue. That said, delivery is seen as the way to expand and provide an additional sales channel. There are now 200 Pizza Hut locations on Grubhub, he says:
While customers are placing the orders on the Grubhub website, Pizza Hut delivery drivers are completing the orders.
The Grubhub view
So, promising results so far that would appear to justify the decision to ‘bet the farm’ on Grubhub. But how do things look from the other side of the deal? CEO Maloney is upbeat:
Our partnership with Yum! Brands is working. Delivery unlocks more ordering occasions for Yum!'s restaurants, and we are adding diners that have yet to try online ordering, a true win-win. The initial Taco Bell campaign is just the beginning of how Yum! and Grubhub will be working together to help grow all of their brands' online business. The campaign attracted many new diners to the marketplace. Diners that place their first order with Taco Bell during the free delivery period are returning to Grubhub at the same or better rates as a typical diner, even after we ended the free delivery campaign. Some comeback and order Taco Bell again but the majority are trying other restaurants on the platform as well.
For KFC, Grubhub is now building a white label app and this will be part of a similar marketing push to that seen at Taco Bell:
We currently have more than 3,000 KFCs in our platform that are currently receiving orders from Grubhub. We know the campaign is coming. We really look forward to continuing to support KFC through our market place, and then powering the upcoming…white label app when it’s released. But it’s going to be KFC that decides when that goes live based on their calendar…They are choosing to build their own app, which is buying with us. It’s running on our rails.
That’s a working model that Grubhub is happy with, he adds:
We are indifferent if the order comes across our market place, or their branded apps. That’s probably the uniqueness of fully aligning with the partner. Yum! was the first partnership that we built in the new frame of supporting restaurants, enterprise brands with the sustainable profitable growth.
With profit in mind, Maloney appears to understand the sort of concerns voiced by Domino’s Allison and this is shaping the way Grubhub operates:
You don’t have a realistic way to have a long term profitable business when third party platforms are pulling 30% off of every order and perpetuity. So why don’t we help you and provide you a transaction and provide you support for a branded market place and provide you loyalty tools, which by the way you’re paying for anyway? That all integrates with a growth platform so that when you want to surge growth you may and then you can pull that in and execute your own marketing strategy with your diners. And you can have a different economic situation than if you are fully reliant on a third party platform. And that argument is a slam dunk every single time you have it.
By partnering deeply with Grubhub, restaurants can own their online diners just like their in-store diners, including the transactional data all the way down to the individual diner and can combine online orders with in-store diner behavior to improve their diner LTVs and their marketing ROI. Clarity on where their diners are coming from, what channels they're using, and what they are ordering is critical to brand success online. If restaurants don't own their data and don't control their branded experience, then they are merely renting customers from wherever their online orders originate. Grubhub's products empower restaurants to own their digital customers and build their online business sustainably and profitably. This is how digital partnerships should be structured. This is the future of online ordering for restaurants.
But to make that work, there needs to be buy-in on both sides, he advises:
The next question is how deeply are these restaurants willing to integrate. KFC is all in. Everything we offer they said yes. That is a very intelligent decision for them and we’re going to do everything we can to show incredible success for that brand. Taco Bell is another deep-deep partnership and Taco Bell wants to build their own app, which is absolutely fine. We support that decision. We support them as aggressively as we can. They don’t have their app out yet, which I think if we did it, we might have been able to do that for them. But these are choices that they can choose how deeply to integrate and how much to leverage our system.
Fifteen years on from founding Grubhub, Maloney can boast 115,000 enterprise and independent restaurant partners and a network of 19 million active diners:
Our over 65,000 active drivers deliver more than 200,000 orders on busy days, that’s over two orders per second. Much of our volume is still supported by restaurants that prefer to deliver their own food, but we are here to support the restaurants that choose not to. For restaurants with strong brands, we offer highly customizable on brand fully functional white label made of apps that allow restaurants to build their online presence and enrich their brand further. To help restaurant service these orders, we are able to integrate orders from both these branded apps and our market place diners directly into point of sale and kitchen display system that maximize efficiency and make processing online orders seamless with existing operations.
The Grubhub route to digital ordering and delivery is one that clearly works, but is a more sophisticated proposition than basic aggregation services offered by others in the sector. The ‘all-in’ approach taken by Yum! Is shaping up to be a benchmark exemplar of how such tie-ups can operate. While it’s still early days, the initial results look promising. Others in the QSR space - both ‘mom and pop’ independents and enterprise food and beverage organizations should be keeping a close eye on how things proceed as the KFC and Pizza Hut brands up their digital game.