Test Suggests Delivery Apps Provide Incremental Sales, Not Cannibalization
As larger and larger players explore delivery, the nagging question of whether it’s an incremental advantage or a margin killer keeps coming up.
To get a little insight into that question, Sense 360 took a close look at the data surrounding McDonald’s 200-location test in Florida. Eli Portnoy, founder and CEO of the firm that tracks visits via the flow of location data pouring out of smartphones, said it’s been a tough question to answer. And if restaurants have the answer one way or another, they aren’t sharing.
But according to a study of 21 million visits to QSR and fast-casual in seven markets, there was no evidence of shifting traffic.
“The big question we were trying to answer is whether these third-party delivery apps are driving traffic or just shifting to lower-margin sales,” said Portnoy. “We saw no change at all—zero change in visits. It does not cannibalize visits, which is huge.”
To get to that realization, Portnoy looked at visits in the weeks before the test and the weeks it started. The McDonald’s test was an obvious choice for the data dive.
“We looked at that one specifically because that was such a large test. The interesting thing there was people who had the UberEats app went out to McDonald’s less in general, but we wanted to see if something changed when the pilot started,” said Portnoy.
UberEats users generally go out to QSR and fast-casual restaurants 5% less than people without delivery apps and tend to be higher-income, metro-based consumers. And in the test, it looked like they may have tested McDonald’s delivery themselves.
“We actually saw that the delta shrank a little bit, hinting that there were some incremental visits, but not big enough for a conclusion,” said Portnoy.
“It’s important to consider all the factors that come into play,” said Portnoy in a release announcing the results of the test. “If delivery apps caused lower visitation rates, then they could indicate cannibalization of in-store visits. However, if delivery apps merely indicate a different type of user, according to socioeconomic level, demographic or geography, who has a naturally lower rate of visitation, then creating opportunity for them to access the brand on a delivery app could drive incremental purchases.”
How exactly that plays out at chains further up the scale from McDondald’s isn’t totally clear. But David Gordon, president at Cheesecake Factory, said he’s seeing the same thing, but none of the margin damage that is so commonly cited.
“I think we are seeing some incremental sales in some of our locations,” said Gordon during the company’s Q1 earnings call. “I think most importantly, that's really margin neutral overall, the entire program.”