The Reason Grocers and Restaurants Favor Pickup Over Delivery

Better margins and more direct connection with customers. And pickup has increased relative to delivery as lockdowns have lifted. JL

Heather Haddon and Jaewon Kang report in the Wall Street Journal:

Pickup orders are boosting sales for restaurants and grocers at better margins than delivery. Supermarkets and restaurants want their pickup operations to wrest online orders back from online apps like Grubhub and Instacart. They say the fees those and other companies charge to deliver their food have added up during the pandemic as dining rooms closed, some customers avoided supermarkets, and business shifted online.

Pickup orders are boosting sales for restaurants and grocers at better margins than delivery, prompting many to build out services they hope customers will favor even after the coronavirus pandemic has subsided.

Some supermarkets and restaurants say they want their pickup operations to wrest some online orders back from apps such as those from Instacart Inc. and Grubhub Inc. GRUB 0.15% They say the fees those and other companies charge to deliver their food have added up during the pandemic as dining rooms closed, some customers avoided supermarkets, and business shifted online.

Restaurants such as Pizza Hut and Chili’s have expanded upon pickup service that spares them the cost of delivery at lower prices for customers. Many independent restaurants have thrown together multicourse carryout menus to generate business during the coronavirus pandemic, too.

Executives at Darden Restaurants Inc., owner of Olive Garden, said Thursday that they tried adding their own delivery service during the pandemic, but found it to be inefficient and in low demand. Chief Executive Gene Lee said the company plans to stick with a beefed-up carryout offering instead.

Kroger Co., Albertsons Cos. and other grocers are waiving pickup fees and building out spaces to fill those orders. Aldi Inc. is offering pickup for the first time because customers asked for an alternative to visiting stores or paying for delivery, said Brent Laubaugh, co-president of the German discounter’s U.S. operations.

“Delivery can be challenging for people,” Mr. Laubaugh said.

Delivery is still big business for restaurants and grocers, and demand has increased for the services during the pandemic, market-research firms and providers including Instacart and Grubhub have said. But demand has softened somewhat as people start to venture outside their homes, even if it is to pick up food from a restaurant or grocer’s parking lot. Some delivery companies have also reduced promotions they introduced to draw customers as the pandemic took hold.

Pickup grocery sales were up 81% in the week ended June 13 from the start of this year, according to Nielsen, while delivery sales rose 33% in that time. At restaurants, carryout accounted for 42% of orders by dollars in May,  according to data from research firm NPD Group Inc., compared with a 13% share of sales for delivery. Carryout has maintained its share of restaurant sales since dining rooms began to reopen in May, NPD said, while drive-through and delivery have lost some ground to dine-in orders.

Alinea Group, operator of five high-end restaurants in Chicago, added a daily takeout menu during the pandemic that continues to generate tens of thousands of dollars in weekly revenue at each restaurant even since Chicago allowed for outdoor sit-down service in June.

“It’s a lifeline,” said Alinea co-owner Nick Kokonas.

He is also a founder of Tock Inc., a reservation-booking system that has added a marketplace for takeout orders, for which it charges a 3% commission, well below what he and other restaurant operators say delivery companies charge to take their food to customers.

Tock has processed around $2 million in daily pickup orders a day since adding a carryout option to the system when the pandemic began, Mr. Kokonas said. The company is signing up an average of 50 restaurants a day, he said.

Casual-dining chains such as Denny’s Corp. and Chili’s also started or added to contactless curbside takeout during the pandemic. Many say they intend to stick with it to bolster sales as customers slowly return to dining rooms with restricted capacity in much of the country.

“Delivery has been huge but takeout is significantly bigger,” said Wyman Roberts, CEO to Chili’s parent company Brinker International Inc.

Starbucks Corp. is building more pick-up-only stores in urban areas, and a service to take drinks to customers’ cars in the suburbs. During the pandemic, Pizza Hut introduced contactless pickup, with employees wearing gloves delivering preordered pizzas into customers’ cars.

The company is still focused on its delivery business but thinks some customers may prefer pickup for its value, said Kevin Hochman, the chain’s U.S. president. Its also preferable for margins, he said.

“Delivery is expensive to execute, and its very hard to recover all of your costs on a delivered pizza,” Mr. Hochman said.

At Midwest grocery Hy-Vee Inc., grocery delivery sales are down year-over-year while pickup sales are up significantly, said Chief Executive Randy Edeker. The grocer is outfitting more space to prepare pickup orders that are generating 84% of Hy-Vee’s online business, he said, up from about 40% a year ago.

“Most of the new shoppers are picking up,” Mr. Edeker said.

Mary Alft, a 64-year-old retiree in Lincoln University, Pa., said she has been wary of going inside grocery stores and restaurants during the pandemic because of her age and asthma. She said she enjoyed how fast and convenient grocery pickup was when she tried it in April at her local Giant store, owned by Koninklijke Ahold Delhaize NV.

“Why didn’t I do this my whole entire life? I did not like going to the grocery store,” Ms. Alft said.

Delivery companies are trying to grab more pickup business too. Grubhub, Uber Technologies Inc.’s Uber Eats division, DoorDash Inc. and Postmates Inc. all offer pickup-order processing for restaurants. Instacart introduced pickup last year.

Cameron Mitchell, owner of Columbus, Ohio-based Cameron Mitchell Restaurants sit-down chain, put together a curbside carryout service during the pandemic but decided against adding delivery. To-go sales doubled, he said, and he plans to stick with the carryout business even as his dining rooms are reopening.

“There is a sufficient faction of the public who doesn’t want to go out to dinner,” he said. “We are figuring it out.”