Will On-Demand Food Delivery Kill the Chipotle Burrito Line?
How will the sudden rise in third-party on-demand delivery services change the way we order Chipotle?
Burritos on Demand
I’m often willing to spend more money on the same food I could have gotten for a fraction of the price, all for the ease of ordering from my phone. And I’m not alone.
The rise of digital technology is transforming the food delivery market, leaving full-service food chains like Chipotle wrestling to adapt to new customer habits and expectations. Experts forecast a massive 79 percent surge in the total U.S. food home delivery market over the next five years [1]. While the market represents only $30 billion this year, Morgan Stanley estimates it could balloon to $220 billion within a few years [2].
Digital on-demand food delivery services like GrubHub, Postmates and UberEATS have changed the game. As customers sign up to one these platforms, 80 percent never or rarely leave for another platform [3]. As the use of these digital on-demand delivery platforms continues to grow, Chipotle will need to find ways to retain its direct touchpoints with its customers and make its service faster and more streamlined.
Virtual Restaurants
To further complicate matters for Chipotle, UberEats, DoorDash and Grubhub have invested in “virtual restaurants” to fill voids in local food optionality (i.e. when people search these on-demand delivery apps for a specific food item but there’s no restaurant nearby that offers it) [4].
Virtual restaurants exist to serve food only via delivery. Unlike Chipotle, they can adopt a quick, low cost “launch, experiment and iterate” approach to its menu—swapping out its underperforming meal items on GrubHub, Postmates or UberEats’ AI-powered food recommendation lists with higher-performing options [5]. Also in contrast to Chipotle, these “restaurants” run in a smaller footprint in lower-rent districts, with no need to account for foot traffic, parking space, budget for décor, seating areas and customer-facing staff [6].
Chipotle’s Response
In response to 30 percent month-over-month growth in delivery orders since Postmates started delivering Chipotle, Chipotle executives signed an official deal with the San Francisco-based delivery start-up [7]. Postmates still serves as the featured delivery option on the chain’s website, along with the option to order via Tapingo or Favor, two other on-demand delivery platforms. Customers can also place a pick-up order directly on the Chipotle site, or via the Chipotle app [8].
To manage demand from tablets and online orders, Chipotle’s restaurants have started adding what the company calls a second “make-line,” or team of workers that prepares virtual orders from a prep table in the kitchen. The second line is located in the kitchen to avoid bogging down the main, customer-facing preparation line [9].
Longer term, Chipotle is planning to experiment with new ordering systems, such as tablets and “virtual drive-thrus” that will enable customers to skip long lines and potentially avoid coming inside the restaurants altogether [9]. Its CEO has not yet explained the virtual drive-thru concept, but other restaurants have used that term to describe curb-side pickup services that allow customers to pick up orders without leaving their cars [9].
Concerns and Recommendations
As Chipotle re-positions itself to better serve a new on-demand generation, the company sacrifices its customer experience by extending delivery services to third-party on-demand platforms. For example, after placing a Chipotle order on the Postmates website or app, the order does not immediately go to Chipotle’s kitchen. Instead, the Postmates order goes directly to a Postmates courier, who then goes to Chipotle, stands in the same line as normal customers, and verbally relays the details of your order to the Chipotle assembly line [10].
Chipotle should be receiving orders from all third-party delivery services well in advance, so that the order pick-up process is fast and foolproof as possible. As the number of online orders continues to rise, Chipotle should separate its front-of-house space for different order types, so delivery drivers and couriers, often toting large bags, do not wait in the same line as normal customers.
Chipotle should also start lessening its reliance on third-party delivery services for boosting sales, and instead invest in expanding its own in-house delivery capabilities. In taking note of this sudden wave of virtual restaurants, Chipotle should consider setting up its own “ghost kitchens” to better accommodate delivery. Unburdened with high rent costs or any of the other necessities that go hand in hand with its full service locations, these ghost kitchens could operate hidden from customer view, and exist solely to support the fulfillment of faster, fresher deliveries.
As the on-demand food delivery space grows, I wonder if Chipotle “ghost kitchens” (i.e. its own versions of virtual restaurants) could eventually account for more sales than its traditional, full-service locations. For a quick-service restaurant like Chipotle, how much does the dine-in or order-in experience matter, and how much of a threat does on-demand delivery pose?
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[1]: Franck, Thomas. “Home food delivery is surging thanks to ease of online ordering, new study shows.” CNBC, cnbc.com, 12 Jul 2017.
[2]: “Alexa, What’s for Dinner Tonight?” Morgan Stanley, morganstanley.com/ideas, 25 June 2017.
[3]: Hirschberg, Carsten, Rajko, Alexander, Schumacher, Thomas and Wrulich, Martin. “The Changing Market for Food Delivery.” McKinsey & Company, Nov 2016.
[4]: Locker, Melissa. “UberEATS is launching virtual restaurants to bring you real food.” FastCompany, fastcompany.com, 9 Nov 2017.
[5]: Tan, Yvette. “UberEATS is going to take orders from ghost restaurants that don’t really exist.” Mashable, 9 Nov 2017.
[6]: Mims, Christopher. “These hot restaurants aren’t on maps, only in apps.” Wall Street Journal, wsj.com, 5 Nov 2017.
[7]: Isaac, Mike and Strom, Stephanie. “Chipotle signs deal with food delivery start-up Postmates.” New York Times, nytimes.com, 23 April 2015.
[8]: “Chipotle Delivery,”chipotle.com/delivery, 15 Nov 2017.
[9]: Peterson, Hayley. “Chipotle is getting rid of long lines.” Business Insider, 14 Dec 2016.
[10]: Anderson, L.V. “We ordered Chipotle delivery. It did not go well.” Slate, 27 April 2015.
You highlight an interesting dilemma, @JessicaSchiffman. I too have thought a lot about the rise of the on-demand delivery platform (especially now that I’ve almost entirely resorted to ordering my meals online, thanks to the loss of any semblance of free time). What’s interesting about this digitization supply chain dilemma for Chipotle, however, is that it’s twofold: a) how to quickly make the burrito for delivery consumers (while avoiding potentially long customer lines), and b) how to get the burrito to the customer as quickly as possible.
I’ve seen second make-lines in practice (e.g., Sweetgreen), which speeds the process of food production (i.e., avoids Postmates employees waiting in line with other customers); the same would hold true, of course, in the case of the “ghost kitchens” you’ve mentioned above. That said, I think the crux of the issue actually has less to do with kitchens / food production delays, and more to do with technology that could minimize the time between order entry & production, and production & delivery. Enter: UberRUSH API.
UberRUSH API allows developers to integrate the checkout flow directly with the Uber network, enabling delivery services to be triggered automatically with purchase. So, not only do companies (like Chipotle) avoid costly bottlenecks by building deliveries right into their daily operations, but they have the benefit of a huge already-in-existence delivery network – the global fleet of Uber drivers – including real-time supply and demand visualization. Perhaps this could be an outsourced version of the virtual drive-thru concept you mentioned?
To truly combat on-demand delivery services (and stay relevant!), Chipotle would be wise to hop on the Uber API train as soon as possible, and provide their customers with better delivery times and zero delivery fees (like they’re faced with on UberEATS or GrubHub). Otherwise, even their other-worldly guacamole may not be enough to draw customers into the store.
Very interesting read, Jessica. When you highlighted the rise of the third-party delivery services, I immediately thought of the example in class where we mentioned blaming United for anything that goes wrong during the entire airport process when you try to catch a flight, including less-than-ideal interactions with TSA. By offshoring to third-party delivery apps / merchants, Chipotle loses control of the customer experience / service that it has worked to build. Customers may conflate their lackluster delivery experience with Favor or Postmates (for example, that food came late, wasn’t hot, or was ordered incorrectly), with the actual service / product that Chipotle is supposed to provide (fast, cheap, customizable and (relatively) tasty burritos). By bringing the delivery capability in-house, whether through virtual kitchens as you’ve suggested, or through an owned delivery service (a la Dominos), Chipotle can ensure that it controls the customer experience from start to finish.
The issue is then whether such initiatives prove to be expensive for the company, and if customers are willing to switch to delivery vs. dine-in. While I can’t estimate the former, I’d venture to guess on the latter point, customers would find the ideal of Chipotle delivery appealing, since 1) many order Chipotle to-go during busy lunch / dinner hours and probably don’t care too much for the queues, and 2) they would likely trust direct delivery from the company more than a third-party service if it meant that their orders arrived on-time, and correctly). If it is relatively cost-effective to develop delivery capabilities (bike messengers vs. cars, limit to a certain radius of each store), and properly executed (separate lines for the delivery orders to avoid confusing line workers, an app with great user interface), Chipotle could see sales trend in the direction of Chipotle-delivery fairly quickly.
I feel many of the popular restaurant chains are facing this challenge. In my opinion the restaurants are now in a position in which their only choice is to join the trend. As an example in Colombia two of the biggest restaurant chains were at first reluctant to partner up with Rappi (similar to Postmates). Even though they wouldn’t partner with Rappi, Rappi decided to go ahead and offer their menu on the app. This way if a customer made an order the delivery guy would go in as a normal customer and ask for a meal to go and take it to the customer. These two chains started experiencing a huge demand for this service and now their lines were invaded by delivery men which became really annoying to customers who had to wait in line longer for their food. One of the restaurant chains has since decided to partner with the Rappi and has adopted the instant ordering technology allowing for a fast pickup. For other restaurants it has even gone as far as developing separate kitchens with no customer walk-ins only to serve the delivery service.
In my view Chipotle was wise to partner with Postmates. Going forward they should invest in their partnership by ensuring a fast pick-up for delivery and should consider expanding their operation to serve this new channel while maintaining good customer service at their restaurants.
Thanks for writing about something I care greatly about! I couldn’t agree more that the use of apps and food delivery services is biting into profits for in-house restaurants and dining services. This reminds me a lot of the Marriott/ AirBnB dilemma: the new, hip folks are here–do we copy them or stay really good at what we already do? You argue they can start to copy them, in a way, or at least tag along by being a part of existing food delivery services. You also make great suggestions about how to improve this process (I particularly like your idea of making a separate line for people making bulk orders for delivery). However, I do think there’s an argument to be made for them staying good at what they’re already good at–part of the customer promise of Chipotle is the in-house experience. While some people do scurry out the door with burrito in hand, many others stay in the casual, upbeat, open space restaurant to chat with friends or do some homework. Because the restaurants are so strategically located, they do end up with a lot of foot traffic who benefit from these offerings (in a similar way that Starbucks does). So perhaps their approach should be two-sided: yes, we’ll take part in the delivery service, perhaps opening our own… but we’ll also make sure we’re fulfilling the heart of our customer promise that people know us for. I worry that if people see Chipotle going “too digital”, they’ll think of it as a fast food, experience-less way to eat–not a true visit to a Chipotle (a very joyous experience, in my opinion). Thanks again for sharing your article!
Nice job Jessica, and entertaining read! I think the partnership with Postmates is a step in the right direction towards going digital, but I do worry about decreases to in-store dining. As more and more consumers turn to online ordering and apps for delivery, the convenience allows consumers to either grab and go or time the delivery of their order to when they’re going to be home for dinner or even have food delivery to a favorite hang-out with friends. Because burrito’s are small, compact, and can be eaten without a fork or nice, it does not necessitate eating in a restaurant. Additionally, while ordering in the restaurant does allow the consumer the opportunity to customize their meal in real-time, the dine-in experience is nothing to write home about.
This reminded me of the small Domino’s restaurant down the street from my apartment, and I think Chipotle could also benefit from piloting a small restaurant that focuses on processing orders for pick-ups, delivery, and a handful of diners. This could cut costs by relieving pressure from the second “make-line” and managing lower fixed costs stores with lower labor costs.
I actually think the way Chipotle handles its current delivery offering is smart, even though there are inefficiencies that could be ironed out. We rarely find QSR restaurants on UberEATS and Seamless/Grubhub, which I see as the more traditional delivery services, and this may just be me but I think this creates an allure for millennial consumers. The fact that Chipotle isn’t on UberEATS or on Seamless means that I am more inclined to go to a brick and mortar Chipotle. I think if Chipotle were to begin offering their menu on multiple delivery platforms, this would dilute the allure of visiting a Chipotle store, and would decrease the traditional long lines that are associated with the Chipotle brand.
Where I think they could improve their participation in the online / app delivery landscape is by becoming more integrated with Postmates. Currently, when ordering Chipotle on Postmates, users are forced to pay a high delivery fee in addition to other fees and a tip. Also, the ordering platform is not as user-friendly as it could be. I think by taking orders from the app directly and preparing them at the restaurant in a separate line located in the kitchen is a much more efficient method of increasing transactions and supporting Postmates. That way the delivery person can come and pick up the order immediately instead of standing in line, which decreases wait time for consumers too. I think by actually accepting Postmates as a partner and making them an exclusive partner, one that manages Chipotle’s online ordering, Chipotle can participate in the “stay at home and order” growth while maintaining a value proposition for the brick and mortar stores.
Jessica,
Thank you for the interesting read. While I agree that Chipotle should be worried about the growing trend of on-demand food delivery services, I wonder if attempting to compete head-to-head with companies like GrubHub or UberEats is the best idea. Delivery is far from the core competency of a food service company like Chipotle, and I think that simply hiring delivery drivers is an extremely inefficient solution.
UberEats, being able to rely on the existing Uber platform and driver base, seems to be the best equipped to handle this growing demand. Why not partner with them and allow both companies to operate in the areas they know best? Exchanging of information between the two companies would allow for accommodations to be made for many of the issues.
Thank you for an interesting read, Jessica. I’m totally with you, willing to spend more money on the same food for the convenience of ordering from my phone.
I really liked your recommendations and agree that Chipotle should expand its own in-house delivery capabilities from the customer perspective. I just wonder, for a quick-service restaurant with low-price meals like Chipotle, whether it actually makes any additional profits from having those capabilities. Demand may increase, but inefficient utilization of labor, equipment and facilities can eat in margins.
Your concept of “ghost kitchens” will be a great idea as the demand for deliveries increases. To me who is a repeat customer of Chipotle, the dine-in or order-in experience doesn’t matter at all; I end up taking out food most of the time. Yet, I believe it is still the most efficient to keep the current queuing system for the moment. The almost continuous flow line contributes a lot to the efficiency as the employee gets the order directly from the customer while making the plate and adding toppings. I’m curious about how technology will bring in any further insight in the future as to how to close the gap between the customer wants and company values.
I think Chipotle is in a difficult place. Chipotle’s challenges with digital on demand food delivery services is similar to Marriott’s challenges with Airbnb. On the one hand, Chipotle does not have the strong value proposition that Marriott has, which is the in-hotel experience. While travelers may pay a premium to stay in a Marriott for the comfort and amenities, a Chipotle brick and mortar restaurant really does not offer quite the same delight (I’d much rather stay in my living room). On the other hand, having Chipotle delivered home does not offer any price savings as does an AirBnB. In fact, it is even more expensive. So Chipotle straddles a difficult place. While customers may like its food, I would not be surprised if over time, more people get it delivered to their home/office, making brick and mortar restaurants less relevant.
One advantage it does have is that actual standing restaurants that I can touch and feel gives me comfort that the food is clean and high quality. As a customer, I would be less trusting of virtual restaurants, given I have no idea if their kitchens are clean or if their food is good quality. Even if Chipotle had a ghost kitchen that exclusively served delivery orders, I would still have no doubt that it is just as clean as their restaurant kitchens.
As such, while I support the ghost kitchen model, I think Chipotle needs to retain a number of brick and mortar stores to maintain their brand image.