Chick-fil-A, McDonald's, and other fast-food giants quietly raise menu prices for delivery orders by more than 15%
Business Insider
Jul 27, 2020
As food delivery sales explode, customers may find themselves paying more than a $1 extra for something like a Chick-fil-A chicken sandwich — before paying delivery fees or tipping a driver.
Fast-food chains list menu prices that are 15.3% higher on average for delivery orders compared to pick-up orders, according to Gordon Haskett analysis.
For example, a Chick-fil-A chicken sandwich for delivery — ordered through the chain's partner Doordash — will cost $4.85 on the menu at an Atlanta, Georgia location. However, the same sandwich will cost $3.75 on the same location's menu if ordered for in-restaurant pick up.
Business Insider found a similar markup at a location in Brooklyn, New York. While Doordash, Grubhub, and Uber Eats all listed the chicken sandwich's price as $6.85 for delivery orders, the location's menu lists the chicken sandwich as $5.29 for pick-up or in-store orders.
As a result, customers end up paying more for delivery orders, even before additional fees or tipping delivery people. Some customers may not realize that prices are higher on the "delivery menu" and that the same item costs less if they pick it up themselves.
Chick-fil-A has the highest delivery pricing premium of the 25 chains analyzed by Gordon Haskett, with menu prices that are 29.8% higher for delivery compared to pick-up. Starbucks' delivery menu prices are 20.3% higher than pick-up, and McDonald's are 19.6% higher.
Many chains hike prices on delivery menus because partnerships with third-party companies, such as DoorDash, GrubHub, and Uber Eats, cut into earnings. As the coronavirus pandemic has made delivery a bigger part of restaurants' business models, some restaurants say that these fees and commissions make it difficult to turn a profit.
Gordon Haskett's breakdown of how much money Chipotle might earn from a pick-up order versus a delivery order provides an explanation of why chains are raising prices, and why analyst Jeff Farmer expects the burrito chain to do the same. Farmer crunched the numbers on a $20 Chipotle order with a delivery commission of 15% (which is lower than the current typical rate across the restaurant industry).
Farmer estimates that Chipotle nets roughly $4.10 off a $20 pick-up or in-restaurant order, after taking costs such as food, labor, rent, and other operating costs into consideration. After subtracting a $3 — 15% — commission for a delivery order, the location makes just $1.10 on $20 worth of burritos. If the delivery partner charged a $6 commission — in the 30% range that is typical of Grubhub or Uber Eats — the location would lose $1.90 on a $20 order.
For a Chipotle delivery order to net the restaurant as much money as a pick-up order would, Chipotle would have to raise menu prices by 15%, according to Gordon Haskett's model. That would mean a $9 burrito would cost $10.35 on the delivery menu.
Chipotle does not currently charge premium prices for delivery. However, Farmer says it is "a near certainty" that the chain will do so in the beginning of the fourth quarter, boosting the company's profit margins.
Farmer wrote in the report that Chick-fil-A's delivery pricing strategy indicates "that concepts with strong customer affinity/loyalty have sizeable delivery pricing power." In other words, people are willing to pay more to get chains like Chick-fil-A, Starbucks, and McDonald's delivered because customers have greater affinity and loyalty to these chains.
Fast-food chains have higher pricing premiums on average than fast-casual chains, such as Panera and Noodles & Co., which raise prices on delivery menus an average of 12.6%. Casual dining chains — such as Chili's, Outback, and Applebee's — either do not raise prices or raise them very little, with an average pricing premium for delivery orders of 2.9%.
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