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Fast food needs to beef up delivery to stay relevant: Wells Fargo

Heidi Chung

Competition in the fast-food space is hot.

And in order to stay relevant in the space, companies need to beef up their technology and delivery initiatives, according to Wells Fargo.

It is estimated that restaurant delivery will become a $50 billion market in the U.S. over the next three years. As companies like Grubhub (GRUB), DoorDash, Postmates and Uber look to make food delivery a more common luxury for consumers, restaurants that do not offer delivery to their customers are starting to lag behind its rivals.

“We believe those restaurant companies willing to spend against this [delivery] channel – with a strong technological backbone and proper alignment with third -party delivery services and marketplace aggregators – will ultimately generate the greatest sales yield,” Wells Fargo analyst Jon Tower wrote in a note Friday.

The firm conducted its inaugural survey to gauge consumers’ appetite for food delivery. The survey analyzed responses from 475 consumers aged 18 and older who ordered restaurant delivery at least one time over the past month. Participants were across all markets and income brackets in the U.S.

“From a high-level, our survey supports the idea that restaurants need to address this ordering medium or risk losing relevance (if not sales) with consumers over time,” Tower said.

Methods used for food delivery (Wells Fargo)
Methods used for food delivery (Wells Fargo)

The survey found that about 51% of respondents have five or less restaurant-specific apps on their phones, but when they ordered delivery, 46% of the time it was through an app. Thirty-two percent said they called into a restaurant and 19% used a computer. “This supports our thesis that real estate on mobile devices is becoming more important and in order to be relevant to consumers,” Tower argued.

Food delivery apps (Wells Fargo)
Food delivery apps (Wells Fargo)

In terms of delivery specific apps that are used, 37% of respondents had the DoorDash app, while 35% had Grubhub, and 34% had Uber Eats.

Most commonly ordered cuisines for delivery (Wells Fargo)
Most commonly ordered cuisines for delivery (Wells Fargo)

Moreover, Tower makes an interesting point about the different cuisines that are typically ordered via delivery. He noted that while pizza delivery was the most reliable and common option within the delivery channel, Mexican and chicken categories are starting to steal market share. When ordering food delivery over the past month, half of the respondents ordered pizza, while 12% ordered Mexican, and burgers and chicken were both ordered by 8% of participants.

Thirty-two percent respondents said that promotions and coupons were the biggest driver of app choice.

So, according to the survey, who will be the big winners in the fast-food delivery wars? “Across our universe, in limited service, we currently see Chipotle (CMG), McDonald’s (MCD) and Wingstop (WING) as the best positioned to see incremental growth from delivery while in full service,” Tower said.

Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.

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