“You have to ask yourself, ‘Do we really even need dining rooms?’” That question, from Florida franchisee John Griffey, is on the mind of virtually every QSR operator. “I think the world has changed forever. More and more, people don’t really want to come inside the stores, and Covid moved everybody to the digital world,” he says, reiterating the question “Do you really need a dining room?”
For the decades-old quick-service delivery model, the future is now. Drive-thrus have long been a vital part of the QSR sales strategy, but when the pandemic shut down indoor dining, the industry witnessed drive-thrus – and the wider off-premise category – transform into a lifeline for operators and customers.
“Pre-pandemic, certainly in the quick-service space, a large chunk of the business had already been off-premise with app-based ordering, third party delivery, and continued investment in drive-thrus and ordering kiosks,” observes David Henkes, senior principal and head of Strategic Partnerships at the foodservice research firm Technomic. “A lot of these initiatives continued to grow through the pandemic, and are now migrating even beyond quick service.”
Dining Rooms shrink, amidst off-premise growth
As the country emerges from pandemic restrictions, many dining rooms remain shuttered and plans for new ones are shrinking. This as the off-premise category is expanding to include double drive-thru lanes, bypass lanes, digital app orders and third-party delivery, which was the catalyst behind Inspire Brands’ first ghost kitchen in Atlanta. The building permit describes the 7,500 square-foot space as a “catering and food-service kitchen with a public lobby for food delivery services.” This flurry of innovation marks an important evolution in the QSR industry, and heralds a change in an industry focused on changing consumer preferences that demand a more efficient, more automated, and oftentimes less personal, experience.
“You can’t ignore customer trends,” says the head of TD Bank’s Restaurant Franchise Finance Group, Mark Wasilefsky. “You have to follow them and you have to capitalize on them.”
According to the TD Bank 2021 Restaurant Franchise Pulse Survey, operators are positioning themselves to do just that. In their annual survey of more than 250 restaurant franchisees, operators noted that their top areas of investment in 2022 are in technology. That includes mobile ordering (54%); delivery services (47%); technology such as new POS digital signage (45%); and alternative payment methods (37%).
At the same time, the survey showed that operators are also altering their physical restaurant locations, with 45% planning to provide additional drive-thru locations and 55% saying they plan to add more space for pick-up. “What we are seeing is that the pandemic has permanently altered consumer expectations and behaviors to the point that operators are comfortable enough to make long-term capital investments,” Wasilefsky says.
QSR Evolution: Pandemic tested, app driven, less personal
Dunkin’ is no exception and is uniquely positioned to not only keep pace, but lead in this QSR evolution. Widely recognized as an established player in drive-thru service, nearly two-thirds of its more than 9,600 U.S. locations have drive-thrus. When Dunkin’ launched its Next-Gen store concept four years ago, it featured the first drive-thru dedicated exclusively for mobile ordering, allowing customers who ordered ahead on the app the opportunity to drive right up to the window to get their order. At the time, Dunkin’ billed Next-Gen as the “store of the future,” never envisioning the future would bring with it an industry changing pandemic. But these stores enabled Dunkin’ franchisees to react quickly to Covid restrictions and changing customer expectations.
Today, the Dunkin’ brand continues to enhance its off-premise category with digital-only and drive-thru only stores, as exemplified by its first digital-only location in Boston. The store only takes orders placed in advance on the mobile app or at an in-store kiosk, allowing customers to grab their order in a contactless pick-up area.
Dunkin’ GO, a drive-thru only store, is also expanding its footprint in the marketplace. John Griffey opened Florida’s first GO store last fall, and has two more in the pipeline. The 1,200 square-foot store features a design with a digital, on-the-go focus. It has a double drive-thru lane, a walk-up window and a digital menu board—features that all prioritize efficiency.
With 22 years of franchising on his resume, Griffey has witnessed the iterations in the drive-thru model that pre-date the GO concept, as well as the more recent departure from large lobby and dining room space. Years ago, he opened a drive-thru only location in Connecticut. The one menu board, one window layout was standard, but the drive-thru only decision was somewhat ahead of its time. Griffey says he got some pushback, but he knew customers would adapt and sales proved him right.
In 2018, when Dunkin’ wanted to introduce the Next-Gen concept in Florida, they called Griffey, who operates stores near Jacksonville. “We already had a store on the drawing board, but this was a test for Dunkin’ and I signed on,” he recalls. “We opened it with the drive-thru bypass lane, which I thought was silly. I really did,” he says, laughing at the memory. It’s now one of his highest performing stores, with that bypass lane serving 150 cars a day.
Griffey says he has similarly high expectations for his new GO store. “It’s a beautiful store that’s laid out very well and you can do a big number per hour through the double lane,” says Griffey. “Staffing was becoming difficult, and all of a sudden now you can run a store with fewer people and our service is even better, because we’re focused on quality and speed in the drive-thru,” Griffey says enthusiastically. “Our employees love it because they’re not torn in 20 different directions,” he adds.
As he gets ready to break ground on his next GO store, Griffey is going digital in all of his 14 Florida locations. He’s added kiosks in half the stores, to more efficiently use the existing dining room space, and says he’s moving quickly to get more of the automated ordering machines. “We’re committed,” Griffey says. “I don’t want to say ‘never say never,’ but we’re not going back. We’re going to very minimal [dining room space], double drive-thrus and kiosks in all our new builds.”
Industry experts say this evolution in the QSR industry – including the moves to smaller lobbies, increased automation and drive-thru only stores – makes financial sense. “Prior to the pandemic, this might have had more of a net impact on their business,” says Wasilefsky. “But the off-premise sales and the incremental revenue that franchisees are getting now in the QSR space – from mobile ordering, the gig economy and third-party delivery – will probably offset any losses you might have in the dining rooms.”
But they also caution that eliminating the dining room isn’t a “one size fits all” proposition. “Given the way the consumer is going, and the way they use quick-service, this is sort of the natural evolution for a lot of operators,” says Technomic’s Henkes. “But with a drive-thru only location, your operational efficiency is now your business model. So, if your speed of service is slow, it can cause problems, that you’re now not able to rely on other parts of the business to offset.”
Like most business strategies, it’s a complex equation and might not work across the entire system. Flexibility is key in locations such as urban areas with minimal real estate and heavy foot traffic, or retail settings, where maximum efficiency and profitability will not go hand in hand with a drive-thru.
Demise of the dining room?
Henkes and Wasilefsky agree that operators shouldn’t write off the value of the dining room just yet. Business is never 100% convenience driven, and QSR operators have to build in an opportunity to connect with patrons, something that’s hard to do in a drive-thru. They also need to create and build value and loyalty with customers.
“There’s been a lot invested in apps, promotions and customer loyalty programs and you have to be careful not to become too transactional,” says Henkes.
Wasilefsky notes that there are also restaurant locations that serve as an anchor for the community, and when franchisees take away the dine-in experience, that is lost. “I do think that in a year, two, three years, you’re going to see a dwindling of the dining room in the QSR space,” he says. “But I think brands will be sensitive to areas that benefit from it.”
Griffey believes the key to navigating changes in the industry is to keep moving forward. “These changes were coming,” emphasizes Griffey. “Covid accelerated it and almost forced us to accept them, but the drive-thrus, the kiosks, the smarter apps—they were coming. Now we have to look at what’s next. We have to continue to refine the tech, we have to be even more user-friendly. Just when you think you’ve seen it all, you haven’t. This is just the beginning.”