By Evie Liu
Chipotle Mexican Grill started cooking up the idea of having drive-through lanes at its restaurants in 2018. But there was a problem: Its made-to-order salad bowls and burritos would take too long to make.
"The pain point of drive-through is ordering. That's what slows people down and creates big backups," says Chris Brandt, the company's chief brand officer. "So we said, let's eliminate the ordering."
That's what Chipotle did. The fast-casual chain created what they call Chipotlanes, where customers pick up their food at designated times after using Chipotle's app to order and pay in advance. Restaurants with Chipotlanes have sales 10% to 15% higher than those without, the company says.
"The return on investment is outstanding," says Brandt. Now, 1 out of 4 Chipotles -- over 800 locations -- have these pickup drive-through lanes. The company says more than 80% of its future restaurants are expected to come with a Chipotlane.
The departure of CEO Brian Niccol, announced Aug. 13, to run Starbucks won't derail Chipotle's plans, Laurie Schalow, Chipotle's chief corporate affairs and food safety officer, told Barron's. "We will continue executing our existing strategy," she says. Chipotle named Chief Operating Officer Scott Boatwright as interim CEO.
Chipotle isn't the only quick-service restaurant working to reinvent the decades-old model of drive-throughs, which generate two-thirds of all fast-food revenue, according to restaurant consulting firm Revenue Management Solutions.
Despite their popularity, drive-throughs are notorious for long lines and poor order accuracy. More digital orders, dedicated pickup lanes, and the wealth of data collected from diners are expected to change that. These upgrades require large capital investment, and many technologies are still being tested. But there's no doubt the new generation of drive-throughs will be faster and smarter.
Drive-through transactions spiked during the pandemic as millions of Americans resorted to its safe social distance. That habit has stayed: Although the fast-food industry overall is seeing declining traffic as inflation cuts into consumer budgets, drive-throughs remain a bright spot.
In the first half of 2023, the number of dine-in and takeout orders were 45% and 36% below the prepandemic level in 2019, respectively, according to Revenue Management Solutions. In comparison, drive-through traffic only declined 12%.
"It's a reflection of consumers shifting away from the dining room," says Sean Dunlop, a senior equity analyst at Morningstar.
Drive-throughs generally have higher sales volume and margins, and therefore much better returns on the capital invested, and it's the vast majority of development now, says BTIG analyst Peter Saleh.
While a big portion of restaurants' pickup and delivery orders now come from digital channels, drive-throughs remains mostly offline. At traditional drive-throughs, diners pull up to staggered windows to place orders and pick up their food. Each step can lead to delays in the process. Worse still, customers who order online for drive-through pickup still wait with everyone else in the same line.
"The imperative reason why guests want digital in the drive-through is to be able to skip the line and not be impacted by the other guests in front of them," says Noah Glass, CEO of Olo, a tech firm that develops digital ordering and delivery programs for restaurants.
To solve the problem, some fast-casual chains with the "build-your-own-bowl" model, such as Cava Group and Sweetgreen, have followed Chipotle in adding drive-through lanes for digital pickups only. Cava now has 11% of its U.S. locations with drive-throughs, the company said.
Others have developed dual lanes -- one for digital pickups, one for traditional ordering on site -- and came up with solutions to deliver food across the two lanes, such as a conveyor belt with chutes down the sides.
Yum! Brands' Taco Bell has a new concept store in a Minneapolis suburb called "Taco Bell Defy" that went even further. The two-story building features four drive-through lanes, three of which are dedicated to digital pickups, and a vertical lift to transport food from the second-floor kitchen to customers.
Taco Bell declined to say how many of its restaurants have pickup-only drive-through lanes, or whether it has plans to add more stores like the Taco Bell Defy.
As customers increasingly seek a quick meal on the go, even dining rooms can be optional. Many chains have been testing the so-called "small-box design" that features drive-through lanes and walk-up windows for pickups but no indoor seating space.
Expect more of these in the future. "You can build a very small footprint with an efficient kitchen," Olo's Glass says. "That's much lower cost and much higher revenue per square foot."
As restaurants collect more consumer data -- such as food preferences and behavioral patterns -- through digital orders, they can use the information to predict customer demand and provide customized promotions.
Companies such as McDonald's and Taco Bell have been testing chatbots powered by artificial intelligence that can take orders at drive-through windows. Last month, Taco Bell said it would expand its artificial-intelligence voice technology across hundreds of its drive-through locations in the U.S. by the end of the year.
While the tech isn't perfect, it's expected to be more accurate than humans eventually. More important, the chatbots are being used to suggest upsizing and add-ons to customers based on data such as the time of the day, weather, or what's already in the basket. The targeted selling could help restaurants increase order size by about 10%, says Glass.
In the future, companies could even use facial recognition or license-plate reading to automatically identify a customer and preload their personal profile.
But more digital orders will bring new challenges. Without physical lines limiting the pace and amount of orders, restaurants need to figure out the kitchen's free capacity so it isn't overloaded. Many restaurants are using technology to organize staggered pickup times that will better manage customer expectations.
"Consumers don't want to wait, but what they hate more is waiting when they don't expect to," says Morningstar's Dunlop. "That's a really negative brand experience."
Since people place orders via multiple channels at the same time, food preparation needs to be more dynamic, as well. Taco Bell's kitchen display system allows employees to rearrange and prioritize orders based on size and complexity rather than just the timestamp. The company said that has helped improve efficiency and accuracy in order delivery.
"Instead of tackling the orders in the exact order that they come in, the technology could help sort out what's the most efficient way to put them together," explains Tom Cook, co-principal at consulting firm King-Casey.
Many restaurants have also adopted geofencing, a technology that notifies workers when a customer's mobile device enters its periphery. This could help make sure the food is always freshly made and ready by the pickup window as soon as the customer arrives. McDonald's said last year that its Ready On Arrival initiative, powered by geofencing, has led to a 60-second reduction in wait times for customers.
It will take time for the new generation of drive-throughs to become mainstream. Many traditional drive-throughs don't have space to add extra lanes. Even for those that do, the cost could be daunting.
Companies that run their own stores might have more financial resources to take the initiative, while franchised chains could face more hurdles. "The big impediment is that it's expensive to retrofit stores and build this stuff," says Dunlop. "Not everyone is amenable to it."
The bidding for more drive-throughs has driven up the price for desired real estate. Over the past decade, the average rent for stand-alone properties with drive-throughs is 12% higher than those without, according to real estate firm CBRE Group. This year, the gap has widened to 18%.
"Some of these rents have doubled in 10 years because of the costs of construction, land, and permit," says Chris Decouflé, head of retail capital markets at CBRE. "It's materially more expensive."
What's more, an increasing number of municipalities are voicing concerns over traffic and environmental problems caused by drive-throughs, and many are working to limit the building of new ones.
A lower-cost alternative is designated parking slots for pickups. Customers can check in on a digital kiosk or their phone and workers bring their food to the car. While this requires much less capital investment, it can take up a lot more employee time.
Consumer habits could be another bottleneck. Chipotlane worked well for Chipotle because it already has a large share of digital orders, says BTIG's Saleh, while other fast-food chains may have to help customers become more comfortable with the idea of ordering ahead on an app.
Still, the future of drive-through is upon us, and it will be a fun ride.
Emily Dattilo contributed reporting to this article.
Write to Evie Liu at evie.liu@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
August 13, 2024 10:18 ET (14:18 GMT)
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