Outback hinted in August that Tuesday’s news was coming. But you really have to stretch back further to understand why it’s not just another delivery announcement.
Firstly, Bloomin’ Brands 732-unit steakhouse (domestic, there’s another 255 international) struck a deal with DoorDash September 24 to expand coverage across 670 restaurants. The agreement will also bring delivery to 200-plus Carrabba’s Italian Grills by the end of October. Bonefish Grill, which already used DoorDash for dinner orders, added lunch, too.
Additionally, Outback coupled the news with a big giveaway. It’s handing out up to 10,000 steaks per day for the next five. This includes a free 6-ounce Outback Center-cut Sirloin and choice of one side with any $20 minimum purchase (through September 29). Customers redeem the offer by using the code STEAK when they order via DoorDash’s platform.
Outback said the deal makes it the largest steakhouse on DoorDash’s sizable platform, which runs across more than 4,000 cities and all 50 U.S. states.
Bloomin’ chief executive Dave Deno noted last quarter “the terms are very favorable to the company,” but didn’t delve deeper.
Yet he did go into detail about what led to this exclusive partnership and how Outback is positioned to capture off-premises occasions in ways competitors are not.
Over the past three years, Outback poured $50 million into customer-facing improvements, including food quality, portion enhancements, service and labor investments ($20 million), and efforts to remove complexity. From 2016 to 2018 Outback took a 70 percent reduction in historical menu items, recipe, and SKU changes, from 475 to 140. The number was 682 in 2015.
Outback’s focus on elevating steak, a back-to-basics approach, included 360,000 labor hours dedicated to core execution; 46,000 hours retraining staff for 30,000 employees; 610 grills recalibrated; and 461 small grills installed for non-steak items. Just between reducing complexity, upping portions, quality, and working on steak preparation, baked potatoes, and Bloomin’ Onions, the company forked up $30 million. The reason? Seven out of every 10 guests choose one of those items.
Outback also hired 2,600 people, including 1,400 bussers, and added 950,000 support hours.
Here’s a look at how the turnover conversation has evolved.
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And, not surprisingly, it’s been directly correlated to traffic.
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In a more visible change, Outback also spent north of $400 million on remodels to contemporize restaurants and improve curb appeal.
Part of that healthy investment involved testing multiple design prototypes that could satisfy some of its back-end initiatives. Mainly, an expanded off-premises room for added order volumes. While it’s been a soft roll to date, Deno said Outback expects to ramp up in 2020. And part of that can be tied to its relocation program, which has 11 stores planned for this year. The changes have been significant in those stores—to the tune of sales lifts in excess of 30 percent. Before relocation, restaurants averaged $2.9 million AUVs. After: $4.1 million. Bloomin’ said there’s potential for at least 50 more (including the 11).
While much of that is credited to better trade areas, some of it connects to off-premises and digital growth, and having a restaurant designed to leverage incremental business, not get buried by it.
At Bloomin’s most recent investor day, the company said that 88 percent of its current business comes in-store. Average ticket for dine-in is $54. For off-premises, it’s $27 on the to-go side and $42 for delivery.
That gap flashes opportunity. What Outback found, like many restaurant chains regardless of sector, is that customers tend to order more, and for more people, when they have to cover the delivery fee. Also, when you strip the human judgement element and guests can punch in orders digitally rather than on the phone, it allows diners time to think and not feel like they’re being rushed by a frantic employee who would rather be waiting tables. There are no tips for taking phone calls, after all.
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As far as how big this runway is, data from The NPD Group showed that 46 percent of Baby Boomers order less than one meal per month via delivery. For millennials, it’s 29 percent who order one or more meals per week via delivery.
Investment firm William Blair & Co. estimates sales of online restaurant delivery will grow to $62 billion in 2022 from about $25 billion today. Restaurants’ delivery sales are projected to grow at more than three times the rate of on-premises revenue through 2023, per L.E.K. Consulting, with the majority of the growth in digital orders.
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And an interesting figure, especially for casual-dining brands that guard their value proposition and struggle with passing along delivery costs to consumers, 85 percent of guests said they weren’t willing to pay more than $5 for restaurant delivery, according to a survey of 2,000 fast-food and fast-casual customers conducted by online ordering platform Tillster. While that’s a different sector, it’s a notable point for sit-down chains, too. Because although there’s a different trade off concerning quality and convenience, many delivery users are app loyal, not brand loyal. They look for products, like steak, more than they search for Outback. So, the playing field for off-premises isn't as clear as it is in-store, where the service element is at play.
NPD pegged the dining out-of-home category as an $870 billion slice of the restaurant industry. Casual dining makes up about $86 billion of that competitive set. Dining in home, meanwhile, is a $750 billion crop that restaurants are suddenly taking aim at with renewed force.
In response, casual chains are looking to extend beyond traditional reach and find ways to grab share in a rapidly growing sector, but still win within their core—dine-in traffic. And not sacrifice quality on either side. It’s not a simple battle.
Some more interesting stats to consider:
According to industry data, 28 percent of consumers stay at home more versus two years ago
Among 18–34 year-old guests, 30 percent are replacing carryout with delivery
In 2018, there were 2 billion-plus digital restaurant orders taken
Why Outback is coming from a different angle
Off-premises represented 14 percent of sales in the second quarter for Outback, up 18 percent, year-over-year. Delivery was already live at more than 630 locations across Outback and Carrabba’s before the DoorDash announcement (the aforementioned 200 Carrabba’s locations coming in October will be added on top of this).
Getting to this level of delivery penetration was key for Outback because it established a foundation to drive further off-premises investments from. Notably, leverage increased sales and marketing tactics to build awareness.
Outback didn’t just call DoorDash and flip the delivery switch on, though. For the past two years, it’s been working on an in-house platform while simultaneously testing with third-party aggregators. Deno said this helped Outback learn the frequency and behaviors of off-premises customers. As it turns out, it’s a different type of guest with distinct purchasing patterns, he said.
“We’ve done a remarkable job growing our own delivery business, and DoorDash adds another layer of accessibility and convenience,” Deno said in a Tuesday statement. “This partnership opens the door to new customers and gives existing customers another option when they choose to dine with us in the comfort of their own home.”
Outback said previously it believes it can get off-premises to 25 percent of total sales. And a critical element to hitting that target is expanding reach to customers who are loyal to third-party delivery companies, like DoorDash.
Bloomin’ CFO Chris Meyer added in Q2 that Outback witnessed significant lift during third-party pilots. “It's just been up into this point in time where the economics of third party, now they make more sense for us, so that's why we have the optimism on the delivery side.”
With DoorDash signed on, Bloomin’ now has its own channel in addition to the multichannel opportunity with a third-party provider. Outback’s whitespace lies in getting food to customers who wouldn’t typically engage with the brand. That’s a significant conversation for casual chains that don’t index as heavy with younger consumers as some counter-service brands.
While you can make ample in-store changes and quality investments, if customers don’t show up or eat the food, or even know anything changed, it’s hard to get the message across.
This is why Outback sees incremental dollar signs with delivery. Even with the attached fees, these are customers the steakhouse wouldn’t have had before.
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But at the same time, Bloomin’ can still use its own platform—the one it’s developed in-house for two years—to grow delivery, improve profitability and scale, and try to raise awareness from the inside out, as well as learn more about the off-premises guest.
“We’ve invested in infrastructure, culture, service, which has resulted in increased sales and profitability,” Deno said in August. “That exists for us today. So the ability for us to plug and play a third party will be very easy. And then as we go forward, continuing to expand the information and our service on our own channel will be important as well. So we're very, very enthusiastic about the multichannel capability this brings. And this is something we've been talking about for quite some time.”
Data will allow Outback to continue another initiative as well—the removal of discounting.
Outback’s Q2 discounts dropped 21 percent, year-on-year, as the brand decided not to replicate some value-oriented promotions despite a heightened competitive environment. It resulted in a 100-basis-point negative impact on traffic, or about 1 percent to the comp. Outback’s same-store sales lifted 1.3 percent in Q2 as guest counts dipped 2.1 percent.
Check average rose 2.9 percent in the quarter after hiking 3.4 percent to start the year.
Bloomin’s departure from deep discounting has been anchored by a focus on customer segmentation over mass marketing. What remains are a few sales levers: remodels, delivery, improving dine-in sales with food and service improvements, and Dine Rewards.
Bloomin’ now has more than 9 million members in its loyalty base. And the company will continue to use the data to enhance and personalize creative. Mainly, new and experiential features targeted to core guests, like Carrabba’s has been doing with wine dinners. The company’s investments in CRM not only strengthen engagement through customer-centric communication, they also provide a higher return from marketing spend—which had long been a sore spot with activist investors. Back in October 2018, Barington Capital Group, L.P. sent a letter to Bloomin’s independent directors, saying, among other things, that the company’s marketing spend wasn’t lining up with revenue growth. To that point, Bloomin’ had invested $1.4 billion in capital expenditures in the prior six years. Outback cut back marketing spend 14 percent in the quarter before the letter—Q2 2018—and has really changed the narrative ever since. Moving media spend from broad messages to more curated, specialized communications that encourage trial. Efficiencies through higher digital ROI.
Through data, Bloomin’ continues to fortify its core business and expand reach to new and existing customers. On that latter note, it’s exactly the door delivery is opening.
“We’re honored to be the first and exclusive delivery provider of Outback, a top-requested restaurant by our customers with nationwide appeal,” Toby Espinosa, VP of business development at DoorDash said in a statement. “To us, this partnership proves the value of our marketplace, offering an efficient marketing channel, whether for pickup or delivery, for Bloomin brands favorite menu items across 670 locations.”
