Texas Roadhouse should stick to its guns on delivery. | Photo: Shutterstock
In August 2017, the late, great Kent Taylor was asked about third-party delivery, which was just bursting onto the scene at the time. The founder of Texas Roadhouse then uttered one of the greatest lines ever spoken on a quarterly earnings call:
“We encourage all our competitors to do as much delivery as they can so they can deliver lukewarm food to the people who order it. We’ll stick to our guns on this.”
The company may not be sticking to those particular guns for much longer. As my colleague Joe Guszkowski reported, the casual-dining steak chain is testing the service in a few locations as a “fact-finding mission.”
Joe and I had a moderate debate about this during a recent episode of our podcast, The Week in Restaurants, and then he opted to double down with his own column on the topic. Being the proud columnist I am, I could not let that stand without a response.
There is certainly reason for Texas Roadhouse to consider delivery. Any good company should at least consider all options for generating sales, especially when their results are good. As Joe pointed out, more of its sales are coming from takeout, something its customers effectively demanded from the chain. Delivery is a natural extension of that.
The chain is also being deliberative about the process. Its test is in just a few locations and delivery would be ordered only through the Texas Roadhouse website.
But finding out Texas Roadhouse is considering delivery is a little like watching the last lighthouse go dark. There was something refreshing about knowing there was a company out there devoted to the idea of ensuring its food was served in the highest-quality way possible.
There is also a better argument for Texas Roadhouse to keep with Taylor’s initial declaration.
Third-party delivery took off during the pandemic. Consumers have grown addicted to the brilliant simplicity of ordering that way, and sales have taken off, even when consumers are otherwise pressured by rising inflation. That tells you as much as you need about the fact that DoorDash, Uber Eats, etc., are providing a service consumers really want.
Yet in going along for the ride, restaurant chains are making a compromise on hospitality, food quality, and profits in the name of traffic.
Contrary to popular belief, third-party delivery is not incremental to a restaurant chain’s sales. Certainly not any longer. That means restaurants using such services are exchanging sales from one channel to another channel that comes with lower profit margins.
This is hurting profit margins at the restaurant industry at a time when operators have little pricing power with which to deal with price increases.
By accepting third-party delivery, companies will have little choice but to raise prices elsewhere to make up for the lost profit from those delivery orders. Or they accept the lower profit and hope things get better. Given the frequency of bankruptcy filings and store closures, that hardly seems to be happening.
In addition, the service itself puts another company in between a restaurant and its customers. That removes an opportunity to provide hospitality, something the industry is big on right now. And it creates potential conflicts when problems come up, as they frequently do.
The fastest-growing ordering channel in the industry, in other words, provides less true hospitality and quality for a lower profit.
It’s been easy for Texas Roadhouse to avoid delivery because the chain has not needed it. Since 2022 the chain’s quarterly same-store sales have averaged 8.2%. No other chain can say that.
But the company’s holdout on delivery was for the very reasons the chain is so successful today. Executives wanted to ensure that customers got the best experience possible. In jumping into delivery, just a little bit, Texas Roadhouse would be in danger of compromising on the principle that helped generate those sales.
