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Home , Foodler, Peapod, Phil Lempert

Hospitality Review Viewpoint

Delivering to the Front Door: A New, Or Very Old, Convenience? Christopher Muller, Ph.D. century of commercial competitive The First Home Delivery System Aconflict between the grocery (food at home or “FAH”) and restaurant (food away The traditional practice was for a homemak- from home or “FAFH”) distribution chan- er to personally place an order with an inde- nels is now being fought on an unexpected pendent shopkeeper for staples such as flour, but previously contested battlefield: who butter, salt, sugar, coffee, tea, or lard. will own the “convenience” of delivery in the As a convenience and sign of personalized consumer’s mind. service he would then select her items and Just one hundred years ago access to have the large bundles of provisions deliv- food across New England was very different ered to her home later in the day by a de- than what we know today. In 1915 the vast livery boy. Most women were accomplished majority of people would have bought the cooks, responsible for the planning and food they did not grow or raise themselves preparation of daily meals from these mostly at small, local, full-service general stores. basic raw materials. Working men (and yet In larger towns and cities independent spe- unregulated working children) ate the ma- cialty retailers such as butchers, bakers, del- jority of their meals, including at midday, at icatessens and the occasional green grocers home or when necessary brought a lunch supplemented the available product list. pail filled with home prepared items with

12 Boston Hospitality Review | Winter 2015 them to the workplace. throughout the Northeast. At the peak of The traditional restaurant fell into home delivery along with bread, bottled one of two distinct types a century ago, both milk and dairy items there were companies required dining on-the-premises. There providing everything from Fuller Brushes were full-service, “white tablecloth” estab- to tubs of Charles Potato Chips, from White lishments catering to the wealthy or the Rock soda pop to cases of Narragansett beer. middle class for special occasions. Alterna- tively there were limited service coffee shop- A Switch to Cash & Carry and the End style counter service places aiming to supply of Home Delivery everyday meals to a working or transient group who had no access to a home-cooked To compete with both the independent meal. Social and eating clubs were genteel shopkeeper and the delivery man in New substitutions used by the affluent profession- England, especially in Eastern Massachu- al requiring away from home meals both at setts, new choices were being offered to the lunch and dinner, while a roadhouse, small rapidly industrializing marketplace. In 1918 family owned “mom & pop” or diner provid- the Rabb family created the Economy Gro- ed the occasional prepared meal for those of cery Stores Company (which has evolved less means or with less time to dine. into today’s Stop & Shop corporation) a chain of stores which introduced the first Direct-to-Consumer Home Delivery self-service market to New England families. It was based on the A & P Economy Stores, With good reason, grocers rarely envisioned first opened in Jersey City, NJ in 1912. De- themselves as in head-to-head competition signed to offer a “Cash & Carry” no delivery with meals prepared away from home. If and low price system, shoppers for the first grocers and shopkeepers saw any compet- time were given the opportunity to wander itive threat, it was from the direct-to-con- the aisles and truly “shop.” Presented with sumer home delivery provided by the a widening selection of newly introduced growth of commercial dairy producers such brand name packaged foodstuffs, grocer- as H.P. Hood in Charlestown, MA or the ies and dry goods shoppers could choose expanding reach of large bakeries such as for themselves which brand, size or quan- Dugans as they moved from New York into tity they desired. The companies were able Connecticut and Western . to use cost savings from labor and quantity Following in the literal footsteps of itiner- purchasing to offer lower prices to a growing ant horse-cart tinkers and merchants, these consumer base. newly organized, wide ranging and efficient In the mid-1920’s the Independent “truck route” sales models delivered fresh Grocers Alliance (I.G.A.) and Red & White staples daily to the front doorsteps of homes Stores spread throughout the region, both

“Retailers face competition not only from other retailers, such as mass merchandisers who offer groceries, but also from other retailers who sell substitutes for groceries. Because convenience is becoming more of an issue for American consumers, they are more likely to eat out than to cook at home. Therefore, another competitor for grocery stores is fast-food restaurants. To respond to this threat, have added large prepared food sections to their deli de- partment.” Barbara Kahn, Grocery Revolution, 1997

Winter 2015 | Boston Hospitality Review 13 “Same-day delivery not just for city clickers: grocery shopping goes by a single product delivery man on a route 24/7: Online grocery shopping and delivery has become a crowd- truck selling commodities such as bread or ed space, with a host of services competing for consumer attention. milk became a high priced relic of a time This trend allows everyone who sells food and beverages to be in the gone by. The convenience of home delivery same-day delivery business without having to add additional opera- couldn’t overcome the search for lower pric- tional infrastructure. Look for Uber and Google Shopping Express to es or the need to save time. put every in the same day delivery business and change consumer behavior to shop daily for prepared and recipe driven Declining Dominance of the Food Dol- meal kits that contain all the ingredients and be delivered to homes lar Expenditure By Grocers and offices.” Phil Lempert, “The Supermarket Guru”, Nov. 2014 As they had for decades grocers still rarely envisioned themselves as in head-to-head were created to counter the spread of the competition with new restaurant offerings. conglomerates and their new buying power. Even so restaurateurs and grocers have al- Soon the chaining of markets became the ways been vying for the dominant share of competitive model, many with thousands of the total food dollar. The grocers captured stores under these and other branded corpo- more than $7 out of every $10 consumers rate names. Competition was fierce among spent on food purchases well past the Sec- these enterprises, each contesting by stock- ond World War and into the 1960’s (see ing new national consumer products as well chart below). as their own private label offerings. By the In New England as the evolution end of the 1930’s a new larger store, the “su- from full-serve to self-service was happen- permarket,” was introduced with an increase ing to the grocery channel, a similar process in national branded grocery products on the was also beginning to emerge in the food shelves and bringing the previously inde- away from home channel. When dining out pendent specialty shops (butchers, bakery, there were established restaurants in hotels, green grocer) all under one roof. traditional taverns in country inns through- At the close of WWII and as the out the region, and historic restaurants such suburbs grew across the country, hundreds as the Union Oyster House or Jacob Wirth in of supermarkets were built to serve the ex- cities like Boston. There was also ice cream. panding needs of families and their chang- In 1914 the Durand family opened an ice ing lifestyles. Convenience for the home cream stand in Post Office Square, which be- cook evolved into finding a broad product came the original unit of the Brigham’s chain choice at a store near home usually with free of stores by the mid-1920’s. Nearby the parking. It was convenient to have complete Bickford family also got their start in the ear- control over the entire purchase process, ly 1920’s. Both became iconic New England including the total time it took to complete family restaurant businesses. At this time the the shopping experience. As the pace of dai- true innovator was the iconoclastic Howard ly life quickened and homemakers found D. Johnson of Quincy, Ma. In 1925 he cre- themselves increasingly busy during the day, ated an eponymous chain of restaurants, timing of store-provided delivery became which had been built on his efforts to create inconvenient. In the mid-1960’s supermar- a more flavorful ice cream out of the neces- ket companies continuously sought to drive sity to save his family’s business from bank- costs down and become the low-price leader. ruptcy. Surviving both the Great Depression In comparison the value proposition offered and World War Two, by the middle of the

14 Boston Hospitality Review | Winter 2015 1960’s Howard Johnson’s was to become the world’s largest foodservice company.

The Early Days of Chain Restaurants: A Choice of Eat-In or Take-Out

What is important for the nature of food service competition with the grocery indus- try is that each of these restaurant chains, as the very definition of food away from home, were built in large part on a “take away” model. Howard Johnson’s in particular was created to cater to the traveling public, with the majority of his restaurants opened along highways and on busy traffic circles. The ear- ly roadside menu featured proprietary fla- vors of ice cream, with additional items such the traveling businessman these roadside as “frankforts” and fried clam rolls. All were “orange roof” eateries were the definition of intended to be eaten on the move, in fact on-the-go convenience. handheld, and not specifically consumed in- In the same way that the move to the side the restaurant using utensils. Eventually suburbs after WWII drove the growth of the diner-style counter seats for quick short-or- supermarket, it also set in motion the growth der meals became standard and then dining of the fast food chain restaurant explosion. room tables and booths were added, but all Beginning in the early 1950’s companies such HoJo restaurants maintained the take-out as McDonald’s, Burger King, Kentucky Fried option at the front entrance. Most also in- Chicken and Chick-fil-A created a new fast cluded a small retail area of food novelties food model as the definition and use of food (salt water taffy, chocolate lollypops, and gift away from home changed. In the fifty years items). For the family, the truck driver or

U.S. Food Away From Home Share % Source: U.S. Census Bureau and Bureau of Labor Statistics 60 49.6 46.4 48.5 50 43.2 39 40 33.3 25.9 30 23.8 19.2 17.2 20

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0 1929 1939 1948 1959 1969 1979 1989 1999 2009 2013

Winter 2015 | Boston Hospitality Review 15 between 1950 and 2000 the American public delivery. The company all but collapsed af- doubled their dollar purchases for restaurant ter losing a precedent setting anti-trust law food compared to food prepared for meals at suit over the requirement that franchisees home (see chart). pay premiums for purchasing franchiser ap- The remarkable thing about all of the proved restaurant supplies. The home de- fast food companies is that the overwhelm- livery model seemed to disappear with the ing consumption of the products they sell brand and its main competitor, Kentucky has always occurred away from the restau- Fried Chicken, grew on a service model of rants themselves: either as take-away or or- family take-out. dered at the drive-thru and most likely eaten in a car. Convenience for the fast food con- The Emergence of as sumer is about speed of service and ease of Catalyst for On-Line Ordering ordering, with low prices close behind. Over this period there were notable The modern era of restaurant delivery of exceptions to the dine-in or take-out service food to the front door was started when Tom model. As early as 1952 a fried chicken fran- Monahan, the founder of Domino’s Pizza, chise company, Chicken Delight, was estab- instituted the “30 Minutes Or Free” cam- lished which was built on the service concept paign in 1973, initially with free delivery. No of home delivery. By the end of the 1960’s it chain of any kind has done more to change had grown to more than 1,000 units across the acceptance of a stranger bringing food the country. Using the advertising phrase to people’s front doors in the middle of the “Don’t cook tonite, call Chicken Delight” it night than Domino’s. It did this while in- featured a unique dedicated system of free troducing such novel ideas as the corrugat-

16 Boston Hospitality Review | Winter 2015 ed pizza box, heated insulated delivery bags, in Quincy, MA is a U.S. division of the Dutch and the lighted “3-D” car top sign. conglomerate Royal and is currently Today the company is the dominant the 8th largest supermarket chain in the U.S. restaurant delivery provider, especially for The company took an early position in the customers using on-line as a convenience. home delivery market channel with the 2001 More than 40% of Domino’s U.S. sales were purchase of the first mover in e-commerce generated by online orders in 2014, and and on-line grocery delivery, . The Domino’s alone delivers more than 1.3 mil- company has established itself as a leader in lion pizzas every day in the U.S. Over the the area of technology in on-line ordering, past forty years, this delivery-focused inno- and is the first in the U.S. to create “virtu- vation has ignited the entire corporate piz- al” grocery stores in commuter rail stations za industry to shift from a dine-in service throughout the Northeast and . system to one based on delivery. In just over Since the Peapod purchase by Stop & seven years (since 2007) Domino’s Pizza has Shop, more than a third of the top 75 U.S. positioned itself to become a leader in the grocery retailers have chosen to become in- use of on-line ordering technology while volved in the “e-grocery” space, spending capturing a greater share of the prepared hundreds of millions of dollars in the push food delivery business. for competing in the category. More than Due to the success of chain pizza de- half of these entrants have created a hybrid livery and the explosion of internet access e-grocery business model known as “Click through smartphone technology, many third and Collect” (a system where customers party companies have become very import- shop on-line and then drive to a pick-up ant players in delivering restaurant meals in point for groceries assembled by in-store most major U.S. cities. The convenience of staff) instead of a full-service home grocery being able to order on-line, using service delivery option. Peapod is also expanding companies such as .com, . into this pick-up option currently with over com, eHungry.com, menufy.com, or deliv- 3 dozen stores in Massachusetts and anoth- ery.com has significantly changed the deliv- er 3 dozen in Connecticut and Rhode Island ery model for all restaurants, but especially converted to the system. Only one Stop & for the local independent operator. With Shop/Peapod location shows same-day pick- little fanfare the restaurant industry, the up service availability, but the website does very definition of food away from home, has advertise a curbside service, “Pick-up is become a major factor in the meals people available at the convenient locations below. consume in their homes. Third party deliv- No need to get out of your car!” In a trade- ery has been called the “great equalizer” for off of convenience over price, for less than an independent restaurant’s ability to reach an hour at minimum wage consumers can its customers. avoid the time spent inside the store on a tra- ditional shopping trip. A flat home delivery Home Grocery Delivery Returns fee of $6.95 applies for orders over $100.00, Thanks to the Internet $9.95 for less than $100.00, or $2.95 for store pick-up on minimum orders of $60.00. The competitive battleground for home de- In contrast, , the no. 2 largest livery has been joined by many national and U.S. grocery company in 2014 purchased an regional supermarket chains over the past established on-line health food and vitamin few years. Stop & Shop, with headquarters provider, Vitacost.com. Kroger paid $280

Winter 2015 | Boston Hospitality Review 17 million in the hopes of being able to enter at the stores. the direct-to-consumer market using an In- According to The Food Institute and ternet platform of more than 1 million sub- the research firm Brick Meets Click for the scribers. The Vitacost website offers ground full year of 2014 online e-grocery sales are delivery of non-perishable and mostly or- estimated to be about $27 billion, or roughly ganic health foods in “1 to 4 days!” Current- 4% of the total U.S. grocery market revenue. ly delivery is offered free for purchases made over $45.00. The Third Party Challenge For Grocery The small, family company, Welles- Delivery ley, MA based Roche Bros. Supermarkets offers home delivery from 9 of their 18 store While the traditional “bricks and mortar” locations and on-line pick-up or “Click and grocery industry is making these steady but Collect” in five others, this latter a service small steps towards e-grocery acceptance, which they are expecting to expand. Roche there is a major change coming that reflects Bros. offers a wide variety of prepared meals the disruption felt by all other retail seg- and individual dinners, which are delivered ments by the emerging e-commerce market. cold and require re-thermalization, at prices To paraphrase a line from Sondheim’s Into ranging as low as $2.99 for a single cheese the Woods: ‘there are giants in the cloud quesadilla. It charges a flat fee of $9.95 for all (sic).’ delivery orders with a strict no tipping poli- .com has been testing gro- cy. There is a flat $6.99 fee for pick-up orders cery delivery in Seattle since 2007 when it Right, delivers groceries to the front door.

18 Boston Hospitality Review | Winter 2015 created AmazonFresh. This rapidly expand- creating the company in 2012. The service ing fresh home delivery option includes both uses skilled individuals who personally shop perishable and prepared meals. In parts of at area stores including Whole Foods, Trader delivery is guaranteed within Joe’s, Shaw’s and Costco, delivering to homes one hour, with an annual subscription cost and businesses in Boston, Brookline, Cam- of $299.00. Just at the end of 2014 Amazon bridge, Somerville, Medford and Chestnut added a new smartphone App to its e-gro- Hill. cery mix, Amazon , which offers What makes different is free two-hour delivery service to Amazon that is works on the disruptive decentral- Prime members. It is expected to be in 15 ized model which has made Uber a threat to major cities by the end of 2015. traditional taxis, or Airbnb a threat to lodg- Not to be outdone by arch-rival Am- ing. Created on the principles of the shared azon, Google.com is also entering the com- economy, a network of trained independent petition for home delivery of retail items, personal shoppers is contacted through a called Google Shopping Express. In the proprietary smartphone app. These indi- grocery segment, Google Express has built vidual contractors are assigned a single cus- a partnership with Whole Foods Markets. tomer order which they confirm with the Initial delivery service is free on minimum app. They then head to the desired stores orders of $15.00. and work to pick items that are better than In addition, the world’s largest re- the customer might even choose themselves. tailer, , is also the country’s largest When necessary or desirable shoppers will grocery chain. Walmart.com has been heav- call the customer to make suggestions for ily invested in the home delivery and “Click in-store substitutions. Delivery is general- and Collect” e-commerce environment for ly within an hour, with costs ranging from a number of years and is promising to ex- $3.99 to $9.99 depending on minimum pur- pand. While it offers thousands of dry goods chase and speed of service, but also carries a and packaged grocery items, it has not yet premium charge for Instacart of up to 20% committed to delivery of perishable grocery on each item. products but does have them available for A test is being conducted in some in-store pickup. Shipping is free on orders Boston Whole Foods Markets to have Insta- over $50.00, but only comes with delivery cart personal shoppers assigned to individ- guaranteed for 6 to 8 days. In-store pickup is ual locations to accelerate speed of service. free, as well. Unlike Peapod or AmazonFresh, Instacart has no need for warehouses, drivers or deliv- The Personal Shopper Returns ery trucks. The infrastructure is the technol- ogy of a smartphone. The real competitive battleground in 2015 for both grocers and restaurants, though, Back to the Future will be a rapidly growing e-commerce start- up called Instacart.com. The company has The emerging battle, appears to be a return already established a major presence in the to a fight first defined a century ago. Simply, Boston market, along with its original home who will control the ephemeral space be- of San Francisco, Chicago and a dozen oth- tween the consumer’s need for convenience er cities. The founder and CEO, Apoorva and how, or where, they will prepare and eat Mehta, was an executive at Amazon before dinner tonight.

Winter 2015 | Boston Hospitality Review 19 This gets us to a convergence point different than a Peapod driver showing up for restaurants and supermarkets. It starts with a California Pizza Kitchen BBQ Chick- with the primary question, “what is the dif- en Crispy Thin Crust Pizza, a Bertolli Triple ference between a meal prepared at home Chocolate Strata Cake and a 2 liter bottle of and a meal prepared away from home if both Diet Coke? are delivered to the front door and eaten at Technology, especially when it the same kitchen table?” comes to the easy access everyone has to Maybe the convergence discussion on-line, e-grocery, e-commerce applications continues with a question that has been through smartphones and laptops, forces us asked for more than one hundred years, to rethink what convenience and personal “how do I define convenience and personal service actually mean when it comes time to service when it comes time to eat?” eat. Is it more inconvenient to order on-line If a personal shopper from Instacart. and have to drive to “Click and Collect” our com selects a fully cooked rotisserie chicken groceries at the Stop & Shop, or is it more at Costco and combines it with a fresh bag inconvenient to use the new “Order Ahead” of Spring green salad mix and a bottle of Pi- on-line feature at a Panera Bread and simply not Grigio, then delivers it to the front door walk around the corner to the bag with of an on-line customer within an hour, is my name on it at lunch? that substantively different than a GrubHub After dinner as the dishes are being delivery driver arriving with a Nigiri Sushi cleared, does it matter to the consumer who platter and Tonkatsu from a local Japanese brought the food to the door or if it was clas- restaurant nearby? sified as FAH or FAFH? Or if a Domino’s driver delivers a Remember the “good old days” when custom made Artisan Chicken & Bacon Car- we all knew the difference? ■ bonara Pizza with a Chocolate Lava Crunch Cake and a 2 liter bottle of Diet Coke is that

Christopher C. Muller is Professor of the Practice of Hospitality Administration and former Dean of the School of Hospitality Administration at Boston University. Each year, he mod- erates the European Food Service Summit, a major conference for restaurant and supply executives. He holds a bachelor’s degree in political science from Hobart College and two graduate degrees from Cornell University, including a Ph.D. in hospitality administration. Email [email protected]

20 Boston Hospitality Review | Winter 2015