Can “Door Delivery” Drive Revenues For McDonald’s?

Reports suggest that McDonald’s (NYSE:MCD) is partnering with UberEATS to deliver food from nearly 200 of its restaurants located in Orlando, Tampa and Miami starting January next year. The company’s McDelivery initiative already offers home delivery in some New York City locations and international regions such as India, Singapore and Philippines.  However, the current effort is on a much larger scale and is connected with McDonald’s mobile order and pay initiative, which will be launched in the U.S. early next year. Earlier the company shied away from to-the-door delivery since it impacts the temperature and quality of its food. However, as an increasing number of fast food chains are tying up with third party delivery service providers to start door delivery of their products, McDonald’s does not want to lag behind. We believe that, as fast food chains promote customer convenience (which the millennial generation prefers) through mobile ordering and store pick up, a home delivery option can increase revenues over the long term.

See our complete analysis for McDonald’s

Millennials Prefer Food Delivery

According to a survey by research firm Mintel, nearly half of the U.S. adults said that they had ordered food delivery in the past three months to avoid venturing out. The survey reported that food delivery was most popular among millennial men in urban areas with 69% of them having ordered food delivery in the past three months compared to the overall number of 45%. Growth in the food delivery business is being driven by millennials who prefer convenience over cost. Millennials also spend more on eating out compared to the earlier generation.  53% of millennials eat out once in a week, compared to 43% of the general population, and 96% of them prefer quick service restaurants such as McDonald’s.  Given that the millennial population is now the largest in the U.S., consumer companies are focused on adapting their products and services to the requirements of this segment. McDonald’s delivery initiative ties well with this trend.  With door delivery convenience, it can see an uptick in the number of its customers. The company is already taking several other measures to target the demographic.  These include: replacing margarine with butter, testing fresh patties and moving towards antibiotic-free eggs to suit to the “healthy” food requirements of this segment.

According to our estimates, annual customers per McDonald’s restaurant are likely to increase gradually from 638,000 in 2016 to nearly 644,000 by the end of our forecast period.

This metric is a key value driver for the company. For instance, if this number grows at a rapid pace and reaches 700,000 by the end of our forecast period, there can be a nearly 10% upside to our price estimate.

As McDonald’s works towards regaining its past glory, initiatives to adapt to changing consumer trends are critical. While the temperature of its food is crucial to maintain the quality and taste and might not be suitable for longer delivery distances, the company’s experiment at a large scale is an indication that it is willing to test this option broadly in the U.S. As an increasing number of fast food chains provide home delivery, McDonald’s is also tying up this initiative with the launch of its mobile ordering app. This can become a revenue driver for the company in the long term.

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