Here’s How “Delivery” Can Drive Growth For McDonald’s

by Trefis Team
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In late 2016, McDonald’s (NYSE:MCD) partnered with UberEATS to expand its door delivery initiative in the U.S. This partnership expanded significantly last year and by the end of 2017 the company is on track for 10,000 McDonald’s restaurants  to offer the delivery option. This number is likely to expand further in 2018. With the millennial population preferring food delivery to eating out, expansion of its home delivery service can drive growth for McDonald’s by increasing the average customer spend per order. According to the company, home delivery orders are usually group orders making the average delivery check twice the size of a restaurant check.  McDonald’s is working on marketing initiatives to encourage large delivery orders and is also looking to use the data captured digitally (while placing an order) to customize promotions for these customers. We believe door delivery holds a strong growth potential for McDonald’s as the company looks to attract value conscious customers using the convenience factor.

We do not expect a significant growth in the average revenue per McDonald’s franchised restaurant in the U.S over our forecast period and expect this number to remain in the range of $350k- $360k over our forecast period. However, as the company expands its door delivery initiative to more restaurants, larger and more frequent delivery orders can drive revenues for its restaurants. If these revenues increase at a rate of 2-3% over our forecast period, there can be an upside to our price estimate:

Click on the above image to access our new “Dashboard” where you can modify these assumptions to see the impact of growth in average revenue per franchised restaurant on McDonald’s valuation.

In the above scenario where average revenues per franchised restaurant grow by 2-3% over our forecast period, there can be a nearly 5% upside to our price estimate.

There are two significant benefits for McDonald’s from the expansion of its delivery initiative. While convenience oriented millennials are driving the restaurant delivery market, which is likely to grow steadily over the next few years, McDonald’s can also benefit by customers ordering home delivery in the evenings and nights. According to Bernstein, McDonald’s largest revenue comes from breakfast and lunch and if delivery orders pick up in the evenings this can drive revenues for the company.

2018 is likely to be an exciting year for McDonald’s where the results of its value menu and expanded delivery options will be visible and these should translate into higher revenue growth for the company.

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