How Delivery Can Help McDonald’s During The World Cup

by Trefis Team
+16.70%
Upside
162
Market
189
Trefis
MCD
McDonald's
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The much-awaited FIFA World Cup has commenced, with fans hungry for some mouth-watering matches. One company that will be hoping to satisfy this hunger is McDonald’s (NYSE:MCD), who is one of the key sponsors of the footballing event. According to estimates, the company pays anywhere between $10 and $25 million per year for the sponsorship of this tournament. While the company’s sales have actually suffered in the past during the World Cup, as a result of people staying at home to watch the matches, McDonald’s continues to be a sponsor of such an event. Reasons for this have been to connect better with franchisees and staff, as well as to be more involved in sport at the community level. However, with the company rolling out its delivery services in many markets, can it actually help the sales this time around?

We have a $189 price estimate for McDonald’s, which is higher than the current market price. The charts have been made using our new, interactive platform. If you don’t agree with our analysis, you can click here for our interactive dashboard, to modify the different drivers and gauge its impact on the revenue, earnings, and price per share metric.

Delivery Can Drive Sales

In the second quarter of FY 2014, the company’s comparable sales fell 1.5%, driven by a 3.5% fall in June. This corresponded with the 2014 World Cup, and while no analyst asked about the impact of the event on the results during the earnings conference call, the tournament can be expected to have been a primary driver. Steve Easterbrook, who was the McDonald’s chief for Northern Europe in 2010 (now CEO), had stated: “During the World Cup our restaurants actually had 5% to 6% less sales when games were taking place and people would head home to watch it on television.”

In the U.S., McDonald’s partnered with UberEATS in late 2016 to expand its door delivery initiative in the U.S. This partnership expanded significantly last year and by the end of Q1 2018, the company had extended its delivery options to 11,500 restaurants. 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. CFO Kevin Ozan has stated that the delivery check size is generally one-and-a-half to two times the in-store check, since these are mostly group orders. 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. McDonald’s also provides home delivery in many countries whose teams are participating in the World Cup, such as England, Spain, France, Germany, and South Korea.

There are two significant gains to 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 additional revenues for the company.

 

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