If someone asked you to name a fast-food restaurant, I’d bet that out of all of the fast-food restaurants that exist today, one would stick out amongst the rest: McDonald's Corporation (NYSE: MCD). Today, McDonald's has grown to be one of the most recognizable brands in the world and generates seemingly endless profits.
The pandemic has presented challenges to the entire restaurant industry, forcing closures, and pushing companies to invest in takeaway methods of sale through delivery and collection. This forced innovation could propel McDonald's (and possibly other fast-food leaders) into a period of growth driven by the significant investment into delivery and digital points of sale. The pandemic also allowed them a chance to refine their menus, remove low-performing items and focus on their key offerings.
McDonald's make a big point about their renewed focus on delivery and digital takeaway – including in their recent earnings call and across their investor resources, including their ‘Growth Pillars’:
Let’s break this apart and look at how they have started to focus on these points and where the future may take McDonald's.
First of all, delivery. Just for a bit of context, I live in the UK and I remember dreaming of having a McDonald's delivered to your door. Fast forward to 2021, McDonald's has embraced all of your typical ordering apps (such as JustEat, Uber Technologies Inc UBER Eats, and DoorDash Inc DASH to ensure that they capture as much of the market as possible. This has proven to have been effective in helping them bounce back from the pandemic closures, as shown by its recent earnings report and its clear dedication to improving their digital, delivery, and drive-thru points of sale. I believe the pandemic has proven to them that delivery works for their business model and also provides a new customer experience.
Next up, digital. My experience with McDonald's and their digital platform stems primarily from a UK perspective, but I presume it’s quite similar in the US. Diving into the app, you can do pretty much everything you would expect from any food delivery service. You’ve got a reward system for frequent orders of coffee, and a rotation of occasional free items and discounts on food when ordering through the app. All of this is doing more to connect McDonald's with its customer base and drive more loyalty.
The app also provides the customer with the opportunity to get your order delivered but only through Uber Eats (at least in the UK). This is then delivered by an Uber Eats driver with all of the associated fees that come with this. Despite the financial success of utilizing these platforms (and to be honest the necessity of them during this transitional period), their delivery process remains one of the biggest weaknesses in their brand experience model, where their control is lost from the point the order is placed through Uber Eats.
If we drill down into their earnings transcript from their earnings call on April 29, 2021, there continued to talk about the ‘customer experience’ and making that even better. There is even reference to continued innovation, including self-delivery models, to improve this customer experience.
McDonald's is known for its ability to deliver consistency across its product range, delivering the same burger in thousands of different locations. They aim for perfect customer service in every aspect of their operation, but where do they fall down in one place in particular? Delivery. I believe sometime soon, McDonald's will break away from their delivery partners and bring the delivery process in-house. I’m talking about a recognizable McDonald's vehicle driven by a McDonald's employee in full McDonald's uniform. Uber Eats and other delivery platforms are a crutch for the business to make this transition and when they’re ready they can cut their ties and go exclusively via their own app. Straight away, their bottom line is increased as they don’t lose any income from the third-party fees. They immediately gain more control over the customer experience during delivery as each delivery driver is an employee of McDonald's directly. This includes the fees that are typically applied to customers for delivery from third-party apps. Finally, they can continue to drive more loyalty by continuing to offer discounts to frequent users of their digital platform through deliveries (not possible at the moment through Uber Eats). All of these things combined provide a much better brand experience.
I admit that a lot of this is speculation but I think it makes a lot of sense, especially considering the choice of words in the earnings transcript. Think of how your delivery from Dominos or other pizza chains is done and imagine if McDonald's emulated it. For me, this is the next logical step for the Golden Arches.
McDonald's currently has a market cap of $176bn (as of the time of this article) which is astronomical I’ll admit. But as this business optimizes on its new investments into digital and delivery and it continues to expand across the world and rolls out its new innovations – where could it go?
These digital innovations are being embraced across the entire fast-food industry. Automation has continued to be embraced with nearly all of the brands we know installing digital kiosks and a few trialing digital-only stores. How long is it before McDonald's and the rest of the industry begin to experiment more with automation?
I know the argument exists that McDonald's earns most of its money from its franchisee payments and its lease payments to the franchisees but I think this part of the business is going to continue to grow as well. Real estate all across the world is booming with newly built houses popping up everywhere (especially in the UK) and what do new families need near their new homes? Amenities. And who wants to capitalize on this? McDonald's.
McDonald's is already huge, I’ll admit. But who knows what else McDonald's might move onto after they continue to grow?
I’d like to leave you with something that inspired me to write this piece - a comment I found on Reddit from 2 years ago. And I’ll tell you what, it reads like something straight from this year talking about the market of today.
DISCLOSURE: I MAY ENTER A LONG POSITION SOON
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