Digital and delivery - McDonald's growth accelerators that are paying off

Profile picture for user slauchlan By Stuart Lauchlan October 28, 2018
Summary:
Digital and delivery are growth accelerators, but that growth has a high cost when it comes to investment.
McDonalds
Self-Serve

You have to speculate to accumulate. Or put it another way, you have to invest a lot - circa $1.6 billion this year - if you’re McDonald's and you want to accelerate your transition to a digital and delivery-based model.

In our ongoing analysis of digital transformation in the food and hospitality sectors, McDonald's has emerged ahead of the pack at the Quick Service Restaurant (QSR) - that’s fast food, to you and me - end of the market.

A lot of work has gone into realizing the firm’s Experience of the Future initiative, which essentially involves re-furbing ageing stores with digital kit, most notably in the form of self-service ordering kiosks. At the same time, online ordering and delivery options have become an increasing priority.

Both of these are providing compelling growth accelerators, argues CEO Steve Easterbrook:

As we continue to maximize the impact of these accelerators, we're expanding choices, enhancing convenience and elevating the overall experience for McDonald's customers. We continue to move aggressively and developing the delivery opportunities. With over 37,000 restaurants, we have a massive global footprint. We provide a distinct advantage by placing us closer to more customers than any of our competitors. With focus expanding coverage, growing demand and innovating to increase efficiency and provide better service to our customers.

The Experience of the Future store upgrade program is, as noted, a costly proposition, but one that is delivering returns, insists Easterbrook, allowing customers to “engage on their own terms” with the McDonald's menu:

Self-order kiosks which are already in over 15,000 of our restaurants worldwide provide customers an opportunity to spend more time browsing the menu and personalizing their orders. Supported by our Guest Experience Leaders and with the option of ‘take with’ service, popularity and utilization of self order kiosks continue to grow over time with a higher average ticket. In France, Italy and Spain well over half of all in restaurant business are transacted through the kiosk.

Meanwhile mobile platforms play an increasingly large role, he adds:

We continue to engage customers through our global mobile app. Many of our markets have used special deal offers to drive incremental traffic and encourage increased utilization of the approximately. [Over the past three months] the US [customer base] doubled the pace of downloads and registered users driving more transactions through the app. As this pace of active users grows, the rise of mobile order-and-pay as an option increases. We are providing our guest greater convenience on their terms, while gaining deeper insights on their purchasing behavior.

Those insights are being put to good use, explains Easterbrook:

All of this is helping us create a foundational base of information of on which we will build programs to deepen our customer relationships…We’ve seen steady improvements in overall customer satisfaction and in particular in the US restaurants which have put in place all of the growth strategy initiatives. These restaurants were achieving significant growth in both new customers and frequency of visits by existing customers. And these customers' give a customer satisfaction ratings especially for those that dine in.

Delivery

Delivery options are expanding in key markets, he says:

We now offer delivery from over 15,000 restaurants representing substantial growth from the end of 2016. With the benefit of our global partnership with Uber Eats, we are continuing this expansion. We expect to reach 1000s more of our restaurants by the end of the year including a total of 9000 in the US Delivery is becoming an increasingly leading full contributor to comp sales and in several top markets such as the UK, Australia and France, delivery now represents as much as 10% of sales at restaurants offering delivery.

Delivery is an evolving science, he adds, and one that has opportunities for innovation:

Customer satisfaction with McDelivery remains high. Once they experience the convenience, many of them become our most loyal customers, frequently reordering the delivery. The delivery market is evolving rapidly and we are committed to innovating, so we remain competitive. We are seeing improved speed and accuracy after a completing an initiative earlier this year to integrate delivery orders into our point of sale systems in many of our restaurants.

We are exploring additional innovation opportunities ranging from integrating delivery orders from mobile app, [with] new packaging that protects the quality of our food. It's a new approach that improves the efficiency of our restaurants with the highest delivery volumes. Underpinning everything we do with this growth accelerator is a commitment to make delivery easy and convenient for our customers, which will help us maximize the competitive advantage from our business.

While a lot of attention is focused on digital transformation of the US infrastructure, a lot of McDonald's pioneering work was trailed outside the domestic market. The UK and Canada, for example, are well ahead in the Experience of the Future store upgrades relative to the number of outlets in each country.

But it’s China that’s blazing the trail, described by Easterbook as “a leader in McDonald's system” when it comes to both digital and delivery. Of course, starting from an essentially blank canvas undoubtedly helps, but China is setting the growth pace, with 3000 restaurants in China, 75% of which have had the full Experience of the Future treatment; there have been 60 million app downloads; on delivery, those outlets have used a combination of the McDonald's Delivery Service (MDS) and increasingly now third party operators.

Easterbrook is keen to encourage localized initiatives to bolster growth:

I was in one restaurant in Beijing where they created a more dedicated delivery area in the front of the restaurant where they were able to just take the riders, the drivers would come in and we could just service them independently, so it didn't distract from the store dining experience for our customers.

My take

This is a significant investment in infrastructure upgrade to support a transformative business model - and it’s one that’s working so far. I’ve revised my initial skepticism about the self-service kiosks in-store, finding it far easier to ‘customise’ an order by touchscreen than by trying to explain what’s wanted across the counter.

While I still can’t imagine the circumstances in which I’d want to order a McDonald's delivered to my home, clearly there is a market for that. I suspect it’s a ‘late night, after hours’ market, but that’s still a legitimate customer base to chase.

At a time when other more ‘upmarket’ burger operations, such as Gourmet Burger Kitchen, appear to be struggling and closing stores, McDonald's is heading in the opposite direction and digital spend is fuelling that.