So it was only a matter of time before there was some kind of collision looming and this week comments from McDonald’s CEO Stephen Easterbrook hinted a potential iturf ncursion onto Starbuck’s turf:
As we build out our digital capabilities and loyalty in CRM, we think coffee, because it's such a habitual purchase, will play well against those customers who we want to encourage back more often. When we talk about converting casual customers to committed, we know coffee and snacking plays strongly against some of those more casual consumers.
That’s the rationale behind the burger firm’s rolling out of McCafe outlets. When Starbucks starts selling burgers, we’ll know this a serious clash coming up, but the old cup of java is now on the McDonald’s menu. Easterbrook confirms:
Each of our major countries has a different stage of development of their McCafé programs, but the one thing I would say is that coffee plays a part in all those markets as we go forward.
But away from the prospect of coffee wars, McDonald’s continues to execute against its digital transformation agenda and is setting results. According to Easterbrook:
We are increasingly driving traffic and check growth with digital offers. Retention of mobile offers continues to grow month-on-month, with a meaningful portion of the redemptions representing incremental visits. Importantly, this is also building our base of digital users, increasing awareness and adoption as we deploy the mobile order and pay functionality of our mobile path…We remain on track to deploy mobile order and pay to 20,000 restaurants by the end of the year, including all of our US restaurants.
Delivering on delivery
Another big focus is expansion of delivery options to compete with the rise of the ‘gourmet’ burger vendors. Over the past nine months, over 20% of McDonald’s outlets worldwide have been digitally-enabled to offer home delivery, with the target of having 10,000 in total by the end of the year.
The main partner in all this, to date, has been Uber with its UberEATS service. Easterbrook explains:
We've looked to expand wherever UberEATS has coverage around the world.They've actually been doubling-down on their expansion to help meet our ambition as well, so it's been working well as a partnership between the two of us. And yes, we're getting good early trading results.
What we are finding is, not surprisingly, the number of guest counts-per-store per-day does correlate pretty highly to consumer awareness of this. So the markets that have been able to more effectively promote and raise the customer awareness are getting higher take-up per day.
But we're also getting very strong repeat business from those that use it as well, which again further encourages us. One of the things we are focusing on internally is what is there that we can do to get the awareness of the fact that we're offering delivery higher up in consumers' minds.
Having viable delivery channels is now seen as crucial, he adds:
Delivery is already a significant market. I guess the reason we've addressed this with such urgency is, apart from in certain Asian and Middle Eastern markets, we just weren't participating. Given societal trends, given consumer trends, we could only see it growing. So for us, we're a little late to enter, but I think we've entered with more muscle and intent than probably most other competitors could possibly match.
Across our top five or six markets around the world, 75% of our customers live within three miles of a McDonald’s. So, frankly, there is no other restaurant business on the planet that's closer to more of the global population than we are. We think that, therefore, that lends itself really well to not just visiting their local McDonald's but also having delivery from their local McDonald's.
In terms of the stores themselves, the rolling Experience of the Future (EOTF) program to upgrade customer experience continues, with stores being refitted with digital tech, such as onscreen ordering kiosks in-store. Easterbrook says:
Part of our broader philosophy around Experience of the Future is putting choice and control in the hands of customers, whether it's how they order, what they order, how they choose to pay and how they're served. And we want to be providing faster service for those customers that really want fast service.
The EOTF approach is delivering faster fast food, according to McDonalds USA President Chris Kempczinsk, maybe only around 5 seconds or so at present, but with room to expand as new ways to interact with the brand increase:
Maybe in the past, [customers] would just go through the drive-thru because, frankly, they didn't see going into the restaurant as a great experience. Now, they want to go into the restaurants because it's an updated modernized experience where you can get table service there. We look at customer satisfaction prior to EOTF and after EOTF. And what we're seeing there are significant improvements on the order of three to five points improvements in overall customer satisfaction. So for us, that gives us reassurance that they are enjoying the initiatives that we're deploying with EOTF and they're having a better experience.
That meets the objectives that have been laid down for the stores, he adds. Just as retailers in other sectors have started to learn to love the store again, so too McDonalds is beefing up its credentials here:
Two years ago, Steve declared that McDonald's needed to run better restaurants and nowhere was that more evident than in the US market…On almost every dimension, the US is running better restaurants and that's showing up in the business results…Almost 100% of U.S. operators have now signed commitment letters in support of a holistic multi-year growth strategy that will update the entire system to EOTF, make important equipment upgrades to deliver better food and ensure we remain competitive on value.
But it’s the digital aspects of all this that are the differentiators and which are likely to become the competitive front-line with other fast food chains. Kempczinsk says its early day yet, but McDonald’s is getting up a head of steam:
We are still in the early innings, in honor of the World Series, in the early innings of digital, but we're seeing, I think, a really nice start to it. We've had almost 30 million downloads. I would say we're roughly 9 million active users, meaning [those] who are in it on a monthly basis And we're seeing strong offer momentum, which is really currently the primary benefit that we're delivering through the app. As we're rolling out now mobile order and pay, the power is going be that to then bring together the offer with the ability to do mobile order and pay.
We're also continuing to roll out mobile order and pay with a new curbside check-in option. I'm really excited about the potential of curbside to evaluate the convenience of McDonald's to a whole new level for our customers. We now have mobile order and pay in over 6,000 restaurants. And we expect to reach all 14,000 restaurants by the end of the year.
I confess I’d never think of heading into a McDonald’s for a cup of coffee, so if Easterbrook’s thesis is correct, I await developments there with some interest. Elsewhere, the digital transformation of the fast food sector continues apace and is shaping up as a promising ‘next big battleground’ for 2018 and beyond. McDonald’s is heading in the right direction, even if there’s still a long way to go.