McDonald's and UberEATS Have a Happy Deal

Convershaken Staff
July 29, 2017

It's tempting to think McDonald's best days are behind it, but the iconic fast-food chain has revitalised its prospects by refreshing its menu, revamping its restaurants and rolling out new technology. The best example may well be its recent partnership with UberEATS, which is going remarkably well.

McDonald's customers increased 3% in the three months to 30 June, driving global underlying sales up 6.3%. Moreover, underlying sales broke multi-year records in Germany and the Netherlands, and sales volumes in the UK surged to an all-time high in April. The outperformance reflects McDonald's "Experience of the Future", centred on the introduction of self-order kiosks, digital menu boards and table service. Coupled with remodelling, it typically boosts sales by around 5%. Other initiatives include the roll-out of mobile ordering and payment, and the introduction of fresh - rather than frozen - beef in premium burgers and the Quarter Pounder.

Yet the real game-changer may be delivery, already available at nearly 8,000 restaurants in 47 countries. The service leverages the company's immense scale - nearly 75% of people in its biggest markets live within three miles of a McDonald's - to keep average delivery times to 30 minutes or less. In many markets, the average value of delivery orders is one-and-a-half to two times higher. There's a high proportion of repeat users, and 60% of orders are placed after 4pm, allowing McDonald's to serve more customers during slow periods. Delivery has proved especially popular in China: deliveries have grown by more than a tenth in the past year, and account for 20% to 40% of sales at some restaurants.

Importantly, McDonalds has found delivery orders to be "highly incremental" - early estimates suggest over 70% were in addition to in-store and drive-thru orders. The implication is that customers are ordering McDonald's rather than dining at home or in other fast-food restaurants. Another interesting trend: orders are higher in college locations - perhaps due to drunk, stoned, lazy yet tech-savvy students - and poorer areas, where fewer people own cars and may be reluctant to venture out late at night. Delivery is also popular during big sports games or tournaments, when fans are glued to their televisions. 

UberEATS has also benefited from the arrangement: some people are downloading the app just to order McDonald's. The partnership's success could sway Taco Bell, which has shied away from using UberEats out of fear its food will arrive cold. Instead, the Tex-Mex fast-food chain has partnered with Uber-rival Lyft to enable late-night passengers to push a button that directs their driver to the nearest Taco Bell. However, drivers have complained as they don't receive extra compensation for waiting in line.

The McDonald's-UberEats deal has resulted in larger orders, more off-peak business, a new pool of customers, and new users for Uber. It's inevitable that rivals will follow suit, but the pair have secured a lucrative headstart.