Mobile Ordering Could Be a Game Changer for McDonald's, Starbucks, Panera Bread, and Others

Look to Domino’s Pizza and Papa John’s for the answer.

Jul 8, 2014 at 8:40PM

Fast food is getting faster thanks to mobile ordering apps. Panera Bread (NASDAQ:PNRA) and others already have one, Starbucks (NASDAQ:SBUX) is initiating a pilot program to test it, and now even McDonald's (NYSE:MCD) is giving it a shot at 22 locations to start. Is it just a gimmick that only a minority of customers appreciate? Maybe. But the minority can make a world of difference. Just ask Domino's Pizza (NYSE:DPZ) and Papa John's (NASDAQ:PZZA).


Source: McDonald's.

McD's ordering
The benefits to consumers should be obvious. You can order your Big Mac from McDonald's without having to verbally place an order, wait for a cashier, or even wait in line at all, with in-store pickup or curbside delivery. Precious minutes and convenience could easily make the difference for those in a rush.

For Starbucks, it's similar. Sometimes the lines are just so ridiculous that it's just not worth the wait. If the Starbucks pilot program succeeds, the semi-humiliating, kindergarten-like ritual of having to give your name for the worker to write on a cup could become a thing of the past (they always misspell my name -- why I don't just make up an easy name like "Jill," I have no idea).

Panera Bread almost always has an annoying wait, and ordering ahead could be a blessing for many. The company expects the adoption rate from its customers to be in the low single-digit percentage range. You get my point (beyond that I apparently visit chains a lot in the name of culinary journalism).

The real benefit that McDonald's, Starbucks, and Panera Bread may see
Turn to Domino's Pizza and Papa John's for insight on this matter. Mobile ordering apps may be new or even still in testing for many restaurants, but at Domino's Pizza and Papa John's, they've already been around for several years. In fact, Papa John's is proud to announce that digital (including PC) sales make up close to 50% of its sales domestically, and Domino's is not too far behind.

The digital sales contribution has moved beyond the computer and over to the tablet and smartphone. Both Domino's Pizza and Papa John's reported that the super-convenience of the advanced apps that save consumers' favorite orders, credit card info, etc. has resulted in consumers ditching the mom-and-pop and even regional chains.  Even the national Pizza Hut chain with its inferior app is feeling the pain.

Local pizzerias are losing sales one by one, and in some cases even going under just thanks to digital (including mobile) ordering. Granted, McDonald's, Starbucks, and Panera Bread differ greatly from restaurants that deliver pizza. Ordering from Domino's Pizza or Papa John's via mobile app for home or office delivery may provide far greater convenience than ordering a quarter pounder with cheese to pick up.

Big Mac

Source: McDonald's.

The vocal minority
However, you know that at least a minority of the population will indeed rely on the order apps that the mom-and-pop restaurants lack. In a restaurant world where it's all about trying to squeeze out another 1% or 2% in domestic same-store sales, McDonald's just needs that little boost to make all of the difference

For example, for the month of May, McDonald's saw a 1% drop in domestic same-store sales. Perhaps if the mobile ordering app had been in place nationally, it would have reported a result in the black instead.

It's the same thing at Panera Bread and Starbucks. At least a handful of people, a number that will grow over time, will skip Bob's Coffee House or Sam's Subs & Sodas and go for the mobile ordering app to grab a quicker bite to eat at Panera Bread or treat themselves to a fast Frappuccino from Starbucks on the way back to the office.

One final random semi-Foolish thought
What if the entire world switches to mobile ordering? The line may end up longer for pickup than for ordering the old-fashioned way. That kind of reminds me of the drive-thrus at McDonald's. Sometimes there will be a parade of cars waiting outside, yet the inside is empty. I'm in and out in seconds.

Anyway, it will be interesting to see how our world changes around us as well as how our investments are affected. Digital ordering, including the rapidly growing mobile ordering, has turned Domino's Pizza and Papa John's into hyper-growth stocks again. Perhaps we'll see, even if on a smaller scale, a bit of the same with Starbucks, Panera Bread, and/or McDonald's.

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Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends McDonald's, Panera Bread, and Starbucks. The Motley Fool owns shares of Panera Bread, Papa John's International, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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