While the idea of eating soggy McDonald's (NYSE:MCD) fries may seem unappetizing, consumers have spoken, and they seem to disagree. The company has been rolling out delivery to thousands of stores, and early results are impressive.
On this episode of Industry Focus: Consumer Goods, the cast must eat their words as they discuss the initial results of McDonald's push to emulate a competing restaurant chain with a Big Mac and fries delivered straight to your door.
A full transcript follows the video.
This video was recorded on Aug. 22, 2017.
Vincent Shen: Any Fools who've heard us cover restaurants in the past, and some trends, one of those is delivery. They've probably heard that you're pretty pessimistic on delivery, at least as a major growth lever for companies beyond the established businesses like a Domino's. Specifically, you've mentioned how McDonald's, in a push for growth and innovation, was testing with delivery itself. And I agree with you, in general, that their fries and burgers are just not as good after sitting around for 20 or 30 minutes in a delivery car. But management, it appears, has been pretty happy with the results they're seeing so far.
Dan Kline: This is one of those areas where I'm wrong, and I'd make the same argument again. It's like Domino's, I keep expecting that at some point people are going to realize this pizza isn't very good, and while it might be slightly harder to get, there's pizza down the street anywhere -- almost anywhere, maybe not Chicago, but almost anywhere -- that's better than Domino's. And with McDonald's, they're going on the Domino's model, they're saying, "Look, we don't care how well a Big Mac travels, we don't care if chicken McNuggets are inedible 60 seconds after they come out of the fryer. We're going to deliver them and make it super duper convenient." You'll probably just have to send an emoji of Grimace and they'll know what your order is and be able to bring it to you, and that's what Domino's has done. And in the locations where McDonald's has been testing delivery, it's worked stupendously well. Checks are bigger, people are ordering more often. And it's amazing to me, as someone who clearly likes to eat, that convenience would be more important to people than quality. And we're not even talking that much added convenience, it's only a little easier to get Domino's vs. your local pizza place.
Shen: Yeah, but I think that convenience, that consistent quality and experience, and also the familiarity, are the reason why these companies like this exist, if you're looking at it really big picture. The thing with the delivery that surprised me is the scale of the company's testing in the rollout for delivery so far is much bigger than I thought. It's now available at almost 8,000 restaurant locations in nearly 50 countries. What you mentioned about the bigger checks, I think management said that check sizes for restaurants that do offer delivery are seeing them higher by 1.5 to 2 times, a pretty substantial boost, the kind of thing that I'm sure investors are hoping to see. All day breakfast provided a huge boost a year or two ago, and now they need some of these more consistent innovations, with the premium burgers, for example, and some drink offerings that they're making, to keep growth coming to be a consistent thing. But with the digital efforts also, like mobile order and pay, overall, comparable sales for the U.S. for McDonald's were up about 4% last quarter. So there are plenty of other fast food and fast-casual chains right now that are posting negative comps, and McDonald's was seeing red itself just a couple years ago. But with all that in mind, are you still bearish on potential stuff like this?
Kline: Well, I'm not, because history has shown out with Domino's that being the first mover with the best technology, once you have the McDonald's app and your order preferences are stored -- I'm the same way with the Starbucks app. Even though I could go to Capital One, which has a Peet's Cafe where I pay half price because I'm a member, a lot of times I go to Starbucks, they're about three storefronts apart from each other, because I can order in my app, not have to talk to a human being, not have to get a card out. I actually pay more money to go to Starbucks. Both have comparable Wi-Fi, everything else is pretty much equal. The added convenience of Starbucks is worth paying more. Even if Pete's and Capital One were to launch another app that's similar, I'm not sure I want another app in my phone. For a while, I had the Dunkin' Donuts app in my phone, but it didn't have a credit card and it wasn't that easy. So once you get it, McDonald's gets that real estate from you, it's going to be very hard for even a better burger chain to fight their way in. And the one thing McDonald's is doing really well is they're doubling down on technology and convenience and making it super easy. So while I think it's ridiculous -- I think getting takeout from McDonald's is preposterous, you have to eat it there. But this is clearly going to work, because people don't care. They'll eat soggy fries and a lousy burger as long as it's easy to get.
Shen: Alright. I say we give it another six months, maybe a year, and I'm sure we'll have another chance to check in to see how some of these various efforts, including delivery, but also some of their technology with the kiosks and the mobile order and pay, which, the company has also seen strong results with, see how those are driving things in that next year.