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Delivery, Technology Driving McDonald's Turnaround

By Daniel B. Kline - Feb 5, 2018 at 7:53AM

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Convenience could be as important as food for McDonald's.

There was a time not all that long ago when McDonald's (MCD 2.46%) business model seemed as outdated as its clown mascot. Now, however, the chain has modernized its operations, building its business around convenience seemingly as much as food.

The company has invested heavily in technology both in its stores and with its app. In many ways that has led to a change in how it serves customers that's as revolutionary as adding drive-through windows once was.

It's a strategy that's working, with the company serving 1.9% more customers in fiscal 2017, the first bump in that number since 2012. In addition, McDonald's reported 0.3% comparable-store sales growth for the full year and it's fair to say both numbers were driven by the company's efforts to modernize how it serves visitors.

"Customers tell us that we are now simply enhancing their McDonald's experience by being more attentive to their needs and serving hotter and fresher food," said CEO Steve Easterbrook during the Q4 earnings call.

The exterior of a McDonald's

McDonald's has been revamping its stores. Image source: McDonald's.

It starts with delivery

In 2017, the company went from zero to 60 on delivery very quickly. It began the year testing delivery in partnership with UberEATS in 200 restaurants in three Florida cities. Now, as 2018 begins, that deal has extended McDonald's delivery to an additional 7,000 restaurants in 21 countries.

"With our markets in Asia and the Middle East, where we've offered delivery for many years, we are now delivering meals from over 10,000 restaurants, more than one-quarter of the system's restaurants," said Easterbrook.

That's important because delivery orders "tend to surpass average check size by 1.5 to 2 times," said the CEO, who also noted that high customer satisfaction has led to "solid" repeat business. "During the fourth quarter, delivery gained traction and emerged as a meaningful contributor to our comparable sales in several of our largest markets," he said.

The future is now

McDonald's has built its turnaround on a combination of technology and updated stores that it calls "Experience of the Future (EOTF)." This encompasses everything from self-ordering kiosks, ordering and payment via app, curbside pickup, and an overall modernized look for stores. Customers have told the chain they like the EOTF experience.

"They're rewarding us with more frequent visits and they're spending more on average when they do," said the CEO.

EOTF has been deployed in only about a third of the chain's locations, including 3,000 in the U.S. More than 20,000 of the chain's roughly 37,000 restaurants globally have mobile order and pay capability and in the U.S. the company has more than 20 million people registered on its mobile app.

"While still very early with customer usage, we're encouraged by digital orders as we're seeing higher average check size and greater customer satisfaction among customers," said Easterbrook. "In particular, many customers are appreciating the added convenience of curbside pickup."

Familiar food fast

McDonald's did make some menu changes in 2017, adding premium burgers and new chicken tenders in the U.S. It has also revamped and tweaked its value menu around the world. Those changes, however, are secondary to its using technology to drive convenience.

The chain has made it very easy to get its familiar offerings, whether customers are at home or in a store. That's a model that has proven very successful for Domino's, a chain that has built its business on getting its good-enough pizzas to people with little effort required by the customer.

McDonald's has a familiar menu that consumers clearly like. Now, the chain has made it easy enough to get its food that consumers are spending more and visiting more often. It's not a formula based on having the best burgers. It's one built around making good-enough food really convenient.

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