In late 2016, McDonald’s partnered with UberEATS to expand its door delivery initiative in the U.S. This partnership expanded significantly last year, and by the end of 2017 the company was track for 10,000 McDonald’s restaurants offering a delivery option. This number is likely to expand further in 2018. With the added convenience factor, delivery could drive substantial growth for McDonald’s by not only increasing total orders, but also increasing the average customer spend per order. According to the company, home delivery orders are usually group orders, making the average delivery check size around twice the size of a restaurant check. McDonald’s is working on marketing initiatives to encourage large delivery orders and is also looking to use the data captured digitally (while placing an order) to customize promotions for these customers. We believe that delivery holds strong growth potential for McDonald’s as the company looks to attract value-conscious customers using this added convenience factor.
We do not expect significant growth in the average revenue per McDonald’s franchised restaurant in the U.S over our forecast period, and expect this number to remain in the range of $350k- $360k going forward. However, as the company expands its door delivery initiative to more restaurants, larger and more frequent delivery orders can drive revenues for its restaurants. If these revenues increase at a rate of 2-3% over our forecast period, there could be a modest upside to our price estimate:
Click on the above image to access our Interactive Dashboard where you can modify these assumptions to see the impact of growth in average revenue per franchised restaurant on McDonald’s valuation.
In the above scenario where average revenues per franchised restaurant grow by 2-3% over our forecast period, there would be a nearly 5% upside to our price estimate.
There are two significant benefits for McDonald’s from the expansion of its delivery initiative. While convenience oriented millennials are driving the restaurant delivery market, which is likely to grow steadily over the next few years, McDonald’s can also benefit by customers ordering home delivery at night. According to Bernstein, McDonald’s greatest revenue comes from breakfast and lunch, so if delivery orders pick up in the evenings this could be a boon for the company.
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