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November 11, 2017

Uber EATS Operator Profits

Regarding McDelivery profitability - this is what McDonald's CEO told investors on the October 24 conference call:
Analyst question from Sanford C. Bernstein & Co.
So in terms of delivery, do you now have a large enough sample to draw some conclusions about the impact on comps? And also, can you talk a little bit about profitability? One of the things we hear from some of the private companies we speak to is that it's difficult to make delivery profitable even when it's outsourced to third parties and, therefore, doesn't require as much in upfront investments. Could you talk a little bit about what kinds of fixed and variable costs your franchisees incur and what kind of profitability you anticipate? Thank you.
McDonald's Corp. CEO responds
Right. I'll have a stab at that one. So I mean, clearly, we're getting enough of an early read to be encouraged by delivery. So we've pursued – delivery have pursued a very aggressive rollout program. And our primary lead partner on this one has been UberEATS. And effectively, we've looked to expand wherever UberEATS has coverage around the world. And they've actually been doubling-down on their expansion to help meet our ambition as well, so it's been working well as a partnership between the two of us. And yes, we're getting good early trading results.
What we are finding is, not surprisingly, the number of guest counts per store per day does correlate pretty highly to consumer awareness of this. So the markets that have been able to more effectively promote and raise the customer awareness are getting higher take-up per day. I'm not going get into the actual comp buildup on this one, but it's a meaningful contributor in the restaurants that offer delivery. As I say, I want to just make sure we're guarded about what we're saying. We're in 5,000 restaurants so far out of 37,000. So it's meaningful in those that offer it, but clearly we've got some ways to go to get the further scale across the global system.
In terms of profitability, it's important that the vast majority of our business is incremental because the way that we're working with the third party operators is – obviously, there's a commercial relationship between ourselves and a third party operator that would take some of our margin. So we need certainly more than half of this business, if not more than that, to be incremental. And we're certainly finding that we are well up that scale actually. It's really, really encouraging for us.
And part of the reason we know that is because we're beginning to collect the consumer data now as well. So we can actually get repeat visit information, daypart information. And the fact that more than 60% of our business comes in evening and overnight, we know is reinforcing the fact this is an incremental business opportunity, revenue stream that we weren't previously tapping into.
But we're also getting very strong repeat business from those that use it as well, which again further encourages us. And one of the things we are focusing on internally is what is there that we can do to get the awareness of the fact that we're offering delivery higher up in consumers' minds. So, yes, it's profitable. It's incremental business. And we're looking to continue to go hard at this. And we certainly know our operators are enthusiastic, as are we, as a corporation.
Source: Seeking Alpha transcript
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"our margin"? ... Lots of words to say that Operator profits don't matter and all that matters is the small incremental sales increase on which the company and the shareholders take their full profits.

8 comments:

Richard Adams said...

Note that the analyst's question -

"Could you talk a little bit about what kinds of fixed and variable costs your franchisees incur and what kind of profitability you anticipate?"

- didn't get addressed at all.

Anonymous said...

Thats because no one in this management team would know what fixed and variable costs are.

Richard Adams said...

Well, since they are all accountants they would have learned those terms in Bean Counting 101. That doesn't mean they would understand the real-world application to a McDonald's store P&L.

Anonymous said...

Corp could NOT care less about Operator profit. Top line sales is their only goal.

Anonymous said...

How will the increased exposure liability affect our Liability Insurance costs because of delivery ?? Not sure that our insurers would be too keen on insuring a transaction delivered by a third party. I smell delivery riders and increased insurance costs in our future!

Anonymous said...

I don’t understand the big issue, of course McD’s top management wants more top line sales, as a franchisee I want more profitable sales. If you want to recover your 15%-20% Uber take just raise your Uber delivery prices, this is an easy process through RFM column number three, I believe it is labeled as “other” where Uber gets your menu from, have higher delivery prices and take off specials. Not a big deal this way you have recovered the Uber fee, yes maybe you lose a few orders, but if you do not care how many you get and stay profitable on delivery a win I have done this and have even stayed slightly above average on most of my restaurants for Uber orders.

Anonymous said...

I believe your liability insurance has "hired auto" coverage included which would cover any non-owned auto liability and property damage claim.

Anonymous said...

But what about food issues?