McDonald’s Corp. (NYSE:MCDD), eager to achieve growth said at the company’s investor day event Wednesday that it plans to expand mobile ordering and home (or office) delivery. The delivery part of the plan is unique due to the complexity involved in gearing up for something a little more complicated than “Please pull forward and we’ll bring your fish sandwich out to you when it comes up.”
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On Cutting Costs/Expanding Access
It’s all about cutting costs and expanding access. The combination spending $1.7 billion to renovate existing locations, the refranchising 4,000 stores and the addition of enhanced mobile and added delivery services have McDonald’s saying it expects selling, general and administrative expenses to decrease about 7% to 8%.
With the board approving a new 3-year cash return target of $22 billion to $24 billion the company said it expects system wide sales growth of 3% to 5% beginning in 2019.
A $100 Billion Market
McDonald’s has had test runs of a delivery service going for several years. Scaling up, the company believes, could happen quickly and take advantage of what McDonald’s Senior VP Lucy Brady says is huge opportunity.
“Restaurant delivery is a $100 billion market and it’s exploded,” Brady said, adding, “there’s significant opportunity that we haven’t even tapped into yet.”
Close To You
Perhaps even more surprising than the size of the market is the fact McDonald’s has a restaurant within 3 miles of 75% of the population of the U.S., France, the U.K., Germany and Canada. That’s important because of the cost savings and ability to deliver hot, fresh food items quickly.
The company plans to emphasize the roll out of expanded delivery in the U.S. In fact, many of the company’s overseas restaurants already offer delivery. This is especially true in Asia and the Middle East where McDonald’s generated almost $1 billion in sales from delivery last year.
On Not Being Left Behind
McDonald’s has lost customers by not keeping pace with fast casual chains like Panera Bread Co. (:PNRAN/A) and Chipotle Mexican Grill Inc. (NYSE:CMGC). Customers saw those restaurants as offering higher-quality, healthier food.
The company hopes its new strategy combining technology and delivery will allow it to keep existing customers, convert fast casual devotees and regain customers lost to other competitors.
The company’s focus is on 2019 where it hopes to trim an additional 5% to 10% of costs from expected 7-8% by the end of 2018. In addition to the 3% to 5% sales growth anticipated the company wants to grow operating margin from the high-20% range to the mid 40% range.
EPS in the high-single digits is another goal along with the return on incremental invested capital target from the high-teens to the mid 20% range. Overall the company’s focus is on menu innovation, store renovations, digital ordering and delivery.