McDonald's is in the process of renegotiating its delivery contract with Uber Eats. / Bloomberg McDonald's is in the process of renegotiating its delivery contract with Uber Eats. / Bloomberg

McDonald’s U.S. Delivery Business Lags Behind International Growth

We’ve been hearing for some time now that McDonald’s delivery business is growing at lightning speed, correlating with the young industry as a whole.

McDonald’s shared the sentiment again during its first quarter earnings call on Tuesday. The fast food chain now offers delivery at over 20,000 restaurants across 75 countries, more than half of the company’s entire global footprint.

“It has been one of our most successful accelerators from the start,” McDonald’s CEO Steve Easterbrook said on the call.

Similar to last quarter, Easterbrook noted that delivery has become a $3 billion business for McDonald’s company-owned and franchised restaurants globally, but didn’t break out revenue figures specifically in the U.S. In that area of the business, the company is still working through awareness and operational issues.

“It’s probably fair to say that we got a quicker lead on delivery in many of our international markets,” Easterbrook said, listing off geographical areas like the U.K. and Australia where delivery has performed very well. “It’s better to say we had a slightly slower start in the U.S.”

Overall, McDonald’s reported $4.9 billion in global revenue for the quarter, down four percent from the same period last year. The company reported $1.8 billion in revenue for both company-owned and franchised restaurants in the U.S., down one percent year-over-year.

The comparable sales results were more encouraging. McDonald’s same store sales were up 4.5 percent in the U.S. in the quarter, compared to a positive 2.9 percent increase in sales last year. Across the global company, same store sales were up 5.4 percent.

While Easterbrook noted that delivery was a “meaningful contributor to comparable sales in a number of markets,” and it continues to help drive up average check sizes, Chief Financial Officer Kevin Ozan confirmed to analysts on the call that delivery did not make up the majority of the company’s positive comparable sales results.

Delivery’s Pain Points

It is not easy to make delivery profitable, as McDonald’s operators are well aware. After enough concerns from operators were aired, the McDonald’s corporate team has started to rethink the operational details of the channel in order to receive all-important franchisee support on the initiative.

In the past quarter, Bloomberg reported that McDonald’s has been hashing out more favorable commission fee terms for its operators with Uber Eats. The delivery service secured an exclusive distribution deal with McDonald’s several years ago, but that, too, might be coming undone. If operators were no longer tied to an exclusive partnership with Uber Eats, they could begin to work with a different delivery service, perhaps one best suited to their respective markets.

“We’ve been working with Uber Eats on coverage and trying to get a competitive deal that both supports the partnership with Uber Eats, but also helps the economics for our owner/operators. We believe that we’re on the verge of unlocking some of that delivery potential more within the U.S.,” Easterbrook said on the call.

Delivery on McDonald’s Mobile App

Integrating delivery on McDonald’s mobile app could help jumpstart delivery sales, especially in the U.S. markets where food delivery itself is still brand new.

There isn’t a way currently to access delivery on McDonald’s own app — the whole process is hosted on Uber Eats’ marketplace. But Easterbrook said that the company was working on making changes in that department, and there are plans to start offering delivery through the app in the third quarter of 2019.

“Certainly, with McDelivery being something that we can only ever see grow, integrating that into our own technology ecosystem is an important move going forward,” Easterbrook said. “We’re certainly having really healthy and constructive discussions with Uber about how we can get that done.”

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