McDonald's Is Smart to Copy Starbucks
This must be "copy your competitor" week for corporations.
McDonald's Corp., at its annual investor day Wednesday, unveiled plans to roll out mobile ordering and delivery to all its U.S. locations. In a bid to win over lapsed customers, it's embracing the same digital tools Starbucks Corp. and Domino's Pizza Inc. have used to grow sales.
On Tuesday I warned Target Corp. wouldn't succeed copying Wal-Mart Stores Inc.'s turnaround playbook. Unlike Target, though, McDonald's play-stealing plan is likely to work.
Here's why: Amid what may be a restaurant recession, chains are struggling to bring customers in their doors as frequently as in years past. McDonald's alone said it has lost 500 million visits cumulatively since 2012. Armed with smartphones, customers now expect to get anything they want at a moment's notice. Any minute spent waiting is an invitation to move on to a competitor. Over the next five years, winners in the restaurant industry will be determined by their embrace of technology today.
McDonald's has done a good job reviving its U.S. restaurant business by introducing all-day breakfast and value meals. But it admitted Wednesday it had to move from "turnaround mode" to growth. And to do that, it must find a way to attract more diners.
Domino's and Starbucks have already shown the power of technology to change diners' behavior -- just as, in retail, technology has altered the way consumers shop.
Such changes are still in the early stages in the $210 billion restaurant industry. Morgan Stanley analyst John Glass estimated in June that delivery made up just $30 billion of that market, of which just a third is online.
Domino's is perhaps the poster child for this movement, bringing in half its sales from digital orders. This has had an effect on growth: Sales at established U.S. Domino's locations rose 13 percent in the third quarter, compared to a 1.2 percent rise across all North American restaurants. 1 Starbucks' mobile sales grew so quickly, meanwhile, that crowds started impacting store operations.
It's actually hard to believe McDonald's waited this long to offer mobile ordering, delivery, curbside pickup, and similar features in the U.S. It has delivered Big Macs and chicken nuggets for years in markets such as China, where delivery now accounts for 10 percent of overall system sales. The chain already generates $1 billion in delivery sales through 3,500 restaurants around the world. Maybe it thought American demand wouldn't justify the costs of implementing the technology?
If so, that's not the case anymore. Nearly 45 percent of consumers surveyed by Morgan Stanley have ordered food delivery in the past six months. That percentage would have been higher if more restaurants offered delivery, according to the survey.
With McDonald's scale and hefty cash flow, it's able to put big bucks behind its growth initiatives. Just look at the success of all-day breakfast, which helped usher in six straight quarters of comparable sales growth at the chain while most other restaurants stumbled, or its McCafe business, which has grown to $4 billion in annual U.S. sales.
By its own admission, McDonald's is late to the digital party. But signs it's willing to invest in catching up to digital pioneers such as Domino's and Starbucks bodes well for its future. In some cases, it's good to follow the pack.
Sales increased by 12% in the latest quarter, but earnings for all the other restaurants haven't come out yet
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