I fight a battle with myself all the time: The Economist or Business Week — how to choose? Both take time to read carefully. Both reward the careful reader. Here’s a story from a couple of issues ago that just tickled me…
Knock Knock, It’s Your Big Mac
From São Paulo to Shanghai, McDonald’s is boosting growth with speedy delivery
Mickey D delivers? You bet. While Americans suffering from a Big Mac attack typically pull up to the drive-through window, in the developing world the fast-food chain increasingly does the driving. In traffic-choked cities from Manila to Montevideo, McDonald’s deploys fleets of motor scooters to get hot food to customers fast. “I’m too lazy to go out and stand in line,” confesses Nada Abou el Soud, a Cairo high school student. She says she calls in an order for a Mc- Chicken combo meal at least once a week, dropping about $4.25 each time, including a 70 cents delivery fee.
All told, McDonald’s delivers in some 25 cities, with a half-dozen more on deck. The company just launched deliveries in Taipei, with 1,000 drivers, is expanding Shanghai to citywide service this summer, and is testing the concept in Beirut and Riyadh. In Egypt, where the setup was pioneered in 1995, deliveries now account for 27% of all McDonald’s revenue and up to 80% at some restaurants. Globally, delivery sales are expected to total more than $110 million in 2007, up from $90 million last year, the company says. While that’s spare change for the $21.6 billion giant, the business is growing by 20% to 30% annually, more than triple the chain’s overall rate.
It’s profitable, too. Delivery margins usually top the 13% to 14% that McDonald’s outlets generally yield. That’s because the courier fee, which runs from 50 cents to $1, covers the cost of handling phoned-in orders and the fleets of drivers and motorbikes. “And we don’t even have to clean up a table,” notes Timothy J. Fenton, president of McDonald’s Corp. (MCD) operations outside the Americas and Europe. “It’s incremental profit for us.”
The business is emblematic of the change in thinking at the Oak Brook (Ill.) company. From McDonald’s start in 1955, headquarters dictated pretty much every detail of running a franchise. But as revenue growth stalled several years ago, management began encouraging experimentation. So while the basic menu and layout of a McDonald’s is still pretty much the same everywhere, restaurants in China now have latitude to substitute corn for fries in Happy Meals, some in the U.S. blend fruit smoothies, and those in Australia and France have coffee lounges that feel like a Starbucks (SBUX). “Management is looking beyond Oak Brook for inspiration,” says UBS Securities (UBS) analyst David S. Palmer. “They’re becoming better at sharing the best ideas around the globe.”
McDonald’s opened its first location in Egypt in 1994. Its local licensee quickly suggested adding delivery after noticing that other fast-food chains, and even five-star hotels, offered the service. The first trial took place six months later at two outlets. One key was setting up a call center with a single toll-free phone number for metropolitan Cairo. The other was hiring hundreds of scooter drivers to snake their way through the city’s thick traffic to make their drop-offs before the McNuggets get cold. Today, almost all of McDonald’s 35 restaurants in and around Cairo deliver, while only a couple have drive-through windows. McDonald’s has mimicked this setup as it has expanded the service to other countries.
One place, though, that the Golden Arches won’t come knocking is the U.S. The delivery model works well in congested cities where there’s no affordable space for drive-through windows, but plenty of cheap labor to ferry the food to customers. Except in Manhattan, where a handful of McDonald’s deliver phoned-in orders to nearby high-rises, land isn’t an issue in U.S. cities and people find it easier to pick up meals themselves. But with ever more sales coming from abroad, Ronald McDonald will be plenty busy making the rounds for some time.
With Caroline Ghobrial in Cairo
Remember the conversation years ago? McDonald’s is so American, it won’t go over over there.
Well that battle has been won. And one of the reasons is obvious — they are not afraid to try a different delivery model, and of course different menus, where appropriate.
BTW, in the four plus years that MUDGE has been trying to maintain a low carb existence, I’ve eaten at a McDonald’s just a couple of times, and that on the road, where dependability (and the promise of a reasonably clean restroom) is paramount.
This sudden avoidance of mine was a radical change from old habits (several visits per week, week in and week out, for all my adult life), and I’m sure the resulting revenue impact just from the loss of my business alone was a primary factor when Mickey D decided that the overseas thing just had to work.
It’s it for now. Thanks,