McDonald's Sees $100 Billion Delivery Market as Way to Grow

(Bloomberg) -- After years of seeing fewer U.S. customers come in its doors, McDonald's Corp. is embracing a different philosophy: take the food to them.

The fast-food chain will rely heavily on delivery to reignite sales, especially in the U.S., according to executives speaking at McDonald's investor day in Chicago on Wednesday. The company also is turning more aggressively to digital technology, such as mobile ordering and payments, to meet its growth targets.

The overhaul is part of a bid to achieve long-term systemwide sales growth of 3 percent to 5 percent, starting in 2019. McDonald's also aims to boost operating margins from the high-20 percent range to around mid-40 percent.

“Restaurant delivery is a $100 billion market and it's exploded,” Senior Vice President Lucy Brady, who runs strategy for the chain, said at the event. “There's significant opportunity that we haven't even tapped into yet.”

The world's biggest restaurant chain has faced slowing sales since excitement around the 2015 U.S. launch of all-day breakfast has died down. That's put pressure on Chief Executive Officer Steve Easterbrook to find new initiatives that can revive momentum. Though the company has been testing delivery for years, it now sees an opportunity to “scale quickly” with the concept.

Mobile Ordering

It also plans to bring mobile ordering and payment to 20,000 restaurants in some of its largest markets, including the U.S., by the end of the year. That would mimic a strategy that's proven successful for Starbucks Corp. and other restaurants, which use the software to lock in customers.

At the same time, McDonald's is pushing U.S. franchisees to upgrade restaurants and add touch screens -- part of an effort it calls Experience of the Future.

Many of McDonald's overseas restaurants already offer delivery, especially in Asia and the Middle East, and the company generated almost $1 billion in sales from the channel last year.

McDonald's has been working with Postmates Inc., Uber Technologies Inc.'s UberEats and Foodpanda to test various approaches. The restaurant chain also named other delivery services, such as GrubHub Inc., during its presentation. Though McDonald's didn't announce a specific GrubHub partnership, the remarks sent shares of that company up as much as 3.9 percent -- its biggest intraday gain in more than a month.

Easterbrook said the company is looking at multiple third parties for delivery, but it hasn't made final decisions. Different partners could be used to handle different markets, he said. It also may make sense to acquire technology or intellectual property to help accelerate the effort, Easterbrook said.

McDonald's shares gained as much as 1.8 percent to $130 in New York. The stock was up 4.9 percent this year before Wednesday.

In the restaurant chain's largest markets -- the U.S., France, the U.K., Germany and Canada -- almost 75 percent of the population lives near a McDonald's. That gives it an edge over rivals in adopting delivery, Brady said.

“We're closer to more customers than any other restaurant company in the world,” she said.

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net.

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net.