McDonald’s Turns Up the Pressure on Uber Ahead of Its IPO
(Bloomberg) -- McDonald’s Corp. is working to make delivery more profitable for its franchisees -- and that means it could turn to providers other than Uber Eats.
The burger chain’s senior leadership and franchisees recently met with Uber Eats to negotiate lower fees paid to the ride-share startup, according to an internal McDonald’s memo sent this month and reviewed by Bloomberg News.
While particulars of the deal are still being finalized, the memo said the terms will include “significantly reduced commission rates for all U.S. restaurants” and ultimately allow franchisees to use different delivery partners. Ending McDonald’s exclusive deal with Uber Technologies Inc. would open a window for other popular providers like DoorDash Inc. and GrubHub Inc. It’s a sensitive time for Uber, whose initial public offering is expected next month.
The delivery push is just one of the changes taking place at the world’s biggest restaurant company under Chief Executive Officer Steve Easterbrook. He recently spent $300 million for a tech company to better personalize menus, and he’s advocated self-order kiosks and restaurant remodels to help the 71-year-old brand keep up with more modern rivals and fast-food chains that are aggressively discounting. McDonald’s shares have almost doubled since he took over in March 2015.
The chain in 2017 announced that it would rely exclusively on Uber Technologies Inc. to handle the service that it’s been expanding across its 14,000 U.S. locations. At the time, the company described delivery as a $100 billion market that would help it reignite sales.
“We’re committed to partnering with our franchisees to give them the support they need to continue to grow an experience and business priority that’s important to our customers and our brand,” the Chicago-based company said in a statement, while declining to talk about the terms of the Uber Eats deal.
“Restaurant partner terms and contracts are confidential,” San Francisco-based Uber said in an emailed statement. “It would also be speculative to share anything regarding ongoing discussions we’re having with Uber Eats restaurant partners.”
As Americans increasingly seek out convenience at mealtime, the trick is to balance the needs of restaurant companies, their franchisees and the delivery companies. Ultimately, growth in food delivery would help all parties involved -- but no one wants to lose money rushing Big Macs and milk shakes around town.
Each order has many mouths to feed. While delivery costs vary, in Chicago, McDonald’s charges customers the price of the food plus $1.99 for the Uber Eats service, with additional fees and small-order charges sometimes tacked on. In part of the transaction the customer never sees, the individual restaurants also pay a percentage of the sale to Uber -- a bit of a sore spot for franchisees who own about 93 percent of McDonald’s locations. One benefit is that delivery orders tend to be larger than orders in stores.
Food delivery is a central growth story that Uber executives will promote on a road show with investors in the next week. The IPO filing contains a full two pages devoted to its partnership with McDonald’s. It says Uber Eats accounts for as much as 10 percent of food sales at some of the hamburger chain’s restaurants.
Once the new terms are negotiated, Uber may help McDonald’s with one problem Easterbrook has noted -- getting more people to realize they can get food delivered. Uber Eats will now be helping that effort with a “sizable contribution” to support national U.S. advertising for McDonald’s, the memo said.
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