A company called Postmates wants to rule the world of the home delivery of fast food — literally. This means on-demand delivery in every major city in the world. Postmates is backed by major venture capitalists. However, the entire premise of its plan may be flawed. People may not want McDonald’s Corp. (NYSE: MCD) hamburgers delivered to their houses the way that pizza and Chinese and Japanese food often are.
Recently Postmates began home delivery of Chipotle Mexican Grill Inc. (NYSE: CMG) food to homes, according to Yahoo. The news service of the portal also asked at what price point people would take delivery of something like $5 menu items, when the cost of the delivery is nearly the cost of the food. One of the edges pizza companies have is that their home delivery services are free. “Free” already has become part of the fast-food experience. “Paid” may not stand a chance against it. Another and perhaps more insidious issue is whether the millions of people who order fast food because it is all they can afford can also afford delivery. That answer is no.
McDonald’s promotes its Happy Meals and Dollar Menus as a means to bring in customers. Of course, it has breakfast items and big hamburgers that can cost much more. Perhaps people who request home delivery will order for five, or six or seven. Suddenly, the cost of the entire package reaches above $20. A $5 delivery fee may not be so onerous.
Based on the intelligence of McDonald’s management, restaurants are placed in clusters of high population density, laid out on the geographic grid to make it easy for drivers or walkers to reach them. Chipotle has the same intelligence, certainly. However, it does not have as many locations. At some point, number or placement of locations becomes a tipping point. Either people will not buy Chipotle food, or they will pay the premium for delivery. Forecasting the tipping point can be much more than an educated guess.
As sales per store drop off at a large chain like McDonald’s, it needs a series of catalysts to bring back customers. Home delivery might be one of those, but only if it is worthwhile to hundreds of thousands of fast-food lovers to pay for something similar to what they get for free.
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