Economic Naturalist Writing 20/09/2009 05:47:00

A Case on McDelivery:

Since a lot of costs must be incurred when a new project is

launched, so why McDonald’s chose to launch 24-hour McDelivery
in 2009 (but not before) when McDonald’s has been doing pretty
well throughout the years?
(by Carolyn Ho)

Before 2009, unlike Pizza Hut, KFC or other local restaurants, there is no
hotline delivery from McDonald’s in Hong Kong. But in 2009, the 24-hour
“McDelivery” is officially launched. The question is, we know that huge
costs must be incurred, but why does McDonald’s still include this delivery
service all of a sudden?

Since this additional change in selling methods has already taken place,
by the Cost-and-Benefit Principle, this will only happen when the benefit
of launching McDelivery is larger than the cost of doing so. Therefore, in
the following paragraphs, I will identify and elaborate more on the costs
and benefits.

First of all, let me give you some background information of the

McDonald’s business. The first McDonald’s was opened in 1955, in Des
Plaines, Illinois. From only just a neighbourhood restaurant to now,
there’re nearly more than 30,000 McDonald’s worldwide and McDonald’s
have always been one of the largest fast food service organization in the
world. In 1975, the first McDonald’s Restaurant Limited in Hong Kong,
which is located at Paterson Street in Causeway, was established. Since
then, McDonald’s limited company has been expanding its business from
McDonald’ to McCafe which serves coffee and cakes. Besides providing
fast food meals, Ronald McDonald House is also opened to serve the
community by providing social services to those in need. And therefore,
obviously McDonald’s have become a brand in Hong Kong, who doesn’t
know what McDonald’s is?
As a matter of fact, huge costs must be incurred when a new project is
launched, so before McDelivery is officially announced, there are several
costs we need to take into consideration. To name but a few, there are
set-up cost, advertising cost, monitoring cost and maintenance cost. Set-
up cost includes the money forgone in doing extra market research and
creating the 24-hour hotline 2338-2338. With the hotline, of course at
least a group of people must be 24-hour standby and responsible to
answer the phone. Part of the set-up costs will also go to motorbike
provision, and McDonald’s also have to hire employees who know how to
ride a motorbike for McDelivery. The process of interviews, searching
suitable person-in-charge, financially and managerially will involve a huge
cost. Besides set-up cost, advertising and promotion cost must also be
considered. When a new product or new project is set up, advertisement
is needed to promote the project to the public. For what I have observed,
we can easily find advertisement on buses, magazines, newspapers, some
WebPages, on TV and on radio. Advertisement about 24-hour McDelivery
is everywhere. McDonald’s also pay celebrities like Eason Chan, Joey Yung
and Softhard1, which is a band with members Jan Lamb and Eric Kot, for
Star McDelivery in order to increase its popularity. Therefore, all these will
go to advertising and promotion cost. Thirdly, there is monitoring cost. To
prevent motorbike riders from shrinking their work and make sure the
meals are successfully delivered within the time limit, there may be an
extra manager to guide or to supervise the employees under the
department of McDelivery. Lastly, there is some variable cost. That is the
cost to maintain the number of motorbike available and the monthly
salary to the new employees.
Doubtless, after the McDelivery project is launched, the set-up cost will
surely be sunk cost and will no longer be relevant for decision-making.
And the variable costs like monthly salary and the number of motorbikes
can be easily adjusted. Therefore, after the project is officially announced,
when McDonald’s decides whether to continue the Delivery service, only
the advertising and promotion cost, monitoring cost and extra expense to
McDelivery department is under consideration. Of course, a company
looks for cost minimization, thus in order to minimize cost, there are
terms and conditions2 for the McDelivery service. For example, there will
only be a delivery service if the order is over HK$60; if not, a delivery
surcharge of $12 will be required. Moreover, a lot of food is not available
for delivery service, such as, Salad, Twist Cone, McCafe Sandwiches,
muffins and cakes. And there are few more restrictions, only payment by
cash and in terms of Hong Kong dollars is accepted and the prices and
products listed on the menu are subject to change by McDonalds without
notifying the customers. So what are the possible benefits of this new
delivery service?
A company will aim at revenue maximization. In order to maximize
revenue, the company will seek every chance to expand its business and
increase competitiveness. And it has come to my notice that the market
trend and lifestyle of people in Hong Kong have changed, the workload is
heavier than before, they finish work late and are busier than before.
During dinner time, they usually chat on phone or work on their laptops,
sending documents via emails or even hold online meetings. So they do
not have much time to dine in a restaurant or even to go there and order
a take-away directly. They prefer delivery service, so that they can have
their meals at home and do their own work while eating. Thus even for
the new residential buildings, there is delivery service in the canteens of
their Club House. Since McDonald’s is just like other fast food restaurants
like Pizza Hut and KFC selling similar western food, however, they have
already got this kind of delivery service. In order to stay relevant and
increase its competitiveness, it has to expand its business and includes
the delivery service, so it brings convenience and a good impression.
When people think of ordering meals outside, they will have thought of
McDonald’s and improve its brand reputation. In the long run, this will
possibly increase its revenue. Another reason is that even during the first
few months of the McDelivery, there might not be a significant increase in
revenue, but the revenue that McDonald’s has been earning normally can
already cover the cost.

On the above grounds, McDonald’s tries to minimize costs and maximize

revenue, by the cost-and-benefit principle, the benefits of launching
McDelivery service will be greater than the cost. Therefore, McDonald’s
company changes from no delivery service to a 24-hour McDelivery.
20/09/2009 05:47:00
20/09/2009 05:47:00