Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 1103

I think I am 1 of only 7 people in the world who actually likes the Filet-O-Fish sandwich from McDonald’s. That said, I rarely go, maybe only after a fancy small plate dinner. You know, the kind where you leave starving and you’re desperately searching for a burger on the way home just so you can go to sleep full.

I have, however, been noticing the introduction of their digital ordering kiosks, which are part of the McDonald’s Experience of the Future strategy. The plan is to replace human cashiers in at least 2,500 U.S. locations by the end of this year and in another 3,000 locations by the end of 2018. By 2020, the majority of U.S. locations should have “EOTF” in place.

Because of this, analysts are raising their price targets for McDonald’s. They are also attributing its surging stock price to these new operational efficiencies . MCD is up about 26% YTD. And you can bet the ROI math on these kiosks only looks better if/when minimum wages increase.

This isn’t necessarily groundbreaking news, but if you’d like to dig into some of the math behind why customer-facing fast food workers are clearly going to become a thing of the past, you can do that here .

I did want to single out one stat that I came across when researching how I will be experiencing Filet-O-Fish sandwiches in the future. 

More than 70% of all McDonald’s sales in the U.S. happens via drive-thru . This stood out to me as being an extraordinary number, not because I don’t believe it, but because it very clearly speaks to urban-suburban form. It is saying that more than 70% of sales are happening in geographies where it’s actually feasible to have a drive-thru window.

That’s not possible at the corner of Queen and Spadina.

Albert Wenger recently penned an interesting post about the “R” word .

It’s about health insurance and why redistribution is a toxic word in U.S. politics, but also why much of what we do as a society – from public roads to insurance – is actually about redistribution. What I like about the post is that he cuts through a lot of the noise and gets right at the crux of things.

Here’s part of his conclusion:

So what should you take away from this? There always is some element of redistribution to insurance – at a minimum ex post and generally also ex ante. The “why should I (usually some healthy person) pay for x (usually some payment for someone from a different demographic)” objection to health insurance is about redistribution. We should acknowledge this openly and not pretend that it is otherwise, because then we can move forward and say “you should, because that is your contribution to how our society works.”

The point of his post, which he reiterates in the comment section, is that “insurance is a commons more than it is a market.” Too much individual choice – for instance, rich people opting out because they don’t need it – actually weakens the system.

But you should really read his entire post . It’s good.

Photo by Jamie Street on Unsplash

Last week Travis Kalanick – the cofounder who built Uber into the most highly valued privately held startup in the world – stepped down as chief executive at the request of his investors. This was the culmination of months of controversy related to the company’s toxic corporate culture.

So what’s next? 

Benjamin Edelman, associate professor at Harvard Business School, recently argued that this is it for the company: Uber Can’t be Fixed – It’s Time for Regulators to Shut It Down . I discovered the article through a good friend of mine who has felt similarly since the beginning. Uber’s business model is predicated on illegality and that should not be misconstrued as “innovation”.

I have a few thoughts on this.

But let me start by saying that this post is not a comment on the company’s corporate culture or its internal practices related to lobbying governments. I have not really been following what’s going on internally and I’ll leave other, more informed, people to comment on those matters.

With that said, here are 3 thoughts.

One, shutting down the company feels like an extreme case of throwing out the baby with the bathwater. Lots of companies go through restructuring, assuming that’s needed, without completely capitulating.

Two, before Uber came along it was still challenging to pay for a taxi in Toronto with a credit card. More often than not the driver would tell you that the machine was broken or ask that you instead pay with cash. At that point, I would have accepted a clunky payment machine mounted to the rear of the front seats as an innovation.

To say that Uber’s technological innovations were all banal things that its competitors were already about to introduce is downplaying so much of what the company has done outside of its beneficial cost structure. 

We got perfect information: Where is my car right now? We got full pricing transparency before even accepting a ride: Should I take an Uber or transit or should I drive? We got the ability to get in and out of a taxi without pulling out our wallets: I’ll quickly jump out at this red light. We got dynamic ride pooling and cost sharing: Let’s split this ride 3 ways to bring the fare down. And we got clean cars that didn’t smell.

Why weren’t any of the incumbent taxi companies do this?

Three, I fully agree that Uber (unfairly?) benefited from a meaningful cost advantage by operating in the unregulated side of the market. This was a huge boon for the company because, as the data suggests, the demand for taxis is highly elastic.

But I also believe that the incumbent taxi companies were perpetuating a marketplace that was anything but free enterprise. It ensured that the status quo was maintained and that those who historically benefited from the system continued to benefit from the system.

Because of this, I’m not sure that we would have seen the innovation that we saw without a company like Uber deciding to operate within a gray area and not ask for permission. Protectionism may have stomped it out. This may be why Hailo – which operated in the regulated side of the taxi marketplace here in Toronto – ultimately wasn’t able to survive .

Though I suppose you could argue that Hailo’s failure (at least here in Toronto) strengthens the argument that Uber was only able to thrive because of its illegal cost structure. 

However, it’s important to remember that Uber got its start by actually charging more than traditional taxis. At the outset it didn’t have enough liquidity in its marketplace to compete based on speed and/or price, and so it decided to offer a premium experience. 

UberX didn’t introduce steep discounts until later on and even today many people will gladly accept surge pricing at multiples of a regular taxi fare. Clearly customers are deriving some other benefits from the app.

Edelman ends his piece by referencing Napster as an example of another startup that defied legality and was ultimately forced to shut down. Again, shutting Uber down seems extreme to me, but I do agree with his conclusion. Regardless of what happens, the lawful innovations that Uber introduced are here to stay.

Photo by Carl Joseph on Unsplash