Feature Report: Universal Delivery Solutions Inc.

The Micro Cap Press research staff believes it has identified an attractive investment opportunity rooted in a social paradigm shift - perhaps the kind of sea change too big to be easily noticed. The underlying company is past the development stages of the business model, and is just now entering the market cultivation stage - with practically no competition. Though essentially a start-up, the investment community may have already started to take notice of this stock; shares are up by approximately 900% year-to-date. However, currently priced at only 10 cents, risk may be minimal relative to the potential upside. .
 

Overview

Universal Delivery Solutions Group Inc. (UDSG.PK) offers a solution for businesses wishing to add product delivery and curbside pick-up services. Specifically, the company offers (1) toll-free phone numbers for a business' customers to call in orders, (2) qualified operators to act as order-takers, and (3) the software/technology required to inform a local store/retailer what to deliver and where to deliver it. Further, Universal Delivery Solutions serves as a consultant to their client companies, enhancing sales and profitability as much as 20% simply by offering complete product delivery/pick-up management solutions.

Universal Delivery Solutions - or UDS - generates revenue for itself by retaining a nominal portion of the sales created by their service. To date, restaurant deliveries and take-outs have been the company's primary focus. However, any organization with a need to make quick deliveries could feasibly benefit from Universal Delivery Solutions' service. Grocery stores, pharmacies, dry-cleaners, and any other service business is a potential client.

Universal Delivery Solutions Group Inc. was incorporated in August of 2004. Over the next several months, the infrastructure, procedures, and software were refined to allow a client company to create a seamless customer delivery experience. The company's first test order was placed in December of 2005. All of 2006 was considered a beta-trial by the company, giving them time to make further improvements in the order fulfillment process. In 2007, UDS effectively went 'live', providing their service for a handful of franchise stores within a major quick-service restaurant chain. 
 

Chart Highlights

The stock's trading volume has improved considerably as Universal Delivery Solutions Inc, has started to announce news of tangible progress. Trading at just once cent near the end of 2006, the current level of approximately 10 cents translates into a 900% gain in less than six months.

The 200 day moving average line at the 10.8 cent level may represent a significant milestone. UDSG briefly traded above it in April, then retreated. However, after settling in around 5 cents in early May, the buyers came back in even stronger numbers. The accumulation has been clear, as seen in the general increase in volume, as UDSG has reclaimed most of its prior levels. 

We believe the growing buying volume and upward momentum could currently make Universal Delivery Solutions Inc, a compelling trading idea. Moving past its 200 day line may be a bullish catalyst, as a move above the 52-week high of 15 cents could be.

 

Opportunity Analysis

The restaurant industry is in the midst of a paradigm shift, from providing a traditional 'sit down' experience to providing a curbside pick-up experience, or even offering delivery. Between 2005 and 2007, consumers who reported purchasing a take-out meal at least once per month increased by 11%. During this same time, the number of consumers who purchased take-out meals at least once per week increased by 75%. Further, 20% of those consumers ordering take-out meals from a full service restaurant consistently place the order via the Internet.* 

Somewhat ironically, though the demand for take-out services is growing rapidly, the food selections for this type of service have not expanded proportionally, if at all. In 2005, pizza was the food choice in 41% of all take-out orders, but by 2007, it was selected 53% of the time. During the same time frame, Chinese food went from being the take-out choice 22% of the time to 37% of the time. Burgers were preferred in 24% of 2005's take-out orders, versus 35% of the time in 2007.* 

We believe there is a growing disparity between the demand for a service like UDS Group's, and the actual supply of such a service. Moreover, we feel this paradigm shift in consumer preferences - to purchase take-out meals - is an attractive opportunity for restaurants traditionally not providing take-out or delivery services (such as Mexican, chicken wings, sub sandwiches, etc.). Restaurants able to effectively accommodate this new type of consumer are more likely to earn and keep business. Full service restaurants unable to effectively meet this new need are apt to lose market share. The UDS service will essentially allow any restaurant to compete for this growing consumer segment. 

Further, we feel this change in consumer expectations may not be limited to the food service industry. Any type of business able to reduce an inconvenience or save time for a customer could benefit from Universal Delivery Solutions' pick-up/delivery consulting and implementation service. As was mentioned, dry-cleaners, pharmacies, convenience stores, and other types of retailers may have similar needs as consumer preferences change. 

* Data provided by a Technomic report.
 

Financial Analysis

1. Business Model 

The UDS revenue model is simply retaining a small portion of the sales generated via their phone-in ordering service. The amount can vary depending on the average ticket size, but is relatively small enough to be acceptable to the restaurateur or service business. However, it is a considerable amount given the minimal manpower needed by UDS to take and transmit an order back to a specific restaurant or retailer. 

Universal Delivery Service's varying operating costs primarily include payroll (for order-takers), and phone expenses (to host their toll-free numbers). However, both are inherently kept under control by the scalable nature of the business model - more operators and phone lines are added only as demand merits it. 

UDS does not incur delivery costs (vehicles, mileage, insurance, etc.), as they do not make or arrange for any food deliveries. The individual retailers, who are better suited to plan a delivery route or schedule, can more effectively do that work once UDS has aggregated all the requested delivery orders. 

2. Opportunity Growth 

Between the point it time when the company was able to first take orders (during the start up phase) and now, we have seen steady increases in the number of orders placed, as well as the underlying revenue driven by the service. The number of orders processed in Q1 of 2007 was a 97.9% improvement over the number process in Q1 of 2006. 

While the growth trend appears impressive, it's equally critical to understand the operation was deliberately limited while more logistical matters were optimized. As of that last four-week period, only five franchised store units within a nationwide chain were involved in the pilot program. Since then, a chain of 14 convenience stores in Puerto Rico has agreed to utilize the UDS offer. This same chain intends to build more than 300 stores, each of which is expected to offer UDS-based delivery services. Even more recently, Salad Creations - a nationwide franchise offering healthy meal choices - ended a trial period for UDS's delivery management service. Salad Creations currently operates 18 locations, and may be approximately doubling that number in the foreseeable future. Based on the success of the initial trial period, UDS believes these stores are also likely to utilize their offer.

Universal Delivery Solutions anticipates adding a few hundred stores/locations to its network over the course of the next twelve months. 

3. Revenue/Profit Analysis 

The company believes they will start to break even once they represent 300 to 400 stores, based on historical per-store sales. In our view, we believe Universal Delivery Services will be able to foster working relationships with at least that number of restaurants within the foreseeable future. There are 935,000 restaurants and food-service locations in the Unites States alone. A mere 0.03% market penetration would add 350 units to the UDS family. 

As an example, based on an average restaurant order ticket size of $17.00, and an average of ten deliveries per day for each store in a 350 unit network, UDS could be creating approximately $1.8 million in sales per month. Hypothetically speaking, retaining just a very minor portion of that figure for themselves could mean UDS earns approximately $90,000 per month - well above the average cash burn rate of $70,000 per month. Every store added beyond those first few hundred would start to increase margins exponentially. 

As stated above, there are 935,000 restaurants in the United States. However, the company's opportunities also include 55,000 pharmacies, 85,000 grocery stores, and more than 30,000 dry cleaners, just to name a few.
 

Competitive Analysis

Whereas most business have one customer group to accommodate, UDS fully understands they are actually dealing with two customer groups - the restaurants they represent, and that restaurant's customers. They are ultimately paid by the restaurant, but their revenue is directly linked to how well they serve the individual consumer. Therefore, making the client company look good by properly 'branding' their order-taking service is important. In other words, what's good for the customer is good for the restaurant, and what's good for the restaurant is good for UDS. 

In light of the unique business model, the fine details rather than the broad concepts may be the key to the company's viability. Even if they seem to be minor details, we believe Universal Delivery Solutions' following competitive edges will allow the business to achieve a high level of success, 

1) The company's primary competitive edge is that there is no competitor. Similar services have been established on a city-by-city basis before, but most appear to have failed. The insurmountable challenge for many of those delivery services is the flawed logic that small is better. 

2) Universal Delivery Solutions has a viable business model. Generally speaking, a food-delivery service that attempts to (1) simply buy food the way any other consumer would at a restaurant and then mark up the price, and (2) deliver the food themselves, will find the process not only extremely complicated, but also very costly. UDS, on the other hand, circumvents both of those potential barriers. UDS is targeting major chains at a corporate level rather than individual stores. As part of a company-wide sponsored initiative, the local store management is compelled to work with UDS in establishing an effective way to receive orders, and then submit them to a specific storefront. In turn, that store's team understands how to fulfill the orders, and deliver them where required. The proprietary software utilized by UDS will even organize a line-by-line driving directions for the restaurant's driver, removing yet another potential burden for the store's staff. 

3) The quality and depth of UDS's collected customer data is a very powerful sales tool for their client companies. Where an in-store purchase tells the store nothing about the demographic of the consumer, ordering by phone reveals a great deal. In addition to capturing their name, e-mail address, physical address, phone number, and other useful information, UDS is also able to retain a customer's purchasing history. This will allow UDS and/or the store to better serve delivery customers as time goes on, which in turn should mean more sales for their client companies.

4) The company is able to offer restaurants and retailers a problem-free experience. Even small errors can waste precious time in the fast-moving food industry. To date, the UDS operation boasts a 99% accurate delivery rate. As validation of their positive customer experience, 75% of the organization's customers so far are repeat customers. 

5) Universal Delivery Solutions recognizes the value of branding one nationwide, toll-free phone number per restaurant. No matter where a customer calls from, the UDS operator is able to place the food order with the restaurant closest to that particular caller. The attraction to the restaurateur is ease-of-use. 

The memorable phone numbers themselves are also part of the 'branding' strategy, making it easy for any consumer to remember them. Two of the company's toll-free numbers, 888-SUB-TO-GO and 877-4ASALAD, are prime examples. 

6) Above all else, Universal Delivery Solutions offers a restaurant a legitimate opportunity to increase sales by adding delivery and curbside pick-up services. Even within the limited testing period to date, sales at stores working with UDS have improved by as much as 10%. The company feels revenues can be improved by as much 25% when their delivery management solutions are utilized at their full capacity. That sort of potential sales increase is apt to get the attention of a service or retail establishment looking to increase sales by starting or improving a pick-up and/or delivery service.
 

Learn More

For more information regarding UDS as an investment opportunity, be sure to review the complete research report in a printable PDF format by clicking here. 

Or, contact:
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Pacific Shores Investments, LLC has been paid a fee of $50,000 cash and 1.5 million shares of newly issued restricted stock by Universal Delivery Group, Inc. for coverage of the Company. 

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