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UDS Group Enters Pilot With Major Restaurant Chain

Though Universal Delivery Solutions Inc. (UDSG.PK) has been the source of exciting news - before and after we began following the stock - today's news may truly be the biggest news ever from the company. A trial delivery-program has been agreed upon with Doctor's Associates Inc., which is better known as Subway Restaurants. We estimate the pilot program will involve UDS Group handling the delivery logistics for several dozen Subway stores. However, considering there are more than 28,000 Subway Restaurants across the globe, and they're doing a total of more than $9.5 billion in sales every year, the potential growth for UDS that stems from this pilot program is enormous. 

The press release appears in its entirety below, but there are some observations our research staff feels need to be highlighted. 
 

Details of the Deal, & Beyond

The press release stated it, but didn't accent the power of a single toll-free number for delivery/ordering purposes. The number 888-SUB-TO-GO is the only number that will be needed to begin the delivery test, and if the Subway franchise system agrees to a nationwide delivery program with UDS, it will still be the only number needed. This makes marketing the phone number very easy, and relatively inexpensive. Rather than a local restaurant working to promote their local phone number, the entire franchise system can benefit from corporate-level promotion of the number.

Better still, the easy-to-remember phone number is the same no matter where you are in the country, so consumers won't need to use a phone book to hunt down the nearest 'local' unit. 

A relevant comparison is 1-800-FLOWERS, which has experienced success not because they deliver any flowers themselves, but because they own a catchy phone number that most every consumer can remember, and works the same wherever they go. However, there is no other national restaurant franchise system or chain with a single phone-in/delivery phone number...at least not yet. We suspect a successful pilot of such a program with Subway may inspire other chains to follow that lead. 

Moreover, this plants a seed for major revenue improvement from UDS Group. The business model here is relatively simple...UDS retains a percentage of sales generated by phone-in orders. We estimate that amount to be somewhere between 5% to 15%. Though the pilot program only involves select Subways in major metropolitan areas, if the program expands to all the North American restaurants, UDS will be tapping into the $7.1 billion in sales generated by Subways in the United States alone. 

While a small percentage - say a modest 5% - of Subway's $7.1 billion seems exciting, we see it as only the tip of the iceberg. Nationwide, The U.S.'s restaurants generate more than $500 billion in sales every year. Tapping into a mere 0.1% of that still leaves behind $500 million in sales. If UDS can garner just 5% of those consumer dollars by offering a delivery option, the company's still looking at a potential $25 million opportunity. Though the numbers are strictly our estimates, the magnitude of the possible revenue growth for UDS Group is more than clear. 

At the same time, however, don't forget UDS Group estimates that offering a phone-in/delivery option can increase store sales by as much as 25% within a couple of years of utilizing their offer. Considering most of the increase would be the result of Universal Delivery Solution's efforts, they also stand to gain a substantial amount from this revenue improvement.
 

Bottom Line

More than anything else, we believe this announcement provides validation for the concept, as well as for Universal Delivery Solutions as a company. Of course, considering there's no one else out there offering a turn-key delivery solution, UDS Group pretty much is the industry - another attraction to its investment potential.

Based solely on the repercussions of today's announcement, we feel this news has the potential to cause substantial appreciation in a relatively short period of time. In fact, it almost looks as if the market anticipated the news. From a sheer technical perspective, UDSG shares appeared to be starting an accumulation phase a few days ago. As we discussed in our last newsletter, UDSG bounced off its 200 day line, and has made some solid upside follow-through on higher volume. Yesterday it reached a multi-month high, and didn't back down...and this was without the benefit of getting the news out to the public. Now that the announcement is official, we believe the market's buying effort could gain further strength. 

Looking Forward... 

It's our understanding that it took about a year for UDS to get from the initial conversations with Doctor's Associates Inc. to the point where the announcement could be made. And, it should have - this is no small matter. Now that the pilot program agreement has been signed and publicized though, we anticipate regular progress reports from the previously tacit company. 

As other restaurant chains become attracted to the idea and the potential sales increase UDS Group can create, we suspect they'll approach Universal Delivery Solutions first to handle the delivery effort, as they'll be doing in the Subway pilot. This not only offers long-term growth potential for the corporation, but also short-term fuel (a few months to a few years) for the stock if similar announcements are made in the future...and we have no reason to think they won't be. 

Here's the official news release.
 

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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. Additionally, the Managing Member of Pacific Shores Investments, LLC has purchased 130,000 shares of Universal Delivery Group, Inc. in the open market with an average cost basis of .08 cents per share.

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