McDonald’s turns to tech to build the future of fast food
Since the acquisition of tech startup Dynamic Yield in March, McDonald’s has been rapidly building its tech capabilities to improve the customer experience and boost revenues.
In March, it acquired online personalisation startup Dynamic Yield for more than £232.8m with the goal of creating a customisable drive-thru experience that could be tweaked to fit weather, traffic and popular items of the day.
This sparked a series of acquisitions, paving the way for what seems like the beginning of a journey for the iconic fast food chain to become the Amazon of food.
A month later, it bought a 9.9% stake in mobile software company Plexure in a deal valued at about £3.8m, according to reports. The New Zealand-based company already helps with McDonald’s mobile app but this surge of investment will see the chain have unprecedented access to Plexure’s new tech for its app.
If this wasn’t enough, in September it bought Apprente to bring voice technology to its drive-thrus. This purchase was combined with the creation of McD Tech Labs – a Silicon Valley-based tech hub headed up by Apprente’s co-founder Itamar Arel.
Tech Labs promises to be the hub of McDonald’s new tech empire. It is already expanding its team by hiring engineers, data scientists and other tech experts to ensure that McDonald’s doubles down on its tech innovations through continued research and development.
Why does McDonald’s need tech?
The series of acquisitions comes after CEO Steve Easterbrook laid out McDonald’s Velocity Growth Plan in 2017. The turnaround strategy is part of his mission to create a McDonald’s of the future and ensure it doesn’t rest on its arches.
It contains three key pillars: retain – keeping current customers; regain – recruiting lost customers; and convert – attracting new customers. Within these there are three key accelerators McDonald’s looks to in order to drive growth and stick to its three goals. Each has technology firmly at its centre.
First is ‘digital’, which is about re-shaping McDonald’s interactions with the customer at every touchpoint. Second is ‘delivery’ and offering it to customers; and lastly is ‘experience of the future’, which is about elevating the customer experience in the restaurants through technology.
When rooted in this broader picture, it is clear McDonald’s investments fit squarely in each key accelerator.
We were keenly aware that the pace of change inside McDonald’s was being eclipsed by the pace of change outside our business.
Steve Easterbrook, McDonald’s
The truth is that Easterbrook is making up for lost time. On a call to investors in July he admitted: “We were keenly aware that the pace of change inside McDonald’s [was] being eclipsed by the pace of change outside our business.”
His comments reflect the fact that smaller fast food companies such as Five Guys are growing fast and adapting to changes in the fast food market. This, plus consumer trends towards healthier alternatives has meant that, although the giant is doing better than rivals in terms of revenue such as Yum Foods, which owns Taco Bell, Pizza Hut and KFC, it has dipped below analysts expectations.
McDonald’s global revenue was $5.4 bn this quarter compared to the $5.5 billion it expected. However, global same-store sales were up at 5.9% vs. 5.6% expected. In contrast, Yum Foods earnings were up by $1.31 bn vs. $1.28 bn expected while same-store sales: up 5% vs. 3.01% increase expected buoyed by KFC’s investment in plant-based burgers.
Alexa, would you like fries with that?
Fast-forward to the brand’s latest quarterly earnings and McDonald’s tech investments dominated analysts question – specifically how can McDonald’s ensure these investments pay off?
McDonald’s chief financial officer Kevin Ozan assured those listening that this was all about “setting ourselves up for sustainable long-term growth”.
He noted: “Our belief is those who aren’t investing in technology, at some point will be behind and will need to catch up. And we’d rather be a little bit ahead of the curve and spend the right amount that we think will drive future growth.”
To prove this, the business has been rolling the new technology out. Dynamic Yield’s service is now in use in more than 9,500 US drive-thrus, with full roll-out to nearly every US restaurant with an outdoor digital menu board expected by the end of the year.
Easterbrook explained: “The beauty of this is there is nothing the customer has to adjust to, they almost don’t know this experience is happening for them as we’ve got dynamic digital menu boards.
“And effectively as they start to place their order, the menu boards respond to that ordering process and therefore are more likely to suggest items a customer will want and less likely to show items that customers are less likely to want.”
Technology is not just about serving the customer, McDonald’s is also using AI to optimise its recruitment strategy. In September, McDonald’s launched its Apply Thru initiative in which owners of Amazon Alexa or Google Assistant devices can begin job applications using standard “Alexa” and “OK Google” voice commands.
McDonald’s has promised to continue to invest in digital technology, although it will not necessarily be in acquisitions. The next quarter will see it growing McDonald’s Tech Labs in order to harness acquisitions and grow R&D.
For the most part, changes to the customer experience will be tangible but incremental, although McDonald’s is testing out even more dramatic steps, like robotic fryers. McDonald’s is investing to ensure it is one-step ahead of the pace of change to make consumers lives easier and become the fastest fast food chain for the digital age.