Mention McDonald’s to someone today, and they’re more likely to think about Big Mac than Big Data. But that could soon change. As the fast-food giant embraced machine learning, with plans to become a tech-innovator in a fittingly super-sized way.
McDonald’s stunned a lot of people when it announced its biggest acquisition in 20 years, one that reportedly cost it over $300 million. It plans to acquire Dynamic Yield, a New York based startup that provides retailers with algorithmically driven “decision logic” technology. When you add an item to an online shopping cart, “decision logic” is the tech that nudges you about what other customers bought as well.
Dynamic Yield’s client list includes blue-chip retail clients like Ikea, Sephora, and Urban Outfitters. McDonald’s vetted around 30 firms offering similar personalization engine services, and landed on Dynamic Yield. It has been recently valued in the hundreds of millions of dollars; people familiar with the details of the McDonald’s offer put it at over $300 million. This makes the company’s largest purchase as per a tweet by the McDonald’s CEO Steve Easterbrook.
Pleased to announce what will be @McDonaldsCorp’s largest acquisition in nearly 20 years. Looking forward to working with Liad Agmon and the @DynamicYield team to provide McD customers more convenience on their terms https://t.co/Nj1jnWO10M
— Steve Easterbrook (@SteveEasterbrk) March 25, 2019
The burger giant can certainly afford it; in 2018 alone it tallied nearly $6 billion of net income, and ended the year with a free cash flow of $4.2 billion.
McDonalds, a food-tech innovator from the start
Over the last several years, McDonalds has invested heavily in technology by bringing stores up to date with self-serve kiosks. The company also launched an app and partnered with Uber Eats in that time, in addition to a number of infrastructure improvements. It even relocated its headquarters less than a year ago from the suburbs to Chicago’s vibrant West Town neighborhood, in a bid to attract young talent.
Collectively, McDonald’s serves around 68 million customers every single day. And the majority of those people are at their drive-thru window who never get out of their car, instead place and pick up their orders from the window. And that’s where McDonalds is planning to deploy Dynamic Yield tech first.
“What we hadn’t done is begun to connect the technology together, and get the various pieces talking to each other,” says Easterbrook. “How do you transition from mass marketing to mass personalization? To do that, you’ve really got to unlock the data within that ecosystem in a way that’s useful to a customer.”
Here’s what that looks like in practice: When you drive up to place your order at a McDonald’s today, a digital display greets you with a handful of banner items or promotions. As you inch up toward the ordering area, you eventually get to the full menu. Both of these, as currently implemented, are largely static, aside from the obvious changes like rotating in new offers, or switching over from breakfast to lunch.
But in a pilot program at a McDonald’s restaurant in Miami, powered by Dynamic Yield, those displays have taken on new dexterity. In the new McDonald’s machine-learning paradigm, that particular display screen will show customers what other items have been popular at that location, and prompt them with potential upsells. Thanks for your Happy Meal order; maybe you’d like a Sprite to go with it.
“We’ve never had an issue in this business with a lack of data,” says Easterbrook. “It’s drawing the insight and the intelligence out of it.”
Revenue aspects likely to double with the acquisition
McDonald’s hasn’t shared any specific insights gleaned so far, or numbers around the personalization engine’s effect on sales. But it’s not hard to imagine some of the possible scenarios. If someone orders two Happy Meals at 5 o’clock, for instance, that’s probably a parent ordering for their kids; highlight a coffee or snack for them, and they might decide to treat themselves to a pick-me-up. And as with any machine-learning system, the real benefits will likely come from the unexpected.
While customer satisfaction may be the goal, the avenues McDonald’s takes to get there will increase revenues along the way.
Customer personalization is another goal to achieve
As you may think, McDonald’s didn’t spend over $300 million on a machine-learning company to only juice up its drive-thru sales.
An important part is to figure how to leverage the “personalization” part of a personalization engine. Fine-tuned insights at the store level are one thing, but Easterbrook envisions something even more granular. “If customers are willing to identify themselves—there’s all sorts of ways you can do that—we can be even more useful to them, because now we call up their favorites,” according to Easterbrook, who stresses that privacy is paramount.
As for what form that might ultimately take, Easterbrook raises a handful of possibilities. McDonald’s already uses geofencing around its stores to know when a mobile app customer is approaching and prepare their order accordingly.
On the downside of this tech integration
When you know you have to change so much in your company, it’s easy to forget some of the consequences. You race to implement all new things in tech and don’t adequately think about what your employees might think of it all.
This seems to be happening to McDonald’s.
As the fast-food chain tries to catch up to food trends that have been established for some time, their employees seem to be not happy about the fact. As Bloomberg reports, the more McDonald’s introduces, fresh beef, touchscreen ordering and delivery, the more its employees are thinking: “This is all too much work.”
One of the employees at the McDonalds franchisee revealed at the beginning of this year. “Employee turnover is at an all-time high for us,” he said, adding “Our restaurants are way too stressful, and people do not want to work in them.”
Workers are walking away rather than dealing with new technologies and menu options. The result: customers will wait longer. Already, drive-through times at McDonald’s slowed to 239 seconds last year — more than 30 seconds slower than in 2016, according to QSR magazine.
Turnover at U.S. fast-food restaurants jumped to 150% meaning a store employing 20 workers would go through 30 in one year.
Having said that it does not come to us as a surprise that McDonalds on Tuesday announced to the National Restaurant Association that it will no longer participate in lobby efforts against minimum-wage hikes at the federal, state or local level. It does makes sense when they are already paying low wages and an all time high attrition rate hail as a bigger problem.
Of course, technology is supposed to solve all the world’s problems, while simultaneously eliminating the need for many people. Looks like McDonalds has put all its eggs in the machine learning and automation basket. Would it not be a rich irony, if people saw technology being introduced and walked out, deciding it was all too much trouble for just a burger?