McDonald's $300 million AI gambit is yielding results

Back in March McDonald’s bought Israeli AI mar-tech firm Dynamic Yield for $300 million, its biggest acquisition in decades. The intent was to boost intelligent personalization initiatives for the fast food chain, beginning with customised drive-thru digital displays.

The basic principle is simple enough. Customers drive up to the order point and are presented with a digital menu that will already be tailored to factors such as the temperature, weather conditions, time of day, local events and trending menu items. As customers place their orders, further recommendations will be presented based upon the choices that are being made.

It’s a savvy piece of mar-tech for McDonald’s and one with longer term applicability throughout the business, with the mobile app and the evolution of self-service kiosks in-store being obvious use cases. For the moment, it’s been rolled out to over 700 drive-thru locations in the US. Expanding that  dramatically in the coming weeks is next on the agenda as well as an Australian roll-out as the firm looks to global implementation of the technology. Says CEO Steve Easterbrook:

We introduced Dynamic Yield technology in Australia this month, and we'll increase the number of drive-thrus in the US, using the technology from about 700 today to over 8,000 in the next two weeks. By year-end, we plan to integrate the technology in nearly 100% of our drive-thrus in both markets…the kind of lifts we're seeing at the moment, we expect to continue across obviously the accelerated rollout.

Those lifts from the initial US roll-out have been highly encouraging, he adds:

Customers have responded to the point-of-sale suggestive selling by adding french fries, drinks, Chicken McNuggets and other favorites to their orders. We're already seeing an increase in average check by improving our ability to offer customers what they are likely to want with suggestions based on time of day, weather, and items already in a customer's order.

We've been running 700 restaurants now for the best part of two and a half months. We're seeing consistent trends across different day-parts, across different days of week, across those 700. That's certainly encouraged us with the support of our owner/operators, of course, to quite significantly accelerate the rollout. We know the technology works, we can plug it into our existing outdoor digital menu boards.

With the Australia roll-out  underway - going from an initial  20 restaurants to 150 very rapidly - Easterbrook is confident that this will deliver similar results despite the two countries running differnet content management systems.  This was an important test for the technology:

The content management system, the kind of the brain, which holds all the data we can show on the digital menu boards, internationally, they have one typical content management system, and the US has another. We've been able to prove very, very quickly that the technology works on both platforms, which really indicates this is ready for a global expansion. We'll be careful that we don't get over our skis on it, but, the pulse of the market is strong.

Tech spend 

Investment in technology has been a long-standing characteristic of Easterbrook’s time as CEO:

The technology infrastructure we’ve built over the past three years to support our Velocity Growth Plan and accelerators is fundamental to our transformation. It's a reflection of what our customers demand from us, and it's not static. Digital capabilities change by the day and impact what customers ultimately expect from us. The technological ecosystem we're building will enable us to meet these rising expectations, positioning us for new opportunities to elevate and transform the customer experience.

Still with an eye to the drive-thru experience, the firm is looking to cut the order-to-delivery time and deploying analytics and diagnostic tech to identify areas of improvement. Easterbrook explains:

Our managers and crew can see in real time in the drive-thru lanes. They can basically decompose the various elements of a drive-thru visit for a customer into its constituent seconds. So, how long are we taking to take the orders? How long are we taking to take the payment? How long it takes us to gather the food and present it? How many cars are we asking to pull forward and bring the food later?

Just with that attention, we’re beginning to see notable changes…In June, for example, in the US., we saw a 15-second reduction year-on-year in service times in the drive-thru, which I would say is more than incremental. I mean, that's notable. And clearly, that's rewarding for customers, it's a smoother journey. It also helps us with throughput as well.

Another area of focus remains digitally-enabled delivery, pitched by Easterbrook as one of three growth accelerators for the firm, alongside digital transformation and the Experience of the Future in-store redesigns. Delivery orders bring in around twice the average check size, he explains:

Delivery is another area where we're taking bold action to meet customers’ expectations for high quality food on their terms with increasing demands for convenience and speed. We've made significant progress on delivery the past two years and have room to grow in a largely untapped market with great upside. Driving customer awareness and trial about the McDelivery remains a top priority.

Globally, we expect delivery to be a $4 billion business in 2019 for McDonald's and franchise restaurants. Across our major markets, we've maintained double-digit delivery sales growth in restaurants offering the service for more than 12 months.

Previously the firm has allied with Uber Eats, which offers delivery out of 9000 US McDonald’s stores. But the firm has now also signed up with DoorDash which operates in all 50 US states, meaning that so-called ‘McDelivery’ will be accessible to approximately 80% of potential customers. Easterbrook says expanding the number of partnerships allows the firm to scale up its offerings to meet “untapped customer demand” and “a choice of delivery partners”.

My take

McDonald’s hasn’t yet reached the point of defining itself as ‘really we’re a technology company’, but the digitally-enabled, tech-based culture continues to tighten its grip. AdAge noted last week that the firm has just created a new role in the shape of SVP, Marketing Technology, reporting into CIO Daniel Henry. Back in March, eyebrows were raised at the price tag, but Dynamic Yield looks like money well-spent. As the tech moves out into other areas of the business than drive-thru menus, this could be a significant differentiator in a highly competitive market where personalization of choice is a Holy Grail.