On March 25th, 2019, McDonald’s Corporation (NYSE: MCD) announced the acquisition of Dynamic Yield Ltd., a personalization and decision logic technology company based in New York and Tel Aviv, Israel, for ~US$300 million. Its customers include IKEA, Urban Outfitters Inc., and Sephora.
Serving over 68 million customers daily, McDonald’s will deploy this decision technology in the U.S. Drive-Thrus on the outdoor digital menu displays to provide more personalized customer experiences: menus will vary depending on time of day, weather, current restaurants traffic, and trending menu items. If someone orders two Happy Meals at 16:00, that may be a parent ordering for their children – why not offer a coffee or a snack for the parent? After successful testing in several restaurant Drive-Thrus in 2018, the technology will be further integrated into digital customer experience touch points internationally, such as the McDonald’s Global Mobile App and self-order kiosks.
Not only does this acquisition focus on enriching customer experience and growing revenues, but also it addresses McDonald’s’ “biggest challenge right now”: labour, according to CFO Kevin Ozan. The company is focused on finding efficiencies in the front-end and back-end of restaurants to reduce reliability on labour in this current market of record-low unemployment and high labour costs.
The deal is the company’s first and largest acquisition in years since Boston Market in 1999. However, investors reacted mildly – share price remained steady one day following the announcement, hovering around 1%. According to its fourth quarter report released January 31, yearly global sales across all segments for 2018 increased 4.5% with cash flow from operations at $7.0 billion and free cash flow at $4.2 billion, an increase of 14% over the prior year. The company continues to raise its quarterly dividend by 15%, its 42nd annual dividend increase. The company has yet to share insight regarding the personalization platform’s effect on sales.
This acquisition represents the reality of the impact of automation, robotics and artificial intelligence on the food industry from data to delivery. We first became accustomed to ordering ahead of our pick-up on the Starbucks and McDonald’s app; it is now just as easy to select from hundreds of restaurants from a single app of Uber Eats. Billion-dollar companies in food delivery (Uber Eats, Deliveroo, Foodora, Just Eat, Delivery Hero), food subscription services (HelloFresh, Blue Apron), and grocery delivery have disrupted the food industry alongside e-commerce retailers such as Amazon’s launch of grocery stores (Amazon Go) to leverage big data to impact convenience and personalization. By using AI, companies can mine the data for food trends and consumer habits to extract information, develop new products or change current items.
McDonald’s is embracing technology in the face of intensifying technology-based delivery services. When drive-throughs were considered to be the ultimate convenience, now sitting at home on the couch clicking an app is considered even more convenient – although not always cheaper and delivered in the same optimal condition. Delivery, a parallel focus for CFO Kevin Ozan, is compared to credit card sales: “At some point, you [have] got to be in the game. It may cost a little more, but if you’re not there, you’re losing a whole new group of customers.” He sees delivery an essential part of the industry, “growing substantially over the next several years. It is a lower gross margin percentage sale, because there’s an extra cost of those sales commissioned to the third-party service provider. But as long as it’s highly incremental, it’s at least adding new dollars both to [McDonald’s] and our operators.” McDonald’s is focused on reinvesting additional savings of US$500 million into technology. In 2019 alone, McDonald’s forecasts to spend approximately US$1 billion to upgrade about 2,000 U.S. brick-and-mortar locations; ~80% of U.S. restaurants already been remodeled with over 9,000 restaurants offering delivery in partnership with Uber Eats.
The future of food will increasingly revolve around technology to address convenience without sacrificing personalization. This US$300 million acquisition of AI-powered platform Dynamic Yield represents McDonald’s stance of remaining a key innovative player in the fast-food industry.
Katya Berezovskaia
Serving over 68 million customers daily, McDonald’s will deploy this decision technology in the U.S. Drive-Thrus on the outdoor digital menu displays to provide more personalized customer experiences: menus will vary depending on time of day, weather, current restaurants traffic, and trending menu items. If someone orders two Happy Meals at 16:00, that may be a parent ordering for their children – why not offer a coffee or a snack for the parent? After successful testing in several restaurant Drive-Thrus in 2018, the technology will be further integrated into digital customer experience touch points internationally, such as the McDonald’s Global Mobile App and self-order kiosks.
Not only does this acquisition focus on enriching customer experience and growing revenues, but also it addresses McDonald’s’ “biggest challenge right now”: labour, according to CFO Kevin Ozan. The company is focused on finding efficiencies in the front-end and back-end of restaurants to reduce reliability on labour in this current market of record-low unemployment and high labour costs.
The deal is the company’s first and largest acquisition in years since Boston Market in 1999. However, investors reacted mildly – share price remained steady one day following the announcement, hovering around 1%. According to its fourth quarter report released January 31, yearly global sales across all segments for 2018 increased 4.5% with cash flow from operations at $7.0 billion and free cash flow at $4.2 billion, an increase of 14% over the prior year. The company continues to raise its quarterly dividend by 15%, its 42nd annual dividend increase. The company has yet to share insight regarding the personalization platform’s effect on sales.
This acquisition represents the reality of the impact of automation, robotics and artificial intelligence on the food industry from data to delivery. We first became accustomed to ordering ahead of our pick-up on the Starbucks and McDonald’s app; it is now just as easy to select from hundreds of restaurants from a single app of Uber Eats. Billion-dollar companies in food delivery (Uber Eats, Deliveroo, Foodora, Just Eat, Delivery Hero), food subscription services (HelloFresh, Blue Apron), and grocery delivery have disrupted the food industry alongside e-commerce retailers such as Amazon’s launch of grocery stores (Amazon Go) to leverage big data to impact convenience and personalization. By using AI, companies can mine the data for food trends and consumer habits to extract information, develop new products or change current items.
McDonald’s is embracing technology in the face of intensifying technology-based delivery services. When drive-throughs were considered to be the ultimate convenience, now sitting at home on the couch clicking an app is considered even more convenient – although not always cheaper and delivered in the same optimal condition. Delivery, a parallel focus for CFO Kevin Ozan, is compared to credit card sales: “At some point, you [have] got to be in the game. It may cost a little more, but if you’re not there, you’re losing a whole new group of customers.” He sees delivery an essential part of the industry, “growing substantially over the next several years. It is a lower gross margin percentage sale, because there’s an extra cost of those sales commissioned to the third-party service provider. But as long as it’s highly incremental, it’s at least adding new dollars both to [McDonald’s] and our operators.” McDonald’s is focused on reinvesting additional savings of US$500 million into technology. In 2019 alone, McDonald’s forecasts to spend approximately US$1 billion to upgrade about 2,000 U.S. brick-and-mortar locations; ~80% of U.S. restaurants already been remodeled with over 9,000 restaurants offering delivery in partnership with Uber Eats.
The future of food will increasingly revolve around technology to address convenience without sacrificing personalization. This US$300 million acquisition of AI-powered platform Dynamic Yield represents McDonald’s stance of remaining a key innovative player in the fast-food industry.
Katya Berezovskaia