Dive Brief:
- McDonald's is mulling the partial sale of artificial intelligence company Dynamic Yield, which it acquired in 2019 for more than $300 million before rolling out the technology at drive-thrus across its U.S. system, The Wall Street Journal reports.
- Dynamic Yield's CEO Liad Agmon told the Journal that a partial sale has been "discussed from the outset and now feels like the right time to explore that possibility." McDonald's is interested in selling the part of Dynamic Yield that works with other retailers to boost online sales, but retain the technology that services its drive-thrus, the Journal reports. There is no timetable for a partial sale, and a sale may not occur.
- The burger chain also reviewed transactions following franchisee complaints that Dynamic Yield is not driving the sales boost they expected, and found the technology has fallen short of expectations.
Dive Insight:
With Dynamic Yield's technology, McDonald's can personalize customer experiences based on factors such as their purchase history, weather, time of day and more to create customized offerings. But operator frustration over lackluster results from the technology, which builds on a tense battle of wills between corporate and operators over new technology fees, could prove an obstacle despite strong same-store sales gains.
McDonald's expectations for Dynamic Yield included a 1% lift in average sales from the company's suggestive selling technology, the Journal reports, but one franchisee told the publication, "the return on investment is just not there." This deviates from Dynamic Yield's claims that it can generate 35-fold return on investment and 39% increase in revenue per user. The company points to its partnerships with Sephora, Jewelry.com and other e-commerce companies as successful case studies.
With franchisees partially on the hook for increased technology costs — 10 times more per month versus a decade ago — a strong ROI is key for operators. And in a system that is 95% franchised, pressure is building for corporate to ease tensions.
Still, the news of this potential partial sale of Dynamic Yield — and the timing of it — comes as a bit of a surprise.
For starters, McDonald's is simply making more money at the drive-thru. During Q2 2020, for example, the drive-thru accounted for nearly 90% of sales at the company, keeping the chain relatively insulated from economic disruption throughout the COVID-19 crisis. That increased volume helped drive McDonald's best month in nearly a decade in September, with same-store sales up by double-digits.
Simultaneously, in 2020, McDonald's improved its service times at the drive-thru window by nearly 30 seconds. This improvement is attributable in part to the implementation of Dynamic Yield's technology, as it can predict what customers want based on previous orders as well as time of day and weather, among other factors. Shortly after the technology company's acquisition in 2019, McDonald's said it slashed 20 seconds off drive-thru times year-over-year.
The acquisition poised the chain for pandemic success, as well. Even before COVID-19 shook the American marketplace, seventy-nine percent of consumers report they want personalized menu recommendations based on past orders, according to PSFK research.
The pandemic compounded existing innovation to make drive-thrus speedier and more personalized, with several QSR chains — from Taco Bell and Burger King to KFC and Wendy's — now exploring drive-thru technologies like digital menu boards and AI. McDonald's itself is pushing the gas on its "three Ds" (drive-thru, delivery and digital) as its strategic foundation going forward, and is even testing an express model to support off-premise business.
