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McDonald’s and Yum Brands prepare for a digital arms race

Recent moves show that big companies are intent on pushing their capabilities more aggressively than ever, says RB’s The Bottom Line.
Photograph courtesy of McDonald's Corp.

the bottom line

Last week, McDonald’s announced its second major technology purchase with its proposed acquisition of Apprente.

The acquisition will give the big burger chain access to “conversational” artificial intelligence, basically enabling a machine to take your order in the drive-thru.

It adds to the company’s prior acquisition of Dynamic Yield, which is already showing results by altering digital menu boards in the drive-thru based on time of day, weather, or how busy it is.

It’s also worth noting that the company said this would happen as part of its acquisition:

“The Apprente team will be the founding member of a new, integrated, internal group within McDonald’s global technology team called McD Tech Labs. Over time, McDonald’s expects to grow its presence in Silicon Valley with the hiring of additional engineers, data scientists and other advanced technology experts to join McD Tech Labs to meet future business needs and support deployment.”

Meanwhile, on Tuesday, Yum Brands had its own announcement by naming a pair of C-level executives, adding former Walmart digital executive Clay Johnson as chief digital and technology officer and promoting Gavin Felder to chief strategy officer.

In explaining the newly created positions, soon-to-be CEO David Gibbs noted that they will work together to bolster technology inside their KFC, Taco Bell and Pizza Hut restaurants.

“We have an incredible opportunity to leverage our massive scale and expand our digital and technology competencies in order to drive same-store sales and net new unit growth and improve franchise unit economics,” said Chris Turner, Yum’s CFO who will oversee the two new executives.

Digital capabilities have become a major part of the restaurant race—that’s nothing new—and the largest chains are making major investments in a bid to stay ahead. They’re spending hundreds of millions of dollars on these efforts, devoting executives to the strategies and promising to further reshape how customers interact with restaurants.

There’s plenty of evidence that digital strategies drive sales and efficiency. Domino’s has done it for more than a decade. And now, at least somewhat controversially, it is using its data science capabilities to drive a fortressing strategy in many markets, building more stores to drive pickup orders and improve delivery service times.

Starbucks has driven sales by focusing more on its digital relationships to get customers to come in more often, and it has also used technology to improve operations inside the store. Companies such as Chipotle Mexican Grill, Dunkin’, Restaurant Brands International and Arby’s owner Inspire Brands, among others, are all spending big on technology themselves.

The push by all of these companies furthers their advantage at a time when convenience has become paramount. It will put more pressure on smaller companies to get more aggressive to keep pace.

McDonald’s strategies, in particular, are notable because they are already changing how customers interact with its restaurants. Dynamic Yield technology is already in more than 8,000 locations, and counting, and it’s said to be driving average check by getting just the right items on the menu board at the right time.

The chain has been testing automated drive-thru ordering, and clearly thought enough of the idea to go out and buy a voice technology company. But the prospect that it will use that acquisition to develop further technology and give the company a beachhead in Silicon Valley is notable in and of itself.

Yum, meanwhile, has a considerable worldwide presence with its three brands. In many other markets it sees some of the same trends as in the U.S.—takeout is becoming more important, and mobile ordering and delivery are key components. Its new executives will help push those efforts further.

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