McDigital or McDoomed?

When it comes to food, customers want more customization and more variety and we want it faster than ever before. Faced with declining sales and industry headwinds, can McDonalds use data and digital innovation to drive customer value?

The Backdrop

In recent years, McDonald’s has faced what some call an identity crisis. McDonald’s has had to face customer preferences shifting towards healthier eating, fresher ingredients, and more variety. These shifts have led customers to explore alternatives in the “fast casual” segment, offering them higher quality products in a relatively more upscale environment (key word: relative). This segment grew 10.4% in 2015, compared to broader consumer foodservice at 5.7% [1].

A recent Consumer Reports survey ranked McDonald’s burgers last, which is not surprising to many who have tried the plethora of other options (SmashBurger, In-N-Out, Shake Shack). McDonald’s drive-thru order times have also increased 25% over the past 10 years and while that only means 37.5 seconds per order, seconds add up and have cost and revenue implications [2]. Subpar food and increasing wait times posed a tough situation for Atif Rafiq, McDonalds’ first Chief Digital Officer, hired from Amazon to make digital a key component of its strategy [3].

Digital Innovation at McDonald’s

In May 2015, McDonald’s announced a turnaround strategy with a focus on listening to customers and adapting to changing tastes [4]. Digital innovation has helped manifest these goals in two ways:

Digital Menu Boards – Back in the day, when breakfast ended at McDonald’s, employees would manually switch the menu boards to display the pending lunch items. Digital menu boards today have the potential to maximize revenue and play to customer preferences real time. Boards are built with a robust content management system and when used properly, menu boards (both in-store and drive-thru) can change to promote popular items at different parts of the day (think: breakfast, brunch, lunch, late night) but also flex to reflect the weather [5]. If it starts to snow or rain, McDonalds can use their data to push different products and take advantage of more specific preferences. Menus can change by region, franchise or even by customer. McDonalds has drive-thru analysis by type of vehicle so a menu board could change because a pick-up truck has pulled through and they know that there are certain order patterns for those cars [6].

Self-Serve Kiosks – Data shows that on average in fast food restaurants, customers spend 9 minutes waiting for food and 19 minutes eating. 1/3 of the experience is spent waiting [7]. A study conducted by TIllster showed that only 36% of customers would wait in a line if 5 people were ahead of them. At 10 people, 93% would walk out [8]. There is major potential here for revenue loss and customer dissatisfaction. The data also shows that across age groups, customers are willing to visit restaurants if they have a kiosk option for ordering.

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Source: Tillster

What makes these kiosks innovative?

  1. Accuracy – If a customer uses a kiosk, they can see their order developing exactly how they want it right through to payment. This sends an accurate order to the kitchen and reduces potential for error.
  2. Upselling – A customer using a kiosk can easily be presented with add-ons. In the traditional model, McDonald’s had to rely on an employee to upsell. Now, they can show the customer a picture of the add-on and make inclusion of it easy.

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What Next?

If McDonald’s can find a way to remember preferences, when customers come back to the restaurant, or even another location, their preferences could pop up with an option to order exactly what they had last time (with exact specs: no pickles, extra Mac sauce). This would help McDonald’s build out their loyalty program, a piece that’s been lacking compared to competitors.

McDonald’s is also working on “The Experience of the Future”, a concept that uses tablets for ordering that are mounted tableside. Tablets provide entertainment while the customer waits and employees then deliver food right to your table. This helps close the gap between fast food and fast casual, a competitive move worth commending [9].

McDonald’s is making great moves but needs to stay mindful of two things:

  • With wait times decreasing and customization increasing, employees need to be that much more efficient to ensure that they’re not the barrier between customer and product. Kiosks taking orders certainly helps free-up employee time but they need the right training to shift their focus to greater customization.
  • McDonald’s competitors are way ahead of the game with digital. McDonald’s has been a leader in quick-service but the fact is, customers are eating at fast-casual alternatives, where they can order before they arrive and where there are established loyalty programs. All of this is in the works at McDonald’s but they need to act fast.

McDonald’s still has a long way to go but they’ve made the investment and are heading in the right direction. Only time will tell if McDonald’s will re-revolutionize fast food and McInnovate for the win.

[800 words]

[1] QSR magazine. 2016. Fast Casual Is the Fastest Growing Foodservice Segment Globally. Restaurant News – QSR magazine. [ONLINE] Available at: https://www.qsrmagazine.com/news/fast-casual-fastest-growing-foodservice-segment-globally.

[2] Strom, S. 2016. McDonald’s Seeks Its Fast Food Soul. New York Times. [ONLINE] Available at: http://www.nytimes.com/2015/03/08/business/mcdonalds-seeks-its-fast-food-soul.html?_r=0.

[3] Morrison, M. 2016. McDonald’s Names Atif Rafiq Its First Chief Digital Officer. AdAge. [ONLINE] Available at: http://adage.com/article/news/mcdonald-s-names-atif-rafiq-chief-digital-officer/244556/.

[4] Peterson, H. 2016. McDonald’s CEO reveals turnaround plan. Business Insider. [ONLINE] Available at: http://www.businessinsider.com/mcdonalds-ceo-reveals-turnaround-plan-2015-5.

[5] Watrous, M. 2016. Menu changes give McDonald’s a boost. Food Business News. [ONLINE] Available at: http://www.foodbusinessnews.net/articles/news_home/Financial-Performance/2016/10/Menu_changes_give_McDonalds_a.aspx?ID=%7B54EA1423-1F77-4BC4-8950-0FC6723F3087%7D.

[6] Thusoo, A. How Big Data is Revolutionizing the Food Industry. Wired. [ONLINE] Available at: https://www.wired.com/insights/2014/02/big-data-revolutionizing-food-industry/.

[7] Chamlee, V. 2016. How Fast Food Chains Use Data to Test New Products and Drive Sales. Eater. [ONLINE] Available at: http://www.eater.com/2016/7/7/12066352/fast-food-analytics-digital-menu-boards-order-kiosks.

[8] Cooper, B. Restaurant kiosks serve up multiple demographics. QSRWeb. [ONLINE] Available at: http://www.qsrweb.com/articles/restaurant-kiosks-serve-up-multiple-demographics/.

[9] Kline, D.B. 2016. McDonald’s “Experience of the Future” Is Coming to the U.S. The Motley Fool. [ONLINE] Available at: http://www.fool.com/investing/2016/07/28/mcdonalds-experience-of-the-future-is-coming-to-th.aspx.

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7 thoughts on “McDigital or McDoomed?

  1. Fantastic McArticle, really hit the McNail on the McHead.

    It feels like McDonalds is really stuck between the characteristics that have led to their past successes and the consumer preferences that are driving the market forward. As a consumer, I have found their foray into healthier options like salads admirable, but I agree that the lack of disruptive innovation in their delivery model is limiting future service improvements. Just last week I had a burger that came out of a vending machine, and while it was delivered directly from a frozen hellscape where taste goes to die, I don’t see why kiosks couldn’t be configured to deliver healthy, fresh options.

    In the world where everything can be delivered, though, what value does a restaurant with ‘fast’ service but no ambience really offer? Like in our discussion with Uber, it is not so much about the time the service takes, but about the time that the consumer has to spend dedicated to waiting. With delivery, you can occupy yourself with other pursuits, so the wait time is not in and of itself a problem, but no one wants to spend more time in a McDonalds than they have to. I think McDonalds will need to reexamine the true value that they are delivering to customers, whether it is taste, convenience, experience, and double down in a specific direction. Fighting the food battle on multiple fronts will only lead to failure.

  2. “If McDonald’s can find a way to remember preferences, when customers come back to the restaurant, or even another location, their preferences could pop up with an option to order exactly what they had last time (with exact specs: no pickles, extra Mac sauce).”

    My understanding is that McDonald’s was already doing things in this domain. The company I wrote about, Plexure, worked with McDonald’s in Japan on this, launching May 2015. “This release sees the VMob platform providing the McDonald’s Japan app with a range of key features including personalization, location awareness, offers, newsfeed, NFC transactions, mobile loyalty and targeted push messaging.” [1] Who knows how successful it was though. Certainly a challenge to get people to download an app in the first place. Maybe they should give people in store discounts if they order via their app.

    Also, pickles are great.

    [1] http://www.plexure.com/investor-news/2016/7/31/vmob-now-live-for-mcdonalds-japan

  3. Great analysis, Anisa. I would argue that the surrounding context of increasing demands for fast food worker pay rises makes these digital innovations even more urgent. As most memorably evidenced by last year’s $15-an-hour pay hike for fast food workers in New York (1), labor costs are expected to rise in the coming years in this industry. That being so, the move to digital ordering described in your article will not only help McDonald’s relationship with its customers, but also help keep its labor costs contained in the evermore competitive food landscape.

    (1): https://www.washingtonpost.com/news/wonk/wp/2015/07/22/in-labor-victory-fast-food-workers-in-new-york-will-get-a-15-minimum-wage/

  4. Interesting read. I wonder to what extent if at all visible digital innovation (e.g. kiosks, tablets) could have potential to drive customers away from the store. The statistic shows come customers reacting favorably to kiosks, but did not include any data on adverse opinions. While I see limited downside form moving forward with analytics and behind the scenes digitization, I could see some segments of customers reacting adversely to McDonald’s become a futuristic digitized customer experience. While being overly reliant on what’s worked in the past can also be a trap, it’s important that McDonald’s not forget it’s identity as America’s oldest and truest chain comfort food.

  5. Anisa – I appreciate your writing about subject matter so near and dear to my heart. I am glad to hear that McDonald’s is working on remembering preferences with these kiosks, which should help further cut down one wait times. Having used these kiosks saving preferences would make the experience even better. I would assume people are more uncomfortable waiting in line to place their order than to wait for the order to be prepared. Even if McDonald’s can’t prepare the food faster, hopefully these kiosks will help with customers’ perception of waiting time.

    John Hintze touched on this, but I was going to ask if McDonald’s has considered taking the ordering process even a step further by creating an app and using beacon technology to sense as soon as someone drives into a McDonald’s parking lot and then prompting them to place their saved order. This way the order is in the system even before they get out of the car. It will make it harder and less likely for a customer to leave if there is a line, but at least they will know there meal is already being prepared.

  6. Enlightening post Anisa. I think that the digital menu boards have a ton of potential as you mentioned. In addition to what you highlighted, McDonalds could use the board for experimentation. For example, McDonalds is offering some new signature burgers, such as the “SoCal burger, which comes a bakery-style bun with white cheddar cheese and chili-lime tortilla strips” (1). McDonalds should consider using the digital menu boards to do A/B testing of sorts where every other car gets a different signature burger option to see what burgers are more successful before rolling out the item more widely. And – on another note – I hope that McDonalds continue to focus on the health & wellness initiatives as well as their sustainability goals!

    (1) http://business.time.com/2013/11/20/customize-me-mcdonalds-testing-biggest-burger-change-in-decades/

  7. I think MCD has to continue along the digital innovation front, along with the rest of the industry. However, these initiatives serve to create the mechanism that will further the company’s relevance, which is their ability to make their guests have a positive experience where they are treated like valued customers. Creating an ‘experience’ to improve how patrons ‘feel’ is key in my opinion from my time spent covering the industry. Decreasing customer throughput times and increasing efficiency is key, but to continue to maintain their brand I believe that MCD has to use digital as a platform to create an emotional connection to the brand once again. Thanks for the insights Anisa.

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