No McRobots in the restaurant - McDonald's CEO Chris Kempczinski has a more practical digital transformation menu in mind

Stuart Lauchlan Profile picture for user slauchlan August 11, 2022 Audio mode
Summary:
The QSR sector is one that is tailor-made for the efficiencies offered by digital transformation, but is there enough pragmatism on show?

Ronald McDonald

Over recent years, diginomica has cast an eye over the digital transformation efforts made by the Quick Service Restaurant (QSR) sector AKA fast food brands. This is a sector in which efficiency and productivity are paramount to support the underlying business model, which would appear to make it an ideal candidate for automation and AI tech.

And that’s been the underlying thesis so far, with McDonald’s, whose digital investment over the years has been the most impressive of the leading brands, going so far as to set up its own AI organizations to develop and enhance QSR-specific tech to be deployed both in-store and at drive-thru operations.

Such activity also, inevitably, feeds into the mainstream media popular narrative of ‘robots taking over our jobs’, such as Miso Robotics ‘Flippy’, which back in 2020 was being touted as the answer to rising labor costs in the fast food business.  More recently, a plant-based burger start-up called SavorEat has attracted attention for its ‘AI robot chefs’ offering:

A meatless product that is created and cooked by a robot chef according to your exact preference, all at the touch of a button.

The marketing pitch goes on:

Sounds futuristic? It’s already here.

Secret sauce?

But how much of the hype in the sector is reality? McDonald’s itself has been divesting itself of key planks of its in-house AI investment in recent times. Last year, IBM acquired its McD Tech Labs, while earlier this year McDonald’s sold its AI operation Dynamic Yield to Mastercard. So is automation not really the secret sauce it was said to be?

There does seem to be a streak of pragmatism in evidence from remarks made by McDonald’s CEO  Chris Kempczinski recently when he talked about the potential - and limitations - for automation:

We've spent a lot of time, money, effort, looking at this, and there is not going to be a silver bullet that goes and addresses this for the industry. The idea of robots and all those things, while it maybe is great for garnering headlines, it's not practical in the vast majority of restaurants. The economics don't pencil out. You don't necessarily have the footprint. And there's a lot of infrastructure investments that you need to do around your utility, around your systems. You're not going to see that as a broad-based solution anytime soon.

There are things that you can do around systems and technology, especially taking advantage of all of this data that you're collecting around customers, that I think can make the job easier, things like scheduling, as an example, ordering as another example, that will ultimately help reduce some of the labor demand in the restaurant. But…is there a big automation solution? You're not going to see, like I said, robots in the restaurant.

Practical digital

None of this is to say that McDonald’s interest in digital transformation is waning. This week the firm appointed a new CIO in the shape of Brian Rice, a long standing tech veteran with stints at Cardinal Health, Kellogg Company and General Motors under his belt. He replaces Daniel Henry who had been one of the foremost drivers of the firm’s interest in AI.

What priorities Rice will have remain to be seen, but he will be reporting directly to Kempczinski, who is keen to brandish his ongoing digital credentials:

I'm proud of McDonald's industry-leading digital and marketing initiatives that allow us to connect with even more customers in entirely new and creative ways, so we can strengthen our relationships, better connected culture and meet customers where they are.

The investments we're making in digital, one of our biggest opportunities for growth, are beginning to bear fruit. In our top six markets, digital sales, which include mobile app, kiosk and delivery, represented over $6 billion or nearly 1/3 of system-wide sales in the second quarter. With the launch of MyMcDonald's Rewards in the UK this month, we now have loyalty programs in nearly 50 markets, including all of our top six markets, enrolment and participation continues to grow.

There’s certainly evidence that the focus on loyalty programs is working. Nearly 22 million of US loyalty members were active across the three months to end of June.  Kempczinksi said:

MyMcDonald's Rewards has consistently driven more frequent visits and incremental sales in each of the markets as we've launched. Each reward a customer redeems and each preference a customer shares, helps us power our personal touch. We can use this deeper understanding of our customers to create content and offers relevant to them through the channels they prefer. By tailoring messages, our customers feel more connected to McDonald's, ultimately driving engagement that increases both spend and frequency. It even means we can reunite with customers who haven't visited us in a while.

But digital transformation is “a multi-year journey”, he added, and one that’s taking place at different paces around the globe. In China, digital sales make up 80% of the total, while in parts of Europe, that percentage is around half of all sales. In the US it’s a different story, with only around a quarter of sales transacted through digital channels. But every metaphorical meal can be super-sized, argued Kempczinski:

There's a big opportunity for us in North America to increase digital as a percent of sales. And then what happens when you do that is, your percent of identified customers goes up very dramatically. And that opens up a whole range of things from service opportunities, pricing opportunities, etc. So I think digital for us is, we're starting to see the benefits. We just need to go harder and faster against that. And we have a few other ideas

My take

Kempczinski’s rebuttal of robots in restaurants is a welcome development. There’s clearly a lot that tech can do in-store to assist in efficiency gains and supporting the customer experience. I was once hugely sceptical of the menu kiosk boards in McDonald’s, but in fact they have made the ordering process considerably easier. In the interests of comparisons, I tried the Wendy’s equivalent and found that to be frustrating with a poorly designed interface that didn’t allow customization of choices to the same degree.

But the wider point is that McDonald’s mindset around digital looks to be pragmatic and focused on the realities of improvements to the existing operating model. None of that is going to stop talk of AI-run restaurants from going away, of course. Just yesterday, Darin Harris, CEO at Jack in the Box, talked up his firm’s digital thinking, which is more than a little in catch-up mode:

Our digital sales grew over 30% versus last year, while the Jack Pack Rewards program, still in its infancy, achieved a milestone of over two million members after we recently rolled the program out of drive-through and in-store guests in Q3. Looking ahead, we're excited about launching our new enhanced digital platform that includes mobile web ordering in Q4. We believe this platform will help us not only attract incremental e-commerce guests, but also help us create a more seamless, personalized relationship with our loyal guests while retargeting our lapsed users to reengage across both our app and mobile web solution. I continue to see digital as an area where the scale and resources of two brands [Jack in the Box and Del Taco] will help us move faster and more efficiently as we evolve and flex our digital and tech opportunities as a new company.

But while those digital building blocks are being put in place, there’s also an eye to an aspirational future that involves AI and automation work that will be enhanced by Jack and Del Taco’s merger:

Some of the things they're doing with automation, some of the things we're doing with automation, versus both brands having to test it separately. The groups on their own decide, ‘Hey, we'll take something in the kitchen at Jack, and they're going to take something on the drive-through with some AI technology and test it’, and they're sharing that information back and forth. So we both create momentum. 

Whether that makes robots in the restaurant any more likely any time soon is another matter…

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