Late last month, McDonald’s acquired Tel Aviv based “decision logic” company Dynamic Yield in a whopper of a transaction. The fast-food giant paid $300 million dollars for the company which uses algorithms, data, and AI to nudge customers in online transactions. Dynamic Yield has been working online with leading retailers such as Sephora, Ikea, and Urban Outfitters, and McDonald’s will benefit from their technology and experience while allowing the company to independently grow its business (and generate profits) with other retailers. It’s McDonald’s biggest acquisition since the company purchased Boston Market in 1999, so let’s explore why this tech company seemed so valuable to Ronald, Grimace, and the rest of the gang.
Data at the Drive-Thru
McDonald’s CEO Steve Easterbrook took over in 2015, and he has presided over a digital transformation. McDonald’s has launched a popular app, partnered with Uber Eats, and transformed all of its menus into digital screens, both in-store and at the drive-thru. Wired therefore suggests that we view the acquisition of Dynamic Yield not as the beginning of a digital revolution at the fast-food giant, but as a catalyst that will drive its transformation forward.
McDonald’s immediate plans for the new innovations data will drive are centered on optimisation of the drive-thru experience. They’ve launched a pilot program in Miami which aims to leverage historical sales data, weather and traffic patterns, and the current volume of orders to give display real estate to items that will benefit the consumer or the restaurant. For instance, if the drive-thru is slowly grinding out a backlog of orders, the screens could promote menu items that can be prepared quickly. If a customer is ordering happy meals around dinner time, the screens could nudge exhausted parents toward grabbing a coffee. The potential for “upselling” consumers will be exploited by the ability of algorithms to manipulate these digital menus.
As Easterbrook told Wired: “How do you transition from mass marketing to mass personalization? We’ve never had an issue in this business with a lack of data. It’s drawing the insight and the intelligence out of it.” With McDonald’s operating 36,000 restaurants around the world that serve an average of 69 million customers every day, the amount of sales data they can collect boggles the mind. And the restaurant chain won’t just be content with optimizing the drive-thru experience. Easterbrook expects the wealth of data to trickle down to kitchen operations and ultimately to the supply chain. McDonald’s is an extremely high-volume, low-margin business, and cutting waste is one of the ultimate goals of embracing big data.
McDonald’s also will look for creative ways to exploit its consumer data, but Easterbrook is rightly cautious about the chain’s approach to walking the tightrope between privacy concerns and personalization. Easterbrook is open to using beacon technology with customers’ mobile phones, or license plate recognition to allow for personalized menus as well as deals based on a consumer’s purchase history. But he also acknowledges that today’s consumer may not be comfortable sharing their identities and personal data, and vows that the company will be “very sensitive” as they find the balance between personalization and privacy. He stresses the importance of demonstrating “that we can offer value back to consumers willing to open themselves up to us.”
Because of its massive market-share, any moves that McDonald’s makes have the potential to shake up the global food industry. Their recent pledges to use only “cage-free” eggs, and to eliminate the use of gestation stalls for pigs, have led competitors to follow suit and changed the way food producers do business. If they’re investing heavily in leveraging data to personalize customer experiences and streamline the supply chain, we’d expect to see similar moves made by other fast-food chains and casual dining restaurants. Starbucks and McDonald’s’ apps, which allow customers to get their orders faster and customize their orders in exciting new ways, are a new way to build loyalty among fickle modern consumers.
Data and Food: A Perfect Pairing
As Berkshire Hathaway analysts have noted, the food industry generates piles of data but has been slow to find ways to put the information to use in operative and managerial decision making. Companies like Dynamic Yield and Quantzig have been developing new ways to infuse big data analytics into the day to day decision making processes of companies in the industry while allowing them to leverage analytics to improve customer satisfaction and loyalty. Quantzig uses natural language processing, consumer behavior analysis, and social media listening to find out exactly what people are thinking about products and experiences, thus offering companies actionable data on what’s working and what isn’t. Algorithms like this are also extremely useful for creating innovative new products, while big data also promises to cut waste throughout the supply chain.
As Dynamic Yield’s CEO notes, dealing with tens of millions of McDonald’s customers won’t strain the company’s capabilities too severely, because fast-food orders are simpler to compile and interpret than online shopping where inventories and variations are massive. And McDonald’s and Dynamic Yield both view the online and in-store experiences as part of a continuum.
It will soon be impossible to even make a distinction between online and in-store shoppers in the fast food industry, as the same consumers begin ordering via apps, drive-thru, Uber Eats (and other delivery services), as well as in-store. McDonald’s has perceived the value in figuring out who their customers are as they switch between sales platforms. The sales data they’ll obtain will give them a built-in advantage in every aspect of their business, removing friction from transactions, trimming the fat in their supply chain, optimizing the restaurant experience, and cementing customer loyalty. If you’re in the food industry, it’s time to get big data working for you!