McDonald's May Sell AI Company Dynamic Yield As Franchisees Complain of Tech Fees

McDonald's is contemplating the partial sale of artificial intelligence start-up Dynamic Yield, The Wall Street Journal reported, which it acquired in 2019 for more than $300 million in the brand’s biggest acquisition in 20 years. 

After rolling out the technology at drive-thrus across its U.S. system over the past two years, the world’s largest burger chain is reevaluating the platform due to franchisee complaints that it hasn’t delivered an adequate sales boost, according to the Journal. 

Dynamic Yield currently operates as a stand-alone company within the chain. McDonald's is interested in maintaining the technology that services its drive-thrus but selling the part of the company that works with other third-party retailers to boost online sales, the Journal reported. 

Why McDonald’s Invested in A.I.

The fast-food giant acquired Dynamic Yield in 2019 with the goal of strengthening its digital kiosks and drive-thru business. Dynamic Yield’s machine learning process enables McDonald’s to predict what customers want before they make up their minds by changing the display of items on the digital menu boards based on the weather, the time of day, wait time, purchase history, regional preferences and more.

After installing Dynamic Yield menu boards in more than 11,000 of its nearly 14,000 U.S. restaurants, McDonald's cut down its service times at the drive-thru window by nearly 30 seconds. The chain attributed much of that improvement to the Dynamic Yield technology’s automated upselling and also said the digital boards contributed to average check growth. 

The acquisition proved to be fortuitous as it poised the chain for success during the pandemic. The drive-thru accounted for nearly 90% of the company’s sales in Q2 2020 and helped drive McDonald's best month in nearly a decade in September.

Why Franchisees Aren’t Satisfied

McDonald's original expectations for Dynamic Yield included a 1% lift in average sales from the company's “decision-logic” technology, the Journal reported. Despite the increased drive-thru efficiency and strong sales, one franchisee told the publication, "the return on investment is just not there." 

The burger chain reviewed performance history following these franchisee complaints and found the technology has indeed failed to meet expectations, though the company did not include specific numbers. 

The franchisee frustration over these lackluster results comes as an ongoing and heated battle rages between McDonald’s corporate and operators over new technology fees, separate from Dynamic Yield. 

McDonald’s controls the technology operators use in their restaurants and charges franchisees a fee for its use. For franchisees, technology fees are ten times what they were a decade ago. With franchisees partially responsible for covering technology costs, operators are demanding not only stronger results, but also more say into how the tech is developed and how the money is spent. 

The Future of A.I. in the Restaurant Industry

McDonald’s decision to reevaluate its technology platform also comes as the pandemic has made off-premise and digital strategies more important than ever. Several QSR chains are now prioritizing innovative drive-thru technologies like digital menu boards, automated ordering and even payments driven by facial recognition. 

Restaurant Brands International (RBI) announced last year its plans to “modernize” the drive-thru at more than 10,000 Burger King and Tim Horton’s locations in North America by 2022.

McDonald’s said it plans to spend roughly a billion dollars on digital systems annually to satisfy customers who want their food delivered or ordered with little human interaction, the Journal reports. For example, McDonald’s recently began testing A.I.-driven automated ordering in a Chicago suburb’s drive-thru to keep up with the high demand, speed up service and increase efficiency. 

"A key focus of our growth plan, Accelerating the Arches, is building on our digital presence to bring fast, easy and more personalized experiences for our customers. The implementation of Dynamic Yield technology is enhancing the customer experience at McDonald's Drive Thrus and kiosks in a number of markets around the world?and we're continuing to deploy to more," a McDonald's spokesperson told Restaurant Business. "As with any plan to accelerate technology innovation, we'll continue to leverage research and learnings and test new approaches to best adapt to the changing needs of customers."

1851 Franchise reached out to McDonald’s for comment and will update this story with any new information.