Did McDonald’s Make a Mistake Investing in Tech Companies?

Mastercard and McDonald’s have announced a agreement for Mastercard to acquire McDonald’s AI company, Dynamic Yield. Terms of the deal were not disclosed, but the transaction is expected to close in the first half of 2022.

For Mastercard, Dynamic Yield’s technology adds to its existing suite of services that help brands deliver reliable customer experiences across all channels in an efficient manner. Although QSR has sold the company, it will continue to work with Dynamic Yield and Mastercard on digital initiatives.

The sale actually comes after McDonald’s considered a partial sale of Dynamic Yield earlier this year to offload the part of the business. McDonald’s bought the business in 2019 for $ 300 million and, in less than three years, agreed to sell it. Interestingly, with the purchase of Dynamic Yield, McDonald’s was even called “becoming a tech company”. But the sale is not shocking.

In October of this year, McDonald’s made a deal with IBM to sell its McD Tech Labs for an undisclosed amount. McDonald’s also bought this company in 2019.

McDonald’s technological approach

In 2019, QRS invested heavily in acquiring technology companies. It acquired Dynamic Yield for $ 300 million. The company was a leader in personalization and decision logic technology, which helped customers through the buying process and came up with things they might want in order. This has been applied to drive-thru locations, order kiosks and mobile apps to maximize sales.

McDonald’s also entered into a agreement with Apprente, a start-up leader in a conversational voice-based technology company, to deliver personalized experiences to customers. The company had tested Apprente’s technology in select locations and created voice-activated drive-thru services for faster, easier and more accurate order taking.

With this acquisition, the company created a Silicon Valley-based group called McD Tech Labs. The Apprente team was one of the founding members of the group. McDonald’s also said it would hire more engineers, data scientists and other technical experts to expand the team.

These investments in emerging technologies, according to statements by company management, were to give McDonald’s additional information that its competitors will not have access to. The fast food giant was at the forefront of many emerging restaurant technologies as it had self-service order kiosks and drive-thru technology, and it would leverage the technology to improve the customer experience that can drive sales.

McDonald’s also has invested $ 3.7 million for mobile app developer Plexure. Plexure powers a version of McDonald’s global mobile app in 48 countries outside of the United States. Steve Easterbrook, President and CEO of McDonald’s, said when announcing this investment: “In all of our markets, we are using technology to improve and transform the McDonald’s customer experience.

All of those purchases were part of McDonald’s $ 1 billion spending on upgrades in 2019.

When the pandemic struck, McDonald’s found itself in a good position to build on its earlier digital innovations and create a user experience well suited to the constraints of the pandemic. McDonald’s technological innovations have given customers the means to securely pay and personalize their orders. Digital sales topped $ 10 billion, or nearly 20% of system-wide sales, in 2020 across the top six markets.

So why sell businesses?

Under McDonald’s ownership, Dynamic Yield doubled its revenue and also expanded its customer base across all verticals. The statement of agreement with Mastercard said, “The acquisition by Mastercard will strengthen the unique and existing synergies between McDonald’s digital engagement experiences, currently fueled by SessionM and Test & Learn. In addition, McDonald’s plans to further expand and integrate Dynamic Yield’s capabilities globally and across all order channels.

the declaration of agreement to sell McD Labs to IBM also mentioned, “Development and testing of automated order taking (AOT) technology by McDonald’s in restaurants has shown substantial benefits for customers and the restaurant team experience. … AOT will continue to be part of McDonald’s highly secure technology ecosystem.

Sales involve selling technology companies, but not parting with them. This reflects the fast food giant‘s greater effort to outsource its technology rather than owning and exploiting it.

During the Call for third quarter 2021 resultsMcDonald’s CEO Chris Kempczinski said: “There are times when it may be wise for us to acquire technology to accelerate the development of it, to make sure it is suitable. McDonald’s needs. But at some point this technology reaches a level of development where I think it makes more sense to pass it on to a partner who can then blow it up and scale it globally. “

Wrap

Selling technology acquisitions could also be a way to ease tensions between the company and franchisees. While the corporate team makes all of McDonald’s buying and selling decisions, it is also said that franchise owners have pressured the giant to cut technology fees. In July of this year, McDonald’s announced that it reduce technology costs that he planned to charge 62% to US franchisees. The fast food giant is one of the oldest QSRs and has also supported the pandemic. The outcome of these decisions could become clearer in the months to come.

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