The U.S. Fast Food Industry
The trends driven by the millennial’s push toward a healthier and more sustainable lifestyle has resulted in less traffic in physical stores, a fragmented market that is increasingly catering its product offering to health-minded individuals, and a rise in food and labor costs . Food costs may increase by as much as 5.4%, putting pressure on the already thin margins of the industry.
To survive in this increasingly competitive landscape, fast food restaurant chains need to be creative and leverage innovative technology to respond to fast-changing market trends. To increase top-line growth, menus are getting more complex, plant-based options are being integrated, and new product innovations such as CBD-infused products are on the rise. Restaurants must now figure out how to extract the most value from their customers, increase their loyalty to the brand, and understand at a unit level which of their products are most profitable. At the same time, costs are controlled by consolidating stores and stream-lining operations.
A key success factor in achieving both sides of the equation is digital innovation. Labor costs can be drastically reduced by incorporating self-service kiosks, which also reduces wait times – therefore optimizing the customer experience.
Behind the trends: Burger King struggling to keep up [2a]
Rising food and labor costs, less foot traffic, and a general aversion toward unhealthy fast food has been difficult for Burger King. They were behind other fast food restaurants in upgrading their stores. They’re also falling behind on the convenience aspect of the customer experience relative to McDonald’s and Dominos delivery services. The reason is that its competitors started digital innovation years ago, ensuring that Burger King will have to play catch up. In the second quarter the company said US comparable sales increased by 1.8%, and in the third quarter that figure slipped 0.7%. Same-store US sales rose by 2.4% in the third quarter at McDonald’s [2b].
In addition to all these headwinds, McDonald’s made an announcement that it will invest $6 billion toward modernizing most of its US restaurants by 2020. What exactly is this company doing with all this money?
McDonald’s bet on digital
In order to address the headwinds above, McDonald’s has decided to bet its future on a more digital world. Their efforts are focused on a number of initiatives that aim to understand their customers better and create a more seamless customer experience through in-store and online channels:
- Big Data : The biggest bet that the company is making ($300 M to be exact) is in data analytics, specifically with machine learning firm Dynamic Yield, an outfit out of Israel. McDonald’s drive through’s are now outfitted with digital menus that change its offerings and tailors promotions based on the weather, time of day, local traffic, nearby events, and of course historical sales data, both at that specific franchise and around the world. The expectation is to see to see the technology in 1,000 locations within the next three months, eventually rolling out to the company’s 14,000 US restaurants and beyond.
- Third-party partnerships: Uber Eats is revolutionizing the delivery space, and McDonald’s is adding it as a partner to be in the platform customers are used to visiting. Currently, it accounts for 2-3% of the brand’s business and is available in 9,000 restaurants. This is not necessarily new though, as McDonald’s has been delivering in Asia for decades. At this point, it’s time for the company to start creating partnerships with the likes of grubhub, seamless, and other delivery platforms to put itself in front of the most US customers.
- McDonald’s App and mobile ordering : The business has been able to use digital innovation as a driver for growth, producing 5.4% increase in global comparable sales for the first quarter of 2019, with MyMcDonald’s App and McDelivery accounting for almost one in ten of sales in the first quarter.
Whether these investments pay off in the long term as it adjusts to a changing landscape remains to be seen. However, it does seem that McDonald’s is taking steps in the right direction. In addition to all the initiatives mentioned above, it has tried to create a healthier product mix, focusing on organic products, salads, and breakfast food to capture more share. We’ll eventually see how this plays out, but as with most parts during its long history, McDonald’s needs to innovate in order to survive. Let’s see if the big mac bet on big data works out!