Ever so quietly, McDonald's (MCD) is turning to slick-looking machines to meet the voracious demands of consumers.
That should be music to the ears of McDonald's investors, who have sent the stock significantly higher in the past year on the premise that real change (not the usual corporate BS) is being driven by McDonald's CEO Steve Easterbrook. Here is why the digitization of McDonald's is perhaps the most exciting thing the Golden Arches are working on (though moving to a more cost-friendly franchisee model globally and cutting costs are vying for the top spot).
Computers will help reduce the impact of labor inflation. It may suck to say humans are getting replaced by machines at McDonald's, but it's happening to a certain extent and is good for the bottom line as lawmakers seek to bleed corporations dry (see recent New York state minimum wage hike).
Consumers of fast food really don't want to interact with humans. I think ordering burgers and fries via a giant tablet will help to improve McDonald's perception among consumers over time.
Using machines should assist in reducing order errors, an issue that has long hurt fast-food companies. Reduced errors, happier customers.
Digitization inside McDonald's restaurants -- from digital menu boards that can better highlight promotions to tablet ordering machines -- are things not being seen at many other competitors in the fast-food industry. I like that McDonald's is slowly starting to rebuild competitive advantages. Chipotle (CMG) doesn't have digital menu boards (never even heard the company discuss them) and has been very, very, very slow to introduce technology into its restaurant experience, for example.
Not yet seeing machines taking over your local McDonald's? Concerned that I am off my rocker and that McDonald's bulls are wrong to be excited about digitization? Well, here is where these things are sprouting.
In two restaurants in Chicago, McDonald's confirmed to me, it has started to test McCafe coffee kiosks. The touchscreens (see below) allow people to select lattes, mochas and cappuccinos (no drip coffee) from a small tablet. Drinks cost $2.99 (so they promote MCD's more expensive offerings) and are customizable on preference for sweetness, milk and amount of espresso. Customers can pay with a credit card at the machine, and away they go.
Such a setup for a quick purchase like coffee should work quite well as more wearable devices are created. Just scan and go.
I have not seen this modern-day vending machine at Dunkin' Donuts (DNKN), Tim Horton's, Burger King (BKW) or Wendy's (WEN), and this is good for McDonald's, which is known to sell rather good coffee. And it offers a better experience than what typically is laid out at convenience stores such as 7-Eleven -- it usually consists of brewed drip coffees sitting on a table next to sweeteners and milk in little coolers.
I fully expect these machines to be in way more McDonald's locations over the next three years, and help bring down the costs of operating McCafe coffee stations (has been an issue among franchisees since their debut several years ago). Moreover, the fact that they are tech-driven should allow McDonald's to experiment with new versions of coffee drinks much quicker to boost sales.
A digital McDonald's coffee kiosk.
Meantime, over 90% of McDonald's restaurants in France now boast ordering kiosks that resemble giant tablet computers. McDonald's continues to be hush-hush on its kiosk rollout plans, but it's believed that Australia and the U.K. -- which often serve as testing grounds for new initiatives -- also have many restaurants with the Create Your Taste layout. Further, the company began testing the kiosks in the U.S. in 2015 -- I am told by a source franchisees are clamoring to get the kiosks, likely as they are hearing the machines help in boosting average check (and perhaps assist in more cost-effective management of food and payroll costs).