McDonald's Considers Partial Sale of Digital Startup Dynamic Yield -- 3rd Update
February 27 2021 - 2:27PM
Dow Jones News
By Heather Haddon and Suzanne Vranica
McDonald's Corp. said it is considering selling part of digital
startup Dynamic Yield Ltd., which it acquired less than two years
ago in a bid to boost sales at drive-throughs and digital
kiosks.
The world's largest burger chain is evaluating the platform amid
franchise complaints that it hasn't delivered the promised sales
boost. McDonald's said Friday that a review of transactions found
that Dynamic Yield's technology had contributed to sales less than
originally reported.
McDonald's is scrutinizing its technology platform as it and
other fast-food chains focus more on digital sales through outdoor
menu boards and apps. The pandemic has made online ordering and
other digital strategies more important as fewer customers eat and
order inside restaurants.
McDonald's U.S. sales have grown during the pandemic, but chain
executives have said it needs to keep investing in technology to
satisfy customers who want their food delivered or ordered with
little human interaction.
Dynamic Yield, which helps retailers provide personalized
digital promotions to consumers using streams of customer data, has
operated as a stand-alone company within the chain. For McDonald's,
it provides personalized offers for customers of its stores. It
also works with other retailers to boost online sales.
Liad Agmon, founder and CEO of Dynamic Yield, said in a
statement Friday that the potential partial sale "has been
discussed from the outset and now feels like the right time to
explore that possibility."
McDonald's in 2019 paid more than $300 million for Dynamic
Yield, which was then its largest acquisition in decades.
Executives have called it a central part of the burger chain's
evolving digital strategy.
McDonald's said it was exploring a sale of the portion of the
Israeli-based technology company that works with other retailers, a
growing part of its business.
McDonald's intends to keep the part of the company that services
the burger company, including its thousands of drive-throughs, it
said, adding that it was confident in the technology and was
continuing to invest in it. McDonald's said there is no set
timetable for a partial sale. It is also possible that no deal will
happen.
McDonald's installed the Dynamic Yield system across thousands
of drive-throughs in the U.S., Australia and Canada, with the
technology suggesting additional menu items for customers to buy
upon placing their order. The chain has also started incorporating
it in kiosks in Australia.
Franchisees have questioned the system's performance in the past
year, however. McDonald's aimed for Dynamic Yield's order
suggestions to help boost sales by 1% on average in the U.S.
compared to drive-through transactions without it, according to
McDonald's franchisees and people familiar with the system. Sales
have fallen short of that target in some stores, some of them
said.
"The return on that investment is just not there," said Vicki
Chancellor, a McDonald's franchisee. Ms. Chancellor, who oversees
the U.S. owners' advertising fund that pays for marketing expenses,
briefed other operators on Dynamic Yield during an internal call
Thursday.
Franchisees had questioned the system's effectiveness, prompting
McDonald's to review its impact, Ms. Chancellor said during the
call listened to by The Wall Street Journal. The company agreed to
refund the U.S. owners' advertising fund for $6 million in fees
paid to McDonald's in 2019 and last year to run it, she said.
Mr. Agmon said in the statement that both Dynamic Yield and
McDonald's benefited from the 2019 deal and that he looks forward
to expanding the use of his company's technology at the burger
chain.
Dynamic Yield was one of the signature pieces of what McDonald's
described as a digital transformation led by former CEO Steve
Easterbrook. In 2019, the company also bought Apprente, a
voice-automation company to help it bring conversation technology
to its drive-through. It also took a stake in New Zealand-based
mobile app developer Plexure Group Ltd. It opened a Silicon
Valley-based offshoot, called McD Tech Labs, to oversee the
efforts.
McDonald's has continued to invest in technology since Mr.
Easterbrook's departure, spending roughly a billion dollars on
digital systems annually, according to the company.
U.S. franchisees have debated with McDonald's in recent months
about the direction and cost of the company's technology
investments and the fees that owners pay. Earlier this month,
McDonald's agreed to have its independent auditor, Ernst &
Young, review past billing to franchisees for technology to
validate the spending, according to company emails viewed by the
Journal.
Write to Heather Haddon at heather.haddon@wsj.com and Suzanne
Vranica at suzanne.vranica@wsj.com
(END) Dow Jones Newswires
February 27, 2021 14:12 ET (19:12 GMT)
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