There's a good reason the brand spent $300 million on its first major acquisition in 20 years.
McDonald's second-quarter results were its best in seven years.
When McDonald’s forked up $300 million for decision-logic company Dynamic Yield in late March, it sent an eyebrow-raising ripple throughout the restaurant landscape. Firstly, the fast-food giant might have deep pockets (a market value of $142 billion), but it doesn’t dip into them for acquisitions very often. That’s an understatement. Prior to the deal, McDonald’s last sizable purchase was a $173.5 million move for Boston Market. That was 20 years ago (McDonald’s later sold the chicken brand to Sun Capital Partners).
The other obvious question was, why did McDonald’s spend brand-acquisition-type dollars on a tech platform? The answer boils down to something the chain has eyed since CEO Steve Easterbrook outlined initial steps to reset and rebuild McDonald’s business back in May 2015. As he put it during Friday’s conference call to review second-quarter results, “We knew we had to evolve with our changing market and consumer dynamics, and we knew incremental progress wasn’t going to cut it.”
He candidly also admitted, “we were keenly aware that the pace of change inside McDonald’s [was] being eclipsed by the pace of change outside our business.”
The chain spent much of 2018 investing in broad—and often expensive—initiatives meant to keep McDonald’s ahead of a rapidly changing consumer. An attempt, Easterbrook said, to restructure and be closer to guests, and faster at the point of impact. “At the beginning of this year, we said 2019 will be a year to execute on running better restaurants and optimize the initiatives we deployed last year,” he said.
Dynamic Yield is a big bet on machine learning—the idea that it’s not just a passing fad, but will become the backbone of customer service and marketing for restaurant chains everywhere. Shyam Rao, the co-founder and CEO of Punchh, a widely used loyalty platform for brands, called McDonald’s purchase of the company its “Amazon moment,” saying it would be remembered as the point at which the brand became so good at anticipating and catering to consumer behaviors and desires that it would force other competitors to evolve or fall by the wayside.
McDonald's Dynamic Yield technology is going to change its drive-thru business. Will it change how the entire industry looks at personalization?
"Every time you interact with a customer and don’t offer them something highly customized and relevant to their personal interests, you are missing an opportunity to make a sale or earn their loyalty.” — Shyam Rao, co-founder and CEO of Punchh.
Dynamic Yield essentially puts predictive abilities into McDonalds drive-thru menuboards. It gives McDonald’s the chance to create a more personalized experience by varying outdoor digital drive-thru menu displays to show food based on time of day, weather, current restaurant traffic, and trending menu items. It can instantly suggest and show additional products to a customer’s order based on their current selections.
Currently, the technology is live in about 700 U.S. restaurants. But within the next two weeks, Easterbrook said Friday, it’s going to skyrocket to 8,000 locations. By year’s end, it will be integrated in nearly 100 percent of drive thrus not just in the U.S., but in Australia as well.
Easterbrook was noticeably excited about this launch during Friday’s call, and it’s easy to understand why. He said customers have responded by adding French fries, drinks, Chicken McNuggets, and other favorites to orders. McDonald’s has seen an increase in average check, Easterbrook added, by improving its ability to offer customers what they are likely to want with suggestions based on those aforementioned factors, as well as items already in their orders.
“I’ve got to say, three months in, couldn’t be more pleased with the integration of Dynamic Yield,” he said, “both as a company and as a culture. But also, frankly, getting the capabilities into our restaurants.”
In those 700 units, McDonald’s has witnessed consistent trends across different dayparts, days of the week, and markets. “We know the technology works,” Easterbrook said. “So we’re going to go from about 800 now to 8,000 by this time in two weeks, which is fantastic.”
There’s another rewarding aspect at play, too. This tech doesn’t just resonate with consumers, it also makes employees’ lives easier. The order-taking process has proven quicker because workers don’t need to manually upsell items to guests—the tech does it for them. And beyond that being an efficient model, it serves as a fail-safe, consistent approach to something that can be trained and drilled into employees and yet still fall through the multi-unit cracks—a challenge any large restaurant operator can attest to. You can tell 100 employees in a room to do something 100 times and end up still having to tell them another 100. Even so, they might not do it.
Rao added, “More to the point: every time you interact with a customer and don’t offer them something highly customized and relevant to their personal interests, you are missing an opportunity to make a sale or earn their loyalty.”
As restaurants are finding out, inspiring loyalty often comes down to catering to guests’ individual needs. That’s what they’re used to elsewhere. Why not in their food-purchasing journey?
McDonald’s Dynamic Yield deal was a bet on the future of customer behavior and the reality that people have been trained by online retailers to expect instant personalization, customization, and recommendations. And that unlock is about to arrive in full force for McDonald’s.
Fresh beef has sent McDonalds Quarter Pounder sales through the roof.
Drive-thru improvements, sizzling sales
The Dynamic Yield news came as McDonald’s lit up one of its best quarters in some time. The chain’s global same-store sales lifted 6.5 percent in Q2—its best result in seven years. McDonald’s U.S. comps hiked 5.7 percent, which marked the highest same-store sales increase since the launch of All-Day Breakfast in the fourth quarter of 2015.
Revenues were flat in Q2 to $5.3 billion. Net income upped 1 percent to $1.5 billion.
There were several drivers, including value and deals, like the national 2 for $5 Mix & Match promotions as well as locally relevant offers. McDonald’s renewed its focus to core items—a move that resonated, CFO Kevin Ozan said. Also, switching to fresh beef on Quarter Pounders drove, as previously noted, 55 million more sales of the product compared to last year. A combination of deal offers and line extensions (bacon and deluxe builds) boosted sales, too.
Additionally, McDonald’s saw a lift from Experience of the Future updates. During Q2, the chain converted an additional 600 restaurants for a total of 1,000 projects completed in the first half of the year. McDonald’s expects to finish roughly 2,000 in 2019.
McDonald’s comps growth in Q2 came through higher check, not guest counts, in the U.S. About two-thirds comprised of product mix and a third via price. Ozan called traffic a “street fight,” saying the brand wasn’t losing guests really. Instead, it’s dropping customer visits. Guests are not visiting McDonald’s as often as they were historically, in other terms. “And if we can regain some of those additional visits, especially at breakfast time, which is, as you know, a very habitual ritual, and so if we can get those customers coming again at breakfast time, it would be a huge benefit.” McDonald’s didn’t break out the traffic number, only to say it was “less negative than the first quarter.”
One of, if not the biggest, headlines in fiscal 2019 has involved the drive thru. Heading into the year, McDonald’s drive-thru times had increased, year-on-year for five straight. This past year, it was last in QSR’s Drive-Thru study with a time of 273.29 seconds. In 2017, the brand clocked 188.83 seconds. It slowed to 189.49 the following year and has trended in that direction ever since.
Last quarter, Easterbrook said he was personally taking on the task of rerouting this conversation.
On Friday, he said, McDonald’s was “encouraged by the results we are seeing.” In June, the U.S. saw a 15-second reduction, year-on-year, in service times in the drive thru. “Which I would say is more than incremental,” Easterbrook said.
He credited menu simplification: getting rid of Signature Crafted products, streamlining the late-night menu, giving coops the chance to roll back All Day Breakfast options. Also, the addition of tech and diagnostic tools. Managers and employees can now see real-time results in drive-thru lanes. “They can basically decompose the various elements of a drive-thru visit for a customer into its constituent seconds,” Easterbrook said.
“So how long are we taking to take the orders? How long are we taking [to get] the payment? How about how long it takes us to gather their food and present it? How many cars have we asked to pull forward and then bring the food later.”
Just seeing all information has made a huge difference, culturally as well as operationally, Easterbrook said.
This is a huge initiative for McDonald’s, which sees upward of 70–75 percent of its U.S. business through the drive thru. He said the target of improvement right now is 30 seconds. “Enough to be notable to the customer,” Easterbrook said. This is particularly key at peak service times.
McDonald’s has held a number of service competitions across its restaurants. It’s also brought drive-thru timer tools—rolled out in Europe about a year ago—to most U.S. stores. “We can use these tools in many ways to identify where the barriers are, but actually just make it fun, incentivize and getting enthusiasm from the managers and crews,” Easterbrook said.
He added that some markets are enjoying 30–40 second better times already—three or four months in. “I know they’re focused on getting better than the 15 [seconds],” Easterbrook said.
By David Inskeep, SCORE
Consumers today are increasingly bombarded with information yet have less and less time to process it. That’s why every small business needs a brand—a fundamental message or impression about its products or services that punches through the clutter and anchors itself in the customer’s memory.
Just how important is branding to a small business? Longtime marketing consultant and SCORE mentor Mike Scotto says it can create a loyal following of customers and build a solid customer base for the business now and in the future.
“It’s always easier and more cost effective to sell to an existing customer than it is in attracting a new one,” he says. Constant Contact, Inc. says 90% of new business comes from referrals, so work your existing customer base rather than spending money and time trying to attract new ones that probably won’t come to you anyway.
Branding starts by identifying the business you are in, how you serve your market and who your customers are, and how you want them to be treated. It emphasizes the benefits of your product or service rather than just the features.
“By understanding your market, your customers and your competition, you can begin to create a ‘competitive edge’ that is consistently and constantly reinforced in all your internal and external communications,” Scotto adds. “Branding also involves consistency right down to the type face and design you use in advertising and communication materials.”
At the same time a good branding strategy should also be flexible. Monitor how well your brand resonates with your key clients and be prepared to tweak your message as necessary. Also keep an eye on what your competitors are doing but avoid responding hastily to any changes they may make. What works for one company may not work for another, despite their apparent similarities.
Always look for ways to reinforce your brand. A good option is through a blog, where you can regularly share timely information and insights about your industry with current and prospective customers. Blogs also serve as a forum to discuss trends affecting your customers, and what they need to know about addressing them. Over time, your blog readers will increasingly look to you as an expert they can trust, whether they currently need your product and service or not.
To learn more about branding and other marketing matters for your small business, contact SCORE “Mentors to America’s Small Business.” SCORE is a nonprofit organization of more than 11,000 volunteers who provide free, confidential business mentoring and training workshops to small business owners and employees. To find the SCORE chapter nearest you or to chat with a mentor online, visit www.score.org or locally www.hutchscore.org.
David Inskeep is a retired commercial lender and can be reached at firstname.lastname@example.org.
Influencers can be great when it comes to providing advertising to an engaged audience. Caroline Swain explains the rules and regulations
Your restaurant or hotel’s marketing team wants to use social media influencers. You’ve read news stories about brands being called out for not working correctly with influencers and you want to make sure your brand is protected.
The primary regulation when it comes to marketing is the Consumer Protection from Unfair Trading Regulations 2008 (CPUT), which restrict what brands can do in their marketing practices, including 31 blacklisted practices which are unfair and prohibited.
In addition to legislation, the UK has a system of self-regulation governed by bodies like the Advertising Standards Authority (ASA). The ASA is responsible for enforcing the CAP Code (a self-regulatory code published by the Committee of Advertising Practices).
When it comes to influencer marketing, if the influencer’s content falls within the ASA’s definition of an ad, the provisions of the CAP Code will apply. Influencer content is an ad if:
(a) the brand has paid for the content (payment includes cash, a gift, an experience or similar); and
(b) the brand has any editorial control over the content (‘editorial control’ is interpreted widely – not just a right to review the content. It could include a requirement to tag the brand in the post or reference a promotion, for example).
The world of influencers is rapidly evolving. While most influencers have not yet joined the ranks of traditional celebrities, there are now service teams specifically supporting influencers on branding and commercial relationships.
Contracts are now expected, and having a firm contractual position is the norm.
Brands are responsible for ensuring that consumers know when they are looking at an ad which, due to the way that influencer content is shared, is not always obvious.
The ASA therefore recommends that the content is clearly labelled (eg by use of “#ad”). Failure to make this clear is a breach of the CPUTs and the CAP Code.
But labelling and disclosure isn’t the only thing to remember – if the content is an ad, all the usual rules around advertising will apply.
Both parties will be held responsible for failure to comply with the legal requirements. For the brand, failure to comply may result in bad publicity and brand damage; censure from the ASA; a referral to the Trading Standards Services; possible court action and criminal prosecution; legal action by competitors or consumers; and a loss of consumer confidence.
Caroline Swain is a commercial solicitor at Charles Russell Speechlys
Checklist for employing an influencer
You should investigate the influencer ahead of any engagement. Evidence of erratic behaviour, acting in a manner inconsistent with the brand’s values or failure to disclose that their content is an ad should ring alarm bells.
Get a contract in place to include:
Disclosure Oblige the influencer to follow current industry regulation, including the use of #ad.
Approval rights State any specific content requirements and any approval processes. Reserve the right to ask the influencer to edit or take down content at your discretion.
Exclusivity Consider whether you want exclusivity by channel or competitor.
Morality/reputational damage Consider a notification obligation and/or a termination right if the influencer does something that could harm your brand.
Obligations Be precise as to the timing of posts, quantity, quality and channels.
Check the content once posted. If there are any issues, use your contractual right to insist the influencer changes or takes down the content.
Things to keep an eye on
Advertising to children If an influencer is under 16 or appeals to or has followers under that age, the advert may be deemed to be targeting children and special rules will apply.
Comparative advertising If the influencer is comparing your restaurant/hotel with another, the rules about comparative advertising will apply. Don’t use a competitor’s name, logo or trademark in any way that may confuse customers.
Advertising food and drink Don’t forget the rules around advertising foods high in fat, salt or sugar and be particularly careful with health claims (eg “superfoods”).
Burrito chain is betting on delivery through DoorDash partnership
which reported sales of $1.4 billion, has rebounded since it was hit by a number of food-safety scares in recent years. PHOTO: SHANNON STAPLETON/REUTERS
Updated July 23, 2019 6:07 pm ET
Chipotle Mexican Grill Inc. CMG 0.30% is selling more burritos even at higher prices.
The fast-casual chain beat expectations on earnings for its second quarter, reporting adjusted earnings per share of $3.99 on $112.9 million in income excluding one-time events. Those were up 39% from last year’s period.
Sales of $1.4 billion were in line with the expectations of analysts polled by FactSet. Same-store sales growth of 10% topped projections, though it also included a 3.5% increase in average restaurant checks, in part reflecting higher menu prices that the chain instituted last year. Bigger average sales on delivery orders also contributed to the increase.
Shares in the Newport Beach, Calif.-based company rose nearly 4% in aftermarket trading.
Chief Executive Brian Niccol said the results reflected better restaurant operations and marketing, along with a focus on digital sales. Chipotle struck a deal with DoorDash Inc. to deliver its meals to customers last year. The two companies have aggressively marketed that partnership in part with free delivery offers and reduced service fees, particularly during major sporting events including the Women’s World Cup. Digital sales roughly doubled during the quarter, Chipotle said.
“We don’t think we have found the level or limit of how high it can go up,” Chipotle Chief Financial Officer Jack Hartung said in an interview about digital sales. Many restaurants now offering delivery through outside operators have grown concerned about the profitability of sales given the fees charged. Mr. Hartung said the burrito chain has helped make its delivery sales profitable by creating dedicated kitchen lines for those sales to avoid jamming up in-store orders.
Chipotle’s costs also grew during the quarter, primarily due to higher avocado prices. The average national retail price of a Haas avocado nearly doubled this month, according to U.S. Department of Agriculture surveys.
Chipotle has rebounded since the burrito chain was hit by a number of food-safety scares in recent years, including E. coli outbreaks at stores across the country. The company shook up its leadership and has focused on core menu items such as burritos and bowls.
“The old narrative just fades from the background,” Mr. Hartung said of the health concerns.
The chain said it expects high-single-digit comparable restaurant sales growth for the year, up slightly from previously reported expectations. It plans to open 140 to 155 new restaurants this year.
Chipotle’s stock is up more than 70% this year, far outpacing the average gain of U.S. restaurant stocks. Some analysts have trimmed their estimates given how far the company’s shares have already risen. Chipotle approved an additional $100 million in stock buybacks during the quarter.
Write to Heather Haddon at email@example.com
By Scottie Andrew and Allison Morrow, CNNIf you think a veggie burger sounds unappealing, wait until it's listed as a "vegetable-based protein" on a restaurant menu.
That's how it could appear in Arkansas, the latest in a string of states to pass bills that control how so-called fake meat is marketed.
The state's "truth in labeling" bill is set to take effect this week, banning the use of meat-related terminology to describe meatless products. The bill's authors say it's an effort to "protect consumers from being misled or confused."
But veggie-meat maker Tofurky says it won't be silenced. On Monday, the American Civil Liberties Union said it had filed a free-speech lawsuit against the director of the Arkansas Department of Agriculture's Bureau of Standards on behalf of the vegetarian brand.
The ACLU says that the state has violated the First Amendment, "censoring truthful speech in order to protect the economic interests of the meat industry."
According to the bill, plant-based "meats" such as those made from soy, tempeh, wheat or lab-cultured ingredients are not classified as meat. Companies found to misrepresent a vegetarian item as a meat product could be fined $1,000 per violation.
The ACLU said companies use "meat" terminology to prevent confusion rather than cause it. The language can help consumers contextualize a food's flavor, texture and appearance.
Facebook, Twitter and Instagram may capture the lion's share of pizza restaurateurs' attention, but those who haven't considered the multimedia app, Snapchat, might want to do so since this social media platform now has a hefty 300 million-plus users monthly. Plus this particular venue is a favorite of younger diners and offers some great ways to really drive home your brand's personality since Snapchat revolves around users' videos and photos — a.k.a. "Snaps" — that automatically delete after several seconds.
To get started on Snapchat, brands can download the app and add the restaurant's name as the Snapchat account name.To find Snapchat friends, people need to add the brand using its shareable Snapchat QR code. Once you have this code, share it everywhere you can imagine, from takeout menus and pizza boxes, to other social media platforms.
Then you're off and here are five ideas for making the most of your marketing via Snapchat by boosting customer engagement. If you need some great examples of truly inspired restaurant use of Snapchat, check out how brands like Taco Bell and Burger King use the medium as they are true Snapchat masters.
Share tantalizing 'Snaps' of your foodSharing great quality photo "Snaps" of your fabulous food is important. Tempt customers by sharing Snaps of pizza around lunch or dinnertime and highlight any new menu items or share sneak pics of any specials.
You can also use Snapchat to share video clips of a pizza being prepared or cooked. It's all about creating interesting and tempting visuals of your brand to play into the hunger and cravings of your audience. And don't forget to add links to your website or menu to drive the promotion home.
Encourage loyaltyThink of Snapchat like a digital loyalty card, where you can offer your audience specials, create VIP perks and even distribute discount codes or free pizza offers just for your Snapchat audience in order to retain their loyalty to your brand.
Engage diners + diners-to-beSnapchat is focused on audience interaction, so prompt customers on this social media connection to share their experiences of your restaurant, including everything from selfie Snaps with their orders to video clips they've compiled of experiences, food and fun at your store.
Soliciting such user-generated and crowd-sourced content connects customers to your brand, an essential component of any successful restaurant marketing strategy. Also prompt customers to submit Snaps for use on your website's "Our Story" page or pages.
Connect your story to customers storiesConsider sharing Snaps to your brand's "Story" on Snapchat that expire after 24 hours or basically posting LTOs exclusively to Snapchat that only remain valid while the story is live on the medium. You can also test some real-time offers to drive restaurant traffic by sending Snaps with shorter time limits that encourage immediacy.
For example, share a Snap that tells your audience that the next five diners to come in and show the related Snap will receive a free beverage or side item with their orders. But, remember to delete the Snap when you've reached that limit.
Help new customers find you with a Geofilters Geofilters are similar to a regular Snapchat filters. However, they can only be used when Snapchat users are in a specific location, so creating geofilters for specific restaurant locations can be a cost-effective way to engage your audience and raise their overall awareness of your brand. Snapchat users can then use the filter every time they visit a specific brand location or just order from your menu, which, again, enhances engagement.
The bottom line here is that if you take the time to include Snapchat in your social media and marketing strategy, you'll soon wonder what your brand did without it. It's a great way to reach another segment of potential diners who — with a little snappy prodding — can become lifelong devotees to your brand.
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