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How Will McDonald's Stop U.S. Customer Losses?

By Daniel B. Kline - Jan 31, 2020 at 10:37AM

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The company's new CEO has a plan that involves taking advantage of Dynamic Yield initiatives.

McDonald's (MCD 1.77%) has been able to hide its declining U.S. customer base by getting the people who do eat at its restaurants (or order from them) to spend more money. Comparable-store sales in the company's home market grew by 5.1% in the fourth quarter while customer count declined by 1.9%.

That's a mixed bag of news for investors. The company has succeeded in increasing check size -- something that has been aided by kiosk-based ordering and delivery -- but it's losing customers.

New CEO Chris Kempczinski believes technology can help solve that problem. He wants the company to deliver a simpler, smoother experience with increased personal engagement.

"To that end, we significantly strengthened our digital capabilities in 2019," he said during his company's fourth-quarter earnings call. "In markets around the world, for example, a growing community of registered users is redeeming digital-only offers, giving our teams more opportunity to understand customer needs and create engaging digital customer experiences."

The exterior of a McDonald's

McDonald's has gained sales but lost customers in the U.S. Image source: McDonald's.

How is McDonald's investing in technology?

The fast-food chain has been revamping its restaurant to what it calls the "experience of the future" (EOTF). It's also using some pretty cutting-edge technology to figure out how to increase how much customers order.

"Throughout the year, we made targeted investments to accelerate our capabilities," Kempczinski said. "The suggestive sell capability of Dynamic Yield is now deployed in nearly all outdoor digital menu boards across the U.S. and Australia."

Dynamic Yield uses an artificial intelligence technology that shows customers different digital menus based on weather, time of day, and other factors. The CEO believes that Dynamic Yield will help the company grow its business.

"Across the system, there is great excitement about the role [Dynamic Yield] will play in transforming McDonald's by strengthening and deepening relationships with our customers," he said. "So we know there's great potential with digital, but there's also a lot of hard work to do to realize our ambitions."

McDonald's is not just continuing to remodel stores to the EOTF model and using Dynamic Yield. Kempczinski also plans heavy technology investment to improve the chain's customer experience.

"I recently announced creation of a new digital customer engagement team to accelerate customer-focused digital initiatives, including ordering, personalization, payments, loyalty, and delivery platforms," he added.

Can McTech save the day?

Technology has already helped McDonald's. Customers who order delivery (which is available at about two-thirds of the chain's global restaurant base) spend more, as do people who order via kiosk. That's likely partly due to the technology being easy to use, and partly because adding a shake or getting a large fry carries less shame when you're not ordering from a person.

"We continue to see great runway ahead of us to drive awareness and trial, and we're doubling down on our efforts to encourage frequency and retention," the CEO said. "As we inject speed, agility, and flexibility into our system through the accelerators of Experience of the Future, digital and delivery, we continue to focus on the fundamentals of running great restaurants, and customers are noticing."

McDonald's has, in recent years, been a leader when it comes to restaurant technology. Its new CEO wants to continue that, and that's good news for restaurant stock investors

Technology may not directly win the company new customers. It can, however, increase the order size and number of visits for people ordering its food. Tech may also lure lapsed customers back through delivery platforms. It can also increase their satisfaction, and all of those factors lead to a healthier company.

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