It's no secret that McDonald's (NYSE:MCD) has been struggling lately. In August, the fast-food chain suffered its worst comparable sales results in over 10 years, as system-wide sales fell 3.7%. The sharp decline was mainly due to a food safety scare in China, as sales in the Asia-Pacific region were down 14.5%, but comps also fell in the U.S. and Europe, underscoring the Golden Arches' broad-based challenges.
With the rise of fast casual chains such as Chipotle and Panera, the McDonald's brand has started to look dated. However, the company has taken important steps to modernize its image by revamping stores, eschewing the traditional red and yellow colors for earth tones and materials like wood and stone.
Now, the chain is moving further into the future by testing out tablet-based ordering at a number of locations in the San Diego area. McDonald's has already been using tablets for orders in Europe for three years, but this is the first time the program is being brought to the U.S. Customers simply order their meal on tablet, no human interaction necessary, and have their meal brought out to them instead of waiting by the counter. Aside from making the restaurant experience more convenient, the tablet brings a number of other advantages to the table.
1. It eliminates the worst part of eating at McDonald's
For most customers, there's no need to interact with a cashier when ordering. You know what you want when you walk into a McDonald's, and ordering through a computer removes any of the additional guilt some customers might feel about the calorie bomb they may be about to consume. In fact, some marketing execs in the restaurant industry believe eliminating that potential judgment will encourage customers to order more, thereby lifting sales.
2. Automation will help save on labor costs
Like many fast-food chains, McDonald's is embroiled in a battle with workers demanding a $15 hourly wage, a huge jump up from the current federal minimum wage of $7.25. In an industry where labor costs often eat up more than 20% of revenues, eliminating unnecessary labor could be a significant driver of profitability. Or, even better, it could give the company the flexibility to pay more to the workers it retains.
3. Data is king
In this high-tech era, data-driven decision-making is becoming the only way to do business. And while companies like McDonald's track a wide range of metrics, such as average speed of service, the most important data points, customer orders, can often slip through the cracks. Tablets will enable data to be sent back to headquarters with ease, and help the company better track customer preferences, special offers, and marketing strategies.
Who's lovin it?
McDonald's is far from the first restaurant to embrace automated ordering. Earlier this year, Chili's (NYSE:EAT) rolled out 45,000 tablets to 823 restaurants, the largest implementation of automated ordering in the country. According to Ziosk, the maker of the ordering tablets, 80% of customers choose to order through the tablets, which also facilitate customer feedback along with ordering and payment. Other restaurant chains that have gone digital include Panera, where management is hoping to cut down on long lunch lines, and Applebee's.
For McDonald's, tablet ordering won't be a savior for all its problems. Food quality is in issue as competition from never-frozen purveyors like Chipotle and Five Guys is intensifying, and appealing to millennials who often prefer fast casual stops has been a challenge for the Golden Arches. To draw in a younger crowd and expedite service for its regular customers, a technology that makes ordering more pleasant, encourages more spending, cuts down a labor costs, and provides key data points almost certainly will boost performance over the long run.
Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.