McDonald's Acquires Machine-Learning Startup Dynamic Yield for $300M
wired.com
wired.com
- Presumably you can get 90% of the value for 5% of the price. McDonald's isn't Amazon. They have 100 (?) menu items, not 1,000,000 products. Why are they spending $300M instead of hiring a few data scientists? Or just be a customer of the company?
- Dynamic Yield has many other clients, and it sounds like they'll continue to serve those. Is McDonald's the right owner for a high-tech customer intelligence product? It just feels like such a bizarre cultural and core-competency fit. Maybe invest partly in it, but buy it outright? I don't get it. Seems like you'd rather share the board with other experts?
Number of SKUs has nothing to do with it (which likely numbers in the many hundreds across the globe considering regional & seasonal specialities).
McDonald's has everything to gain by infusing this kind of DNA into their operations.
That seems logical but how much will it infuse Machine Learning into McD's DNA if the acquired startup sits in Israel? It seems to me the employees will not even interact much with each other, how can there be much of incorporating thinking, methods or practices?
What does physical proximity have to do with anything?
McDonalds does $20B+ in revenues, has 210k direct employees and 1.9M when you include franchises. At this scale, the only people that need to interface is senior management.
Even its title, similar to Kroc (his: Grind It Out).
Yes, there was a time when Starbucks was not doing well.
Source: 2 years at a McDonald’s in my younger days.
EDIT: That is to say this isn't really a secret, it happens all the time. But when you're working with teenagers working for minimum wage, who hate when others try to be sneaky/talk down on them just being upfront and nicely asking what you want, and being sure to say "I know it'll take a bit longer, that's fine." is better than the alternative.
On that note, I used to work the morning shift, but i remember one day, for some reason, nobody showed up for the afternoon shift so I had to stay. I had no idea I was supposed to start cooking chicken around 4 or so. The families, or people out to get an easy meal for their families, started ordering chicken. So many buckets of chicken...There was not enough chicken by far. People began to grow impatient. Around the time I finally managed to get on top of the chicken orders, people finally showed up for work and I was free.
Sorry, I was originally only going to write the first part of the comment, but as I wrote it, that day came to mind. I'd forgotten about that.
"McDonald's isn't Amazon" seems like a good enough reason.
Amazon can "just hire a few PhDs/seasoned engineers", plug them into the right places in the company, and expect good things to happen.
McDonald's would need to hire a new team from the leadership down and would be working up-wind in a hot seller's labor market at every level.
> They have 100 (?) menu items, not 1,000,000 products.
McDonald's is a huge company with lots of opportunities to apply ML. Store operation, hiring, supply chain optimization, menu/product design, lots of resource scheduling problems, marketing, etc.
I can easily see McDonald's making back hundreds of millions very quickly just by decreasing the friction and amount of time required to make improvements in these and other areas.
> Is McDonald's the right owner for a high-tech customer intelligence product? It just feels like such a bizarre cultural and core-competency fit.
Automated ordering is becoming a core part of McDonald's customer experience. Automated and augmented decision making is becoming a core part of McDonald's franchise management. Outsourcing those things would mean putting the fate of the company's future in someone else's hands.
Plus, there's huge upside to owning that IP. McDonald's is taking leadership on automating away the sales clerk and decreasing reliance on skilled/knowledgeable franchise owners and managers.
* You want nothing.
* Wrong, I want a burger.
* You want a burger
* What do I want to drink?
* You want a burger
* Wrong, I want a coke
* You want a coke
Two days later.
* What do I want for breakfast?
* You want a burger and a coke.
They need data infrastructure, experts in cleaning data, and actual data scientists, support etc. Its a huge under taking.
Such a team is on the small side for a Fortune 500, but definitely large enough to do real work and more than pay for themselves (especially if you're introducing serious ML into your company for the first time).
That $300mm is an investment in a reoccuring revenue stream as well. There is a very real possibility that the true org cost is zero for MCD.
For companies like these, that operate in 10's of thousands of franchisee-owned locations, the number of products and the combination of configurations is not merely a function of the things you see on the menu. It's all of those products, with their different combination of parts (beef patties, lettuce, etc.), and then franchisee and regional variations (In some countries, you can't tell a franchisee what they can or can't sell, etc.)
Add on top of that customer modifications to the product in their order (extra pickles, no onions, etc.)
Why does this matter? It drives lots of stuff - food costs, inventory, inventory & sales forecasting (how many pickles do I need this week?) new item research, profit margins, etc.
So you take this, multiply it by 10,000, 15,000, or, in McD's case, 36,000 stores across 100+ countries (half both those numbers in my company's case) and you're talking about vast amounts of information across millions of transactions every day, and that is in fact Big Data.
Whether this is a smart move, I'm not sure. I'm of the opinion that if a piece of technology is core to the _operation_ of your business (for a QSR, things like POS systems, backend administrative systems, etc.), it should be in your house. Other things (HR systems, big data systems) should not be. But maybe McD's sees it differently.
don't you mean "and that is in fact Big Mac Data."
This type of data processing across all the McOpCo stores and franchises will be invaluable.
But if you think of them as experts in agriculture, farming, supply chain and logistics, kitchen automation, marketing, global scale business build out... Then I could see how an acquisition like this could be synergistic.
Don't forget that the Trump tax cuts have provided big companies with a windfall. They have way more free cash flow than they did just 2 years ago. So they also are desperate to find new ways to deploy cash.
McDonalds is heavily investing into automation for the ordering process; and as soon as it becomes technically practical and reliable enough, they're going to want to automate even more.
I mean, Amazon also sells books as it used to, and selling stuff is their core business, but they are not limited to that.
In 2009 Dominos realized their food sucked, committed to improving it, and have since been doing very well. (Their stock has more than quadrupled.) At some point McDonalds will need to do the same.
https://www.forbes.com/sites/aliciakelso/2018/04/30/delivery...
Yup, I remembered correctly! https://boingboing.net/2005/02/18/everquest-now-with-p.html
Where are you pulling this number from?
Basically there are thousands of vineyard owners and thousands of wineries, but most of the vineyard owners take their grapes to the same handful of places to process them in between when they're picked and when they're sent off to the wineries. And these machines can process enormous volume, and there is tons of risk around labor.
And especially given that the majority of wine is made by the same handful of companies and sells for less than $10, I can't see any way that the majority of grapes aren't passing through these things at this point even if it's not really talked about.
And if you look at how Dominos describes itself, they're clearly focused on technology (or at least want you to think they are). For example, half of their standard investor blurb is about technology:
> Emphasis on technology innovation helped Domino's achieve more than half of all global retail sales in 2017 from digital channels, primarily online ordering and mobile applications. In the U.S., Domino's generates over 60% of sales via digital channels and has produced several innovative ordering platforms, including Google Home, Facebook Messenger, Apple Watch, Amazon Echo, Twitter and text message using a pizza emoji. In late 2017, Domino's began an industry-first test of self-driving vehicle delivery with Ford Motor Company – and in April 2018, launched Domino's HotSpots™, featuring over 200,000 non-traditional delivery locations including parks, beaches, local landmarks and other unique gathering spots.
https://www.prnewswire.com/news-releases/dominos-pizza-annou...
This blows my mind. I remember when the online pizza tracker first came out, and I was blown away. I couldn't imagine the logistical nightmare they must have solved to get this installed in 5,000+ stores in the U.S. It really was ahead of it's time, and I can't think of any other online food ordering platform that gets this close.
It was a great time for the company. Total 180 on quality, investing heavily in the right tech. 3 years after we installed the server & thin clients all around, 33% of orders and 50% of revenue aas online.
Online sales drove order frequency, ticket price and customer satisfaction while lowering costs. It was such a genius move.
Source: I was a Domino's GM and franchise for 17 years and saw this transition.
I usually just call ahead instead of having to sit around 10-15 minutes or ask what's ready if I don't want something specific.
Disclaimer: I eat Little Caesars probably way too much.
Is this alluding to "30 minutes or less"?
It was a redesign from the ground up of the pizza. New dough & sauce formula. A butter/garlic/seasoning added to the crust.
Also Quantity of cheese on a plain pie increased by 50%. A 14" pie went from 7oz to 10oz. Owners lost their shit over this mandated cost increase. Everyone shut up about 4 months later once sales were up 50%.
And a very, very nice advertising campaign. The CEO got on TV and said "Our pizza sucks. Sorry. We know, we listened, we fixed it. Buy three of them for $15 and if you don't like it, we will refund your money no questions asked".
The new customer satisfaction rules were another source of contention. The 100% satisfaction guarentee made franchisees, especially those in.... "urban" environments very nervous. They thought there would be a line out the door of people scamming. My store in such a "low-income, high-population density" environment.
Corporate came down hard on them. Owners, even huge multi-store franchises with 10s of millions in sales were told where the door was if they didn't like it. I was very proud of the central office. They took what could be an excuse to make two rules - One for Flatbush Avenue and another for Newport Beach - and applied it across the company. It really endeared higher management to the workers, many of which lived in just such areas.
I was never worried, and it turned out to not be a problem. The number people who asked for a refund for questionable reasons were very very small and an easily absorbed cost of business.
Dominos has been doing well thanks to early adoption of tech and using it to integrate with customers in new ways that the competition hasn't. They proved the success in fast-food franchises with this, and now McDonald's is trying to differentiate with tech too with this acquisition.
Excessive lengths would be McDonalds installing cold-pressed juice bars. An above and beyond McDonalds would just be your average In-N-Out.
In the last 2 years they have seen significant revenue decrease, but primarily because they sold off a significant number of stores to franchisees, which transfers that revenue off their books [2]
That said your underlying point, that they face "headwinds" in the market right now, is correct. Competition from "fast casual" dining has eroded growth that might otherwise have gone to "quick service" outlets like McDonalds, and growth in the industry continues to strongest in the fast casual segment [3]
[0]https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/reve...
[1] https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/gros...
[2] https://www.marketwatch.com/story/mcdonalds-revenue-hit-by-f...
[3] https://www.restaurantbusinessonline.com/financing/technomic...
They revamped their quarter pounders a ~year ago to be much fresher, tastier, juicier burgers. They serve more gourmet-style toppings now and a variety of cheeses. They're experimenting with new items like the morning "donut sticks" which are surprisingly good. The buttermilk chicken tenders are worlds beyond the old nuggets. And you can get breakfast all day, with eggs that are now fresh-cracked.
They still sell all their old stuff because people still love it. But if you think their menu hasn't been increasing in quality for those who want it, you haven't been paying attention. Some people prefer not to believe it.
But it's still McDonald's. People want and like McDonald's. They're not looking for fine dining.
That's wrong. McDonalds is real estate holding company that happened to sell fast food.
https://qz.com/965779/mcdonalds-isnt-really-a-fast-food-chai...
Contrary to strange beliefs of HN, most of business is really simple: make a little money every day over a long period of time. Invest in real estate. 50 years later it would be a very good very viable business.
Same goes for lawyer offices ( not law firms ). The "rich" lawyers do very well by having a small practice and buying a building that they use for law offices. Upon retirement most of their money comes not from selling the book of business to a different attorney but from selling a building that they have paid off.
Quality is subjective, and analytics is a tool for hitting the target the market is looking for.
I never thought it was all that good, and haven’t eaten it in a decade.
https://www.insidescandinavianbusiness.com/article.php?id=34...
I'm not sure if that creeps me out, or if the data geek in me likes the elegant solution to a problem. Why choose? It can be both.
They should eliminate about 60% of the menu and focus on speed and quality for the remainder.
If I know facebook, they are going to make McDonalds addicting AF
That's the idea. Part of what they're trying to do is speed up drive-thru service, since that's now where the majority of customers visit.
Humans can't predict what to make in the minutes before a customer pulls up to the speaker, but an ML tied into a number of systems and inputs might be able to do a better job.
It's not really anything new, to be honest. Back in the days where restaurants cooked and wrapped the burgers ahead of time and held them in a warming bin for 10 minutes at a time (at least that's what the spec dictated) the managers would keep detailed records on customer count, weather, cars in the lot, local events, etc and try to make predictions based on historical data. Wasn't the most effective, but it helped. This is just a modernization of that idea.
MCD will most likely spend half a billion dollars to get that burger on the grill 90 seconds earlier if it's possible.
Mcdonalds has a mobile app, where you can order and your food will be ready before you arrive. Wouldn't it have been better to push customers towards this channel, where they can order what they want instead of ML guessing, and saving a couple hundred million dollars along the way?
As others have mentioned, Dominoes doesn't use ML/AI, but you can order a pizza crazy fast through the app and know when it's done (and that seems to be enough).
From my interactions with their people, the mobile app is the conduit to the future but there are a lot of kinks still left to be worked out.
For example: you order on the app, but when exactly do you start the food? You might be 30 seconds from the store or 30 minutes. The initial idea was to geofence the store and trigger the kitchen when you're on the way. Perhaps that's still going, but maybe the ML is an assist on that data. You also get a ton of marketing and demographic information out of that. There are also the usual privacy concerns.
Remember that there's also a ton of data being generated in the other direction. Predictive analytics on the equipment (everything in the kitchen will be an edge node in a few years), POS/cash accounting, real-time sales data, store traffic, crew work history, etc.
They're also experimenting with dynamic pricing on food, like it or not.
Small rant: a weird pleasure in Japan is using restaurant touchscreen consoles that don't take several million very laggy taps to complete a simple order. Places like Yayoiken[1] and Matsuya[2] have this down to a science. It's partly because of fewer menu options (although it's not like either one has a miniscule menu[3]).
Insert cash, tap tile, ticket immediately dispenses. Tap change button when done. The combination of denser screen layouts, decently responsive touchscreens and a near-complete lack of interstitial animations makes using these things extremely snappy. If you know what you want, the entire process can take maybe ten seconds.
[1] https://s3-media1.fl.yelpcdn.com/bphoto/PzkepdRwWT6NaE4XDgKz...
[2] http://3.bp.blogspot.com/-cJ8-6hscmOQ/ViHzR4f0EmI/AAAAAAAABc...
Feature: for_kids, for_adults
Machine learning allows you to generalize inference across a large number of features.
Instead of hardcodong control flow, you train to maximize an objective function.
The belief is that once trained, you can infer cheaply and scalably.
Three simultaneous changes are happening related to the availability, personalization, and niche focus of food. I’ve done a deep dive on this (1) if you want to read more.
McDonalds has been in the real estate game within hospitality larger and longer than anyone.
This move makes a lot of sense and hopefully they move smartly to compete as the industry evolves.
McDonald’s can’t scale ethically raised food to their restaurants at the price points that matter to their customers but they can bring operational and supply chain expertise to startup restaurants.
Maybe this is part of a bigger transition.
Is it right to think that $300M investment + time to turn it into usable product for the restaurants == Loss of many minimum wage (or slightly more) jobs to make back that $300M
My local Wal*Mart now has 25 self checkouts and only 2 people manned registers.
Now it's time for the governments of the world to catch up and introduce a basic income.
But by "scary", I refer mostly to the outright purchase of a data mining company, and they're already talking about intrusive surveillance such as using license plate readers.
They're also being pretty up-front about wanting to use this to straight-up manipulate people. I don't know whether to give them credit for honesty or not (since all the cool kids are manipulating people these days), but it makes me recoil nonetheless.
If you drive onto their property, and McDonald's Corporation is almost always the landlord of a franchised store, are they really intruding on your privacy?
Which is precisely why these systems will mean that I won't go onto their property.
And as a result, everyone gets hotter fries?
I don't see why having Math help make better decisions is a bad thing.
It isn't. But collecting unnecessary data and using it to manipulate people certainly is.