The newest McDonald’s store (and flagship) sits right in the center of Times Square—the Crossroads of the World— taking up more than 11,000 square feet in some of the most prime real estate, per square foot, in the nation. But the restaurant, the fast-food chain’s digitized palace seating 173 people, is also the physical manifestation of how the Golden Arches sees its future.
Over the last several years, the Illinois-based company has invested in both a cosmetic and structural face lift, revamping its 14,000 U.S. restaurants to fit a modern aesthetic while also providing some serious technology under the hood. In the Times Square burger joint, for example, there are three different entrances to accommodate the volume of people expected, as well as digital menus and 18 kiosks where consumers can order meals and then have it delivered to them via table service.
“The expectation is customers are getting more demanding, they’re looking for things that are even more convenient,” said Chris Kempczinski, McDonald’s USA president. “This is meant to be a showcase to show the world where we’re trying to take McDonald’s.”
McDonald’s isn’t simply investing in its digital transformation through acquisitions like Dynamic Yield or investments in Plexure, a mobile software company; the company’s using some of this technology to power several of the upgrades at its restaurants.
The new flagship is part of McDonald’s Experience of the Future restaurant experience, an initiative started in 2017 that largely means renovating old stores and making them modern through kiosk ordering, digital drive-through menu boards, and ordering via the app.
According to Kempczinski, the change has been good. The company’s seen a 5% in lift in restaurants that underwent a “significant overhaul” and others that were already somewhat modernized are seeing 1-1.5% lift. About 70% of the total U.S. restaurants have undergone renovations (about 8,000 to 9,000), with the rest expected to be completed by 2020—despite the fact that the company gave franchise owners the option to push it to 2022. In 2018 alone, 4,500 stores were renovated, meaning that currently, 60% of customers in the U.S. end up walking into a modern place.
Wall Street has been loving this, rewarding the company with share prices hovering around $200, up from $160 at the end of May 2018. McDonald’s annual revenue for 2018, about $21 billion, however, was down 7.87% from 2017.
The digital transformation at these restaurants is part of what Kempczinski said is implementing technology that works for both the customer and crew members. One example he pointed out was digitizing the drive-through menu boards; it’s automatically updated as opposed to a manual operation. With kiosk and mobile ordering, order accuracy is going up as well.
“The more that we can [have] those types of situations where the customer is actually able to control what they’re ordering and improve accuracy, it just makes the life of a crew member that much easier,” Kempczinski said.
With the Dynamic Yield acquisition, Kempczinski said it gives McDonald’s the ability to gain more insights through all the data the company’s collecting—which he says is quite a bit, considering there’s about 27 million to 28 million transactions per day in the U.S. alone. Some of the data Kempczinski said the acquisition can possibly give McDonald’s is about items customers always get and reminding them somehow through the drive-through or the app, as well as suggesting other food to try.
“It’s all the stuff that we’re living with every day when we’re shopping on Amazon or whatever,” Kempczinski said. “We’re just bringing that same sort of technology, that same sort of thinking, into the restaurant experience.”
As the company continues to feel its way through the digital era, one thing they’ve come to learn is that it’s OK to be promiscuous with other companies. Take its partnership with Uber Eats, for example. Now with a few taps, folks in the areas where this partnership runs can have Mickey D’s delivered.
Previous reports suggest that the Uber Eats business gives Uber more of a leg up, as the company gets a commission fee with each sale and keeps the data as well. But, Kempczinski said McDonald’s is still figuring out where that business “can go.” Currently, it accounts for 2-3% of the brand’s business and is available in 9,000 restaurants, but Kempczinski said delivery for McDonald’s isn’t necessarily new (the company’s had delivery in Asia for more than a decade) and the averages are skewed depending on the delivery location (college students love McDonald’s).
But, he said, it’s encouraging the brand to think about other innovations in delivery, such as possibly switching out a fountain soda for a can or bottle. It’s also led to some useful data insights about the customers that order on Uber Eats, like learning that people tend to order more around dinner and late night and less breakfast, so specific stores can staff up to meet these demands.
And while it feels like every other day Burger King’s out with a new campaign attempting to clobber public sentiment around McDonald’s, Kempczinski said consumers shouldn’t expect to ever see the company do a similar marketing campaign.
“Part of being a leader is we don’t really feel the need to have to respond to every competitor out there,” Kempczinski said. “The reason that they like to talk about McDonald’s [is] cause we’re McDonald’s.”
Instead, Kempczinski said, the company’s focusing less on marketing campaigns that “come and go,” and more so on its digital conversion, store renovations and where it does its media buying. He said mobile and digital is 30% of the brand’s “media mix,” and moving away from big television advertising campaigns.
“As you think about Dynamic Yield and some of those things that we’re doing, as it pertains to personalization, you can see a world where maybe it becomes less and less about a big umbrella campaign [and] it’s more about the one-to-one types [of campaigns],” Kempczinski said. “We have to continue to find ways to change and keep our brand relevant.”