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Big Mac goes Big Tech, with a few hiccups

Published 03/16/2024, 12:56 AM
Updated 03/16/2024, 08:51 AM
© Reuters. FILE PHOTO: A man reads a notice in the window of a closed McDonald's restaurant as the company said it halted operations due to a system disruption, in Tokyo, Japan, March 15, 2024. REUTERS/Rocky Swift/File Photo

By Waylon Cunningham

SAN ANTONIO, Texas (Reuters) - When McDonald’s (NYSE:MCD) first opened for business in the 1940s, its workers stood at physical counters, its burgers and fries were listed on paper menus, and its customers paid cash to its human cashiers.

How quaint.

Today technology so infuses every aspect of McDonald's business that it would only be a slight exaggeration to call it a tech company that happens to sell burgers.

McDonald's mobile app; its human-less, order-taking kiosks; its digitized menus that change based on trends, the weather and more; and even its generative AI - together, these enable McDonald’s to eke out additional sales and efficiencies worth billions of dollars to the company, which has 40,000 locations in roughly 100 countries.

Yet that same tech can also bring McDonald's to its knees.

On Friday, system outages plagued McDonald's locations across some of its biggest global markets, including Japan, Australia and the United Kingdom, forcing many stores to temporarily take only cash or shut down entirely. McDonald’s hasn’t disclosed how widespread the outages were, but on Friday afternoon, 12 hours after the outages were first reported, a franchise in San Antonio, Texas wouldn't accept orders in its app and couldn't accept cash.

McDonald’s said in a statement the outage was caused by an unnamed third-party provider during a "configuration change". Asked for comment, McDonald's referred to that statement. McDonald's Japan on Saturday apologized for the inconvenience, saying all its restaurants and its delivery service were operating normally.

The burger giant did flag that something like this could happen, at least to Wall Street.

“We are increasingly reliant upon technology systems,” company lawyers wrote in its annual Securities and Exchange Commission filing on Feb. 22. “Any failure or interruption of these systems could significantly impact our or our franchisees’ operations, or our customers’ experiences and perceptions.”

Even AI gets a warning in the filing, which states that "the artificial intelligence tools we are incorporating into certain aspects of our restaurant operations may not generate the intended efficiencies and may impact our business results."

Yet Friday's widespread outage is unlikely to bump McDonald’s out of its long-term strategy to deepen its reliance on tech.

McDonald’s wants more customers to order through digital avenues like its app and kiosks, which already made up a third of its sales in top markets in 2022.

In December McDonald’s announced a partnership with Google (NASDAQ:GOOGL) to move restaurant computer systems into the cloud, where the global scale of data will allow McDonald’s generative AI system to “better understand the broadest range of patterns and nuances,” resulting in what McDonald's at the time said would be "hotter, fresher food." Generative AI already powers much of the restaurant operations and personalized pitches made from internal profiles of customers.

It's not just McDonald's. Tech is the strategy du jour of virtually every major fast food chain.

Starbucks (NASDAQ:SBUX) in 2019 announced its own internal AI platform, called “Deep Brew," which then-CEO Kevin Johnson said would increasingly power its personalized offers, store staffing and inventory management.

“Over the next 10 years, we want to be as good at AI as the tech giants,” Johnson told a retail conference in 2020, according to Retail Dive, a trade publication. Starbucks in 2022 hired a former McDonald's executive to oversee its use of technology.

Risks from this new technology don't just come from system outages.

© Reuters. FILE PHOTO: A man reads a notice in the window of a closed McDonald's restaurant as the company said it halted operations due to a system disruption, in Tokyo, Japan, March 15, 2024. REUTERS/Rocky Swift/File Photo

Wendy’s got public backlash after its CEO said during an earnings call in mid-February that the chain would soon use "dynamic pricing" on its digital signs - yet another technology that would not have been possible before the age of information.

The chain later clarified that it did not intend to use digital signs to implement "surge pricing" that could let it charge higher prices during busy times. Rather, Wendy's (NASDAQ:WEN) said, its CEO's remarks referred to its plan to offer discounts to patrons during slow parts of the day.

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