Restaurant Tech Trends: Why Are Big Brands Buying Tech Companies?
The restaurant industry is changing fast - and technology is the driving force. From the cash register to the kitchen, technology capabilities are becoming an integral part of how today's restaurants now operate. Be it fully-robotic kitchens where automated bots are responsible for everything from prep and cooking to planting vegetables and cleaning up, tabletop ordering systems which guests can use to browse menus and place their orders, or AI-powered chatbot technology capturing customer data to enhance the dining experience - innovators are constantly coming up with new ideas and digital solutions to make running a restaurant easier, faster, more engaging, and more profitable.
In fact, technology is becoming so important in the restaurant space that there is something of an arms race going on as both large and small chains strive to make their establishments more tech-savvy and compete for the wallet of the modern customer. And amidst it all, a new trend is emerging - restaurant companies have started investing in tech companies, and even buying them outright. From McDonald's to Yum! Brands to Subway, a string of tech company investments and acquisitions have hit the headlines over the past twelve months as these restaurant brands seek to get some real skin in the technology game.
Why are they doing this? Well, from a competitive standpoint, it certainly makes a lot of sense. As restaurants' need for technology grows, there's certainly an advantage in owning the companies that provide it. With ownership, a restaurant company is not only able to buy access to tech talent, knowledge, and solutions, but also keep its competitors away from them. What's more, by bringing tech capabilities in-house, the normal friction between a company and third-party provider is eliminated - the type of friction that can delay innovations and put companies behind their competitors.
Historically, the restaurant industry has never been known for being technology-forward. But, as the landscape changes and technology proliferates, we're starting to see a scramble amongst some of the biggest restaurant brands to form strategic alliances - and there's no stronger strategic alliance than outright ownership.
Let's take a closer look at some of the recent deals that have been struck in the restaurant space and consider the driving forces behind them.
McDonald's Acquires Israeli Company Dynamic Yield
In March 2019, McDonald's acquired Dynamic Yield, an Israeli artificial intelligence startup that specializes in personalization and decision logic technology. The fast-food giant is paying $300 million for the deal, according to reports, its largest acquisition in the past 20 years.
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Founded in 2011, Dynamic Yield has 200 employees across its development center in Tel Aviv and its New York sales and operations office. The company works with more than 220 global brands across ecommerce, travel, finance, and media to create what TechCrunch describes as an Amazon-style personalized online experience.
In a press release, McDonald's said that it will be using Dynamic Yield's technology to create a personalized drive-thru customer experience in which outdoor menus will display food options based on the time of day, weather, restaurant traffic, and trending items. The decision technology will also be able to instantly recommend and display additional items to a customer's order based on their current selections. This will enable McDonald's to be one of the first companies to integrate decision technology into the customer point-of-sale at a brick-and-mortar location.
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McDonald's said that it already tested Dynamic Yield's technology in several US locations during 2018. Now, upon closing the acquisition, the plan is to start rolling it out across all its US drive-thru restaurants in 2019 and then expand into international markets. McDonald's also plans to integrate the technology into other digital customer experience touchpoints, such as self-order kiosks and the McDonald's mobile app.
"Technology is a critical element of our Velocity Growth Plan, enhancing the experience for our customers by providing greater convenience on their terms," said Steve Easterbrook, President and Chief Executive Officer at McDonald's Corporation. "With this acquisition, we're expanding both our ability to increase the role technology and data will play in our future and the speed with which we'll be able to implement our vision of creating more personalized experiences for our customers."
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Acquiring a tech company to assist with digital integration is indeed a new strategy for McDonald's - and indeed the fast food segment at large. As The Wall Street Journal points out, McDonald's rarely acquires companies - but the restaurant clearly needed a strategy to improve the experience of its drive-thru locations and prevent it from falling behind its competitors. According to QSR Magazine's "2018 Drive-Thru Study: Speed of Service", McDonald's had the worst drive-thru times among the top ten chains, averaging 273 seconds compared to its top competitor Burger King, which averaged nearly a minute-and-a-half quicker at 193 seconds.
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Claiming full ownership of Dynamic Yield's personalization and decision logic technology means McDonald's can not only start to cut down its service times and improve sales but also - and perhaps more importantly - provide a unique experience that isn't yet replicated by competitors.
"We started Dynamic Yield seven years ago with the premise that customer-centric brands must make personalization a core activity," said Liad Agmon, Co-founder and CEO of Dynamic Yield. "We're thrilled to be joining an iconic global brand such as McDonald's and are excited to innovate in ways that have a real impact on people's daily lives."
McDonald's Invests $3.7 Million in Mobile App Developer Plexure
Hot on the heels of its Dynamic Yield acquisition, in April 2019 McDonald's announced a $3.7 million investment in New Zealand-based mobile app developer Plexure, taking a 10% stake and 13.8 million shares in the company, according to Nation's Restaurant News.
The investment reveals a clear strategy from McDonald's to enhance its technological capabilities. Plexure has played an important role in McDonald's recent focus on digital transformation - which, aside from Dynamic Yield's personalized drive-thru menus, includes remodels of stores with more self-order kiosks and digital signs - powering a version of the chain's global mobile app in 48 countries outside the US.
McDonald's says the transaction marks the restaurant's first ever investment in a mobile app vendor. The funds will be used to further Plexure's growth plans while giving McDonald's enhanced access to Plexure's technology in the quick service restaurant (QSR) space - including access to greater back-end and front-end features, customer functionality, and customer targeting.
"Across all of our markets, we're using technology to elevate and transform the McDonald's customer experience," said Easterbrook. "Our mobile apps play a key role in our digital acceleration, allowing customers to interact with us on their terms in a personal, customized way. This investment is a testament to our belief in Plexure's ability to deliver strong results for our business as well as the talent and technology they've cultivated."
Inked into the agreement is a competitive edge for McDonald's. Not only will the restaurant get new service levels and pricing, but Plexure will also not provide similar services to a list of McDonald's competitors in the QSR space - giving the restaurant company a significant upper hand in a space that's quickly turning digital.
Undoubtedly, this new investment will help MacDonald's get ahead of its competitors around the world and drive sales in some of its biggest markets.
Yum! Brands Invests $200 Million in Grubhub
It's not just McDonald's acquiring and investing in tech companies. In February 2018, KFC, Taco Bell, and Pizza Hut owner Yum! Brands announced a $200 million investment in the US's leading online and mobile takeout food-ordering company Grubhub. The move is designed to rapidly expand delivery capabilities at KFC and Taco Bell by onboarding them into the Grubhub system. Grubhub is also working with Pizza Hut, which already operates its own vast delivery network, while Pizza Hut's US President, Arthur Starrs, takes a seat on Grubhub's board of directors.
Grubhub becomes Yum! Brands' only national partner as part of the deal, providing dedicated support for KFC- and Taco Bell-branded online delivery channels, along with access to Grubhub's online ordering platform, logistics, and last-mile support for delivery orders, as well as point-of-sale integration to streamline operations.
"We are committed to making our iconic brands easier to access through online ordering for pickup and delivery, and aggressively pursuing delivery as a strategic global growth opportunity, with nearly half of our 45,000 restaurants already offering it today," said Chief Executive Officer of Yum! Brands, Inc., Greg Creed. "We're pleased to secure this partnership with Grubhub in order to drive incremental, profitable growth for our U.S. franchisees over the long term. Our partnership and strategic investment in Grubhub demonstrate our laser-like focus on two of our growth drivers: Distinctive, Relevant & Easy Brands and Unmatched Franchise Operating Capability."
Executives with Yum! Brands also indicated that the partnership would be profitable to franchisees. One major concern restaurants have with facilitating delivery is fees, which many operators believe hurts profitability. However, the deal with Grubhub is designed in part to improve these economics for Yum! Brands' franchisees, while providing Grubhub with additional funds - not to mention a large multi-brand partner that will enable it to expand.
"We are thrilled to bring KFC and Taco Bell to Grubhub," said Matt Maloney, Chief Executive Officer at Grubhub. "Grubhub was founded to help small business owners and restaurant entrepreneurs grow, and we look forward to supporting Yum's local operators by driving greater sales and profit growth through access to our 14 million active diners. Our best-in-class logistics platform, which currently delivers for tens of thousands of restaurants, and our industry-first point-of-sale integrations make us the ideal partner for Yum. We are excited to tap into the unmatched consumer awareness and innovative advertising of KFC and Taco Bell, helping accelerate the secular shift from offline ordering to online, driving more orders to all of our restaurants."
Pizza Hut Acquires QuikOrder
Following the Grubhub investment, in December 2018, Yum! Brands subsidiary Pizza Hut announced that its US business had entered into a definitive agreement to acquire QuikOrder, a leading online ordering software and service provider for the restaurant industry.
QuikOrder was founded in 1997 and has worked with Pizza Hut US for nearly 20 years. The acquisition includes Pizza Hut's digital ordering platforms, systems, and services, as well as QuikOrder's in-restaurant technology and ancillary services, along with its future generations of products and programs.
By acquiring QuikOrder's online ordering capabilities, Pizza Hut says it has improved its ability to deliver an easy and personalized online ordering experience while accelerating digital innovation across its base of more than 6,000 restaurants in the US.
"We're doubling down on our commitment to digital and this deal positions Pizza Hut perfectly for the future," said Artie Starrs, President of Pizza Hut US. "We're also gaining access to an immensely talented group of developers and digital innovators. Together, we can more quickly provide breakthrough products and convenient services to our customers that will allow for better franchise economics over the long term."
Yum! Brands President and CFO David Gibbs said QuikOrder will allow Pizza Hut to become more nimble and that the company's other brands will also benefit from the knowledge Yum! gains access to through running an ecommerce platform. Third-party delivery services such as QuikOrder reap the benefit of having full access to consumer data. With that data, those companies can learn what customers order, when they order it, and how often they are using the platform. They can then leverage this data to bolster sales or lure diners from other services. Full ownership of QuikOrder means Pizza Hut will gain full access to its data, which could help Pizza Hut increase sales by specifically targeting customers during the online ordering process.
Yum! Brands CEO Greg Creed said, "Yum! is always looking for ways to make our brands more distinctive, relevant and easy for customers who want delicious food at an irresistible value. The acquisition strengthens the brand's digital roadmap and innovation and aligns with the strategy we put in place to drive Pizza Hut's growth. We're excited by the opportunity this acquisition presents, and the future potential to scale QuikOrder's technology across the Yum! family."
Outlook for the Future - Will the Trend Continue?
McDonald's and Yum! Brands' investments and acquisitions may be the most prominent examples of this emerging trend in the restaurant industry, but there are others. Back in 2016, for instance, Subway acquired a 20-strong digital technology team along with assets from Avanti Commerce - a Vancouver-based online commerce solution provider - in order to improve its ecommerce prowess and presence.
More recently, in November 2018, Landry's Restaurants CEO Tilman Fertitta - one of the world's richest restaurateurs - through Landcadia Holdings Inc. completed a purchase of delivery company Waitr. Waitr, founded in 2013, has more than 5,000 restaurant partners in more than 200 cities in the Southeast. "This transaction with Waitr provides an incredible opportunity for the combined company to be the next leader in the fast-growing online food delivery market," Fertitta said in a statement. "Our experience with Waitr as a partner combines best-in-class on-demand food delivery for diners and a true partnership for restaurants."
The question, however, is will this trend continue? Will the likes of Restaurant Brands International, JAB Holding Co. and Inspire Brands follow in the footsteps of Yum! Brands and McDonald's to not only strike deals with third-party technology providers but also take it one or two steps further - either by buying seats at board tables through investments or just buying them up altogether?
Though it remains to be seen, it's highly likely that what we are witnessing here is just the start of what will become a much more prominent trend in the future. With the increasing digitization of the sector, and with tech startups popping up in practically every category related to managing a restaurant, restaurant brands will almost certainly be looking to get skin in the game - particularly as they aim to play catch-up with the retail sector, which at present is much further ahead in terms of technology adoption.
Having not only access but exclusive access to game-changing technology - and the talent behind it - can only be advantageous for restaurant brands aiming to compete and differentiate in a hugely crowded market. As Yum! Brands and McDonald's pave the way, it's surely only a matter of time before their most prominent rivals start to make countermoves to keep pace.
In the meantime, for Yum! Brands at least, the investment and acquisition spree may not be over yet. "If we have an opportunity to build further scale with an acquisition, we will look at it," said Yum! Brands President and CFO David Gibbs in a recent interview. "We've made it no secret we plan to look at other unique deals with aggregators to leverage our scale for the best possible terms for our franchisees and for their unit economics."