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McDonald's Considers Partial Sale of Digital Startup Dynamic Yield -- 3rd Update

27/02/2021 7:27pm

Dow Jones News


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By Heather Haddon and Suzanne Vranica 

McDonald's Corp. said it is considering selling part of digital startup Dynamic Yield Ltd., which it acquired less than two years ago in a bid to boost sales at drive-throughs and digital kiosks.

The world's largest burger chain is evaluating the platform amid franchise complaints that it hasn't delivered the promised sales boost. McDonald's said Friday that a review of transactions found that Dynamic Yield's technology had contributed to sales less than originally reported.

McDonald's is scrutinizing its technology platform as it and other fast-food chains focus more on digital sales through outdoor menu boards and apps. The pandemic has made online ordering and other digital strategies more important as fewer customers eat and order inside restaurants.

McDonald's U.S. sales have grown during the pandemic, but chain executives have said it needs to keep investing in technology to satisfy customers who want their food delivered or ordered with little human interaction.

Dynamic Yield, which helps retailers provide personalized digital promotions to consumers using streams of customer data, has operated as a stand-alone company within the chain. For McDonald's, it provides personalized offers for customers of its stores. It also works with other retailers to boost online sales.

Liad Agmon, founder and CEO of Dynamic Yield, said in a statement Friday that the potential partial sale "has been discussed from the outset and now feels like the right time to explore that possibility."

McDonald's in 2019 paid more than $300 million for Dynamic Yield, which was then its largest acquisition in decades. Executives have called it a central part of the burger chain's evolving digital strategy.

McDonald's said it was exploring a sale of the portion of the Israeli-based technology company that works with other retailers, a growing part of its business.

McDonald's intends to keep the part of the company that services the burger company, including its thousands of drive-throughs, it said, adding that it was confident in the technology and was continuing to invest in it. McDonald's said there is no set timetable for a partial sale. It is also possible that no deal will happen.

McDonald's installed the Dynamic Yield system across thousands of drive-throughs in the U.S., Australia and Canada, with the technology suggesting additional menu items for customers to buy upon placing their order. The chain has also started incorporating it in kiosks in Australia.

Franchisees have questioned the system's performance in the past year, however. McDonald's aimed for Dynamic Yield's order suggestions to help boost sales by 1% on average in the U.S. compared to drive-through transactions without it, according to McDonald's franchisees and people familiar with the system. Sales have fallen short of that target in some stores, some of them said.

"The return on that investment is just not there," said Vicki Chancellor, a McDonald's franchisee. Ms. Chancellor, who oversees the U.S. owners' advertising fund that pays for marketing expenses, briefed other operators on Dynamic Yield during an internal call Thursday.

Franchisees had questioned the system's effectiveness, prompting McDonald's to review its impact, Ms. Chancellor said during the call listened to by The Wall Street Journal. The company agreed to refund the U.S. owners' advertising fund for $6 million in fees paid to McDonald's in 2019 and last year to run it, she said.

Mr. Agmon said in the statement that both Dynamic Yield and McDonald's benefited from the 2019 deal and that he looks forward to expanding the use of his company's technology at the burger chain.

Dynamic Yield was one of the signature pieces of what McDonald's described as a digital transformation led by former CEO Steve Easterbrook. In 2019, the company also bought Apprente, a voice-automation company to help it bring conversation technology to its drive-through. It also took a stake in New Zealand-based mobile app developer Plexure Group Ltd. It opened a Silicon Valley-based offshoot, called McD Tech Labs, to oversee the efforts.

McDonald's has continued to invest in technology since Mr. Easterbrook's departure, spending roughly a billion dollars on digital systems annually, according to the company.

U.S. franchisees have debated with McDonald's in recent months about the direction and cost of the company's technology investments and the fees that owners pay. Earlier this month, McDonald's agreed to have its independent auditor, Ernst & Young, review past billing to franchisees for technology to validate the spending, according to company emails viewed by the Journal.

Write to Heather Haddon at heather.haddon@wsj.com and Suzanne Vranica at suzanne.vranica@wsj.com

 

(END) Dow Jones Newswires

February 27, 2021 14:12 ET (19:12 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.

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