It's amazing how much the tech sector impacts our daily lives. And now technology is coming to your local burger joint. and will have a positive effect on McDonald's (NYSE: MCD ) stock.
Source: Mike Mozart via Flickr
McDonald's has embraced various technological moves over the last few quarters. But recently, the firm upped its game in a big way.
Specifically, MCD is entering the world of artificial intelligence.
Thanks to a major acquisition, McDonald's now has some big-time, consumer-preference A.I. software and capabilities under its belt. And like many other firms in multiple, different consumer segments, MCD hopes to use that software to drive its sales. Given just how many consumers visit McDonald's restaurants each day, the amount of data its new software will generate could enable that to happen, boosting MCD stock.
The owners of MCD stock should be excited about the promise of McData.
McDonald's Smart $300 Million Buyout
MCD has been working hard over the last year or so on increasing its use of technology. The company has updated its mobile app, increased options for online ordering, introduced self-ordering kiosks and even began offering delivery via Uber's UberEATS service.
All of this has been important because the fast-food sector has gotten intensely competitive. Consumers are flooded with quick-service choices these days and just as in regular retail, they want an omni-channel experience in fast food. Consumers are increasingly viewing the ability to order when and how they want as vital.
McDonald's plan to use tech to retain existing customers, bring in new ones and convince people to spend more at its restaurants seems to be working. Last year, MCD managed to pull in more than $21 billion of sales- with its global comparable sales increasing by 4.5%. The Golden Arches' management team highlighted some of its recent tech initiatives, such as mobile ordering, as part of the reason for the surge of its revenues.
That is why McDonald's $300 million buyout of Israel's Dynamic Yield makes a ton of sense and could greatly enhance its performance.
Dynamic Yield uses artificial intelligence to give consumers personalized experiences. For McDonald's, that technology could greatly enhance its arsenal.
MCD plans to initially use Digital Yield's technology to change its menu displays. Not only will the technology alter the company's menus at various times of day, but it will also be used to highlight different food and beverages based on weather, restaurant traffic, and trending items.
The best part is that the menus can be different at every location. So, a location in the northern part of the U.S. could display hot beverages more prominently on a cold day, while a location in south Florida would likely have different choices in the top spots.
The system will also be able to instantly recommend extra items based on each customer's initial order. If the customer ordered a coffee, the menu could suggest a sausage McMuffin. All of Dynamic Yield's "decisions" would be based on data it has obtained. Initial tests of the software have indicated that it will boost sales. Of course, any meaningful sales increase would be positive for MCD stock.
MCD plans on eventually incorporating the software into its mobile app and self-ordering kiosks.
McDonald's McData Could Be Big for Many Years
The move into A.I. could be a real winner over the long haul as well. McDonald's has a lot in common with firms like Walmart (NYSE: WMT ) and Amazon (NASDAQ: AMZN ) since millions of people visit a McDonald's restaurant each day. Those visits produce billions of data points that can be exploited to boost sales and strengthen menu items.
Moreover, McDonald's has the potential to personalize everyone's dining experience. The firm's Arch Card offering has been pretty lackluster since it rolled out many moons ago.
However, the reward card could see new life after the addition of Dynamic Yield's software. Customers will walk up to kiosks, scan their cards and get personalized recommendations with just the right amount of discounts/incentives to push them into buying something. Starbucks (NASDAQ: SBUX ) has successfully turned its reward card into a trove of data that it's used to boost sales. There's no reason why McDonald's can't have a similar experience.
And we haven't yet discussed the fact that McDonald's can use all that consumer data and information to launch an ad business that could obtain revenue from third-party advertisers. Never in a million years would you think that retailers would be able to transition to the advertising business, but here we are. Many retailers' ad revenues are surging. There's no reason why MCD can't join the party and use ad revenue to raise MCD stock.
Given MCD's huge customer base, there's plenty of advertisers looking to access its customer base, and its mobile apps and self-ordering kiosks make placing small ,tasteful ads easy.
McDonald's Is Now a Tech Company
In the end, the Dynamic Yield buyout is a huge win for McDonald's. The firm should be able to exploit its tremendous amount of data to boost its sales and win the burger wars. That will give it an edge over its rivals.
For investors who are looking at the sector, MCD stock might be the only one worth purchasing. McDonald's stock still remains cheap, especially if you start considering its technology.
MCD stock may be more of a tech stock at this point than a consumer staple name. Over time, as the McData starts flowing and being massaged, the valuation of McDonald's stock should reflect that switch. Investors should be able to capitalize on the change.
As of this writing, the author did not own shares of any of the aforementioned securities.
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