McDonald's Plan for Mobile Pay: Avoid Starbucks' Mistakes
By Samantha Bomkamp. Updated March 07, 2017.
As McDonald's prepares to roll out a mobile order and payment system, executives are whispering a warning to their team: Don't make Starbucks' mistakes.
The world's largest burger chain wants to avoid the long lines and wait times that plagued the world's largest coffee chain by using technology and alternatives like curbside pickup to better prepare for the expected demand its new system could generate. It plans to roll out mobile pay to all U.S. restaurants by fall. The timing means McDonald's is far behind many of its biggest competitors, but CEO Steve Easterbrook said Wednesday he'd rather be late and get it right.
"I think they do want to be like Starbucks, but they want to be mindful of (potential problems) as it grows," Morningstar analyst R.J. Hottovy said. Starbucks said that long lines hurt sales, but those lines were the result of an unexpectedly high number of customers ordering through its new app.
It's a critical time for McDonald's to get mobile pay right. Two years into Easterbrook's tenure, there are fewer big changes to make to keep sales growing. And the chain's main priority, executives said this week, is to get back the 500 million U.S. customers it has lost since 2012, when it phased out the Dollar Menu. Those customers were considered "core" or loyal visitors, Easterbrook said, and they've largely been lost to other fast-food competitors like Wendy's and Burger King, as opposed to so-called "better burger" rivals like Shake Shack and Epic Burger.
Getting it right means, in McDonald's eyes, a whole lot of changes -- many that customers won't see. In order to allow customers to seamlessly order and pay with a few clicks on an app, McDonald's is making adjustments in its kitchens, dining rooms and parking lots.
In the kitchen, the flow is being tweaked to get food out faster and hotter, while assembly lines are getting shorter to allow for more volume. In the dining room, rows of order kiosks are being added that eventually will be able to scan a phone and bring up personalized orders and custom offers. And in the parking lot, a few parking spaces will be dedicated for curbside pickup, where customers who order on their phones can wait for a worker to bring out their food.
Hottovy said he thinks the changes McDonald's is making in the kitchen and dining room in particular will make the mobile order rollout go far smoother than many observers expected when the chain first announced its intentions last year.
All these changes are intended to ensure the company is ready for a rapid increase in customer traffic once mobile order and pay gets going. But McDonald's also is trying some things that other large operations have not. The company is incorporating location-tracking technology to notify it once a customer arrives, so orders aren't filled before they're ready to be picked up and the food stays hot. This technology, called geofencing, currently is used by far smaller restaurant chains, like Chicago's Eastman Egg Co.
But the technology is considered highly complicated to roll out at a massive chain. Starbucks and other major fast-food chains don't use it, which means customers using those company's apps have to rely on estimates provided by the technology to properly time an order.
McDonald's app will instead send a notification to mobile customers when they enter the parking lot, giving them a choice about how they pick up their food, counter or curbside. This also will allow customers to place an order and pick it up at any McDonald's location, without the risk of the food being prepared at one restaurant and the customer showing up at another.
"Say your kids have a soccer tournament in the suburbs, and you don't know where the nearest McDonald's is," Hottovy said. "This is probably a small number of customers, but it's a huge potential benefit to McDonald's."
Easterbrook said mobile pay -- along with delivery, which McDonald's also is expanding this year -- is about "meeting customers where they are." Mobile pay among big U.S. brands like Starbucks, Dunkin' Donuts and Chick-Fil-A is still relatively new but has grown quickly as more consumers become accustomed to it. It offers restaurants another outlet to find customers, like time-crunched commuters who can use their phones to make it less likely they'll be stuck in a long line for morning coffee or a sandwich at lunch.
But it also creates a habit. Data show that consumers who use mobile ordering tend to visit more frequently and spend more than walk-in customers. In fast food, customer visits increase by 6 percent and spending rises 20 percent when technology is used to place an order, according to a Deloitte study late last year.
McDonald's already has seen this trend at its restaurants that have added kiosks and table service using Bluetooth-enabled table number placards, a new look the chain calls "experience of the future."
Those restaurants are seeing sales gains of 4 to 8 percent and, in general, have higher customer satisfaction scores, Easterbrook said.