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Why McDonald's Is Investing in AI-Powered Retail

Motley Fool Staff, The Motley Fool

In the following segment from Industry Focus: Consumer Goods, host Jason Moser and Fool.com contributor Asit Sharma discuss McDonald's (NYSE: MCD) recent purchase of retail artificial intelligence (AI) start-up Dynamic Yield. The podcast team breaks down the difference between companies that have the luxury of focusing on throughput due to high demand, and those that must utilize technology to reel in more sales.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

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This video was recorded on April 2, 2019.

Asit Sharma: McDonald's says that they're going to eventually apply this to those interactive kiosks in the restaurants and also their mobile ordering app. It's really a larger-scale exercise that it's getting out of this $300 million investment. It's just something for shareholders to follow along for the next couple of years. It should be fun.

Jason Moser: I'm all for those kiosks. I'm all for using technology to make the experience better, ordering from the store. I've got to call myself out here a little bit because I maybe wasn't being totally honest when I said that I don't really eat fast food much. There is one that...I'll tell you, the worst thing that probably could have ever happened, they opened up a Chick-fil-A five minutes from our house. Chick-fil-A is one of those ones where we will go by there on occasion for a quick dinner or something like that.

What I have noticed there at the Chick-fil-A, and I think about this in relation to what a lot of these other stores are doing, and maybe Chick-fil-A is playing a little bit of a different game. They're not going to have as many stores as a McDonald's. They're not a publicly traded company. They don't have to answer to shareholders. They just get to do their own thing. But what I noticed at Chick-fil-A is, they don't really incorporate much in the way of technology there. When things start getting really busy, they double down on more people. They have a two-line drive-thru. They'll get people outside of the window to meet you halfway to the window to ring up your transaction to try to make that customer service experience better, faster. They have a pretty simple offering when it comes to food -- chicken, fries, fruit, and some drinks. Man, they had this key lime frozen lemonade, which is really good. It's just a seasonal offering. But, yeah, I mean, it's just interesting to see. That probably is a little bit of the difference there. You've got a company that has to answer to shareholders vs. a company that doesn't, so they get to play their own game where that's concerned.

But yeah, either way, I think that Steve Easterbrook, the CEO of McDonald's, really deserves a round of applause for what he's been able to do with this business and turning it around, following what he saw as this vision of turning this company into a modern, progressive burger company, is what he always kept calling it. And that really is what they've become.

Sharma: Yeah, I agree. They really followed through with that. A last point, because you brought up a great example in my mind. I really like what you said about Chick-fil-A. They have such a good product. They can just focus on throughput. It reminds me of Chipotle before it had the business decline, and of course resurgence now. Back in the day, when Chipotle first started out, that's what they were obsessed with, too. Chick-fil-A is just pushing as much throughput as they could. If you have the customers, you have the product, focus on that. That was the McDonald's of the '50s, the '60s, the '70s. Now, McDonald's is a more mature company fending off competition. It almost has to go to these new technologies to keep squeezing out some more juice out of those profit margins and attract the customer traffic.

Asit Sharma has no position in any of the stocks mentioned. Jason Moser owns shares of CMG. The Motley Fool owns shares of and recommends CMG. The Motley Fool has a disclosure policy.