McDonald’s Falls Behind Competitors in App Wars

A McDonald's restaurant in Tokyo.

A McDonald's restaurant in Tokyo.

Photographer: Kiyoshi Ota/Bloomberg

In 2013, McDonald’s Corp. described a future where customers could order Big Macs on a smartphone. Almost two years later that vision remains far off, even though fast-food apps have become commonplace in much of the industry.

While McDonald’s will test mobile ordering in the U.S. next year, the technology may not be widely available in 2016, a spokeswoman said. Contrast that with the competition. Starbucks has had a smartphone app for more than five years and began taking mobile orders in 2014; Chipotle is even letting customers order burritos with the new Apple Watch. For now, McDonald’s customers will have to content themselves with mobile coupons, in an app scheduled to arrive this fall.

“McDonald’s is a company that tests and tests and tests before rolling out technological change through its vast system,” said Asit Sharma, an analyst at the Motley Fool. “It’s a detriment when customers’ expectations are constantly set by competitors’ innovations.”

An app won’t cure all that ails McDonald’s -- when the company reports earnings Thursday, it’s expected to say U.S. sales fell for a seventh straight quarter -- but without one, Chief Executive Officer Steve Easterbrook will struggle to reignite growth and attract younger diners who live online.

The restaurant industry is a relative laggard technologically. McDonald’s didn’t get around to hiring a chief digital officer until 2013. Atif Rafiq arrived from Amazon, where he ran Kindle’s direct publishing business. He also worked at Yahoo and AOL. Since his arrival, McDonald’s has followed a well-trod path by opening trendy offices it hopes will lure tech talent. One’s in Silicon Valley, the other in downtown Chicago - - a few miles from the company’s Oak Brook, Illinois, base.

‘Hands-Free’ Ordering

Late to the party, Rafiq’s team has been busy testing a variety of payment and ordering technologies with the likes of Visa, PayPal and Google. Last year, McDonald’s and Visa began trying out out an app in Singapore allowing consumers to select food, pay for it and arrange for delivery. McDonald’s is working with Google on “hands-free” technology that would let customers order and pay without pulling out their phones.

The coupons app will roll out across the U.S. in October. Next year, McDonald’s plans to test ordering at a limited number of restaurants, said Becca Hary, a company spokeswoman.

“We feel this is a great starting point from where we’re taking the entire digital experience,” Hary said.

Making mobile apps work seamlessly at a sprawling company is a big undertaking. McDonald’s has more than 14,000 U.S. locations; only Subway has more. An ordering app must be integrated with a national computer system and work at drive-thrus, where McDonald’s generates about 70 percent of U.S. sales.

‘Operational Consequences’

“A lot of what you see the merchants doing now is less full-blown roll-outs and more pilots,” said Sam Shrauger, a senior vice president at Visa. “They’ve spent 50 years optimizing the operations of the store environment. Any disruption to that or modification of the models they have in place may have operational consequences.”

Another potential hurdle: the McDonald’s franchisees, who own and operate 90 percent of the company’s U.S. stores. At a recent meeting, the company told them they needed to “have a plan in place to replace old hardware” and make sure their “connectivity” is enhanced to support the new mobile ordering technology, according to a summary obtained by Bloomberg.

Translation: Franchisees will have to pay for upgrades. That’s potentially a hard sell because many store operators have been stung financially by the sales slump and are skeptical of the turnaround ideas emanating from corporate headquarters, says Richard Adams, a consultant who advises restaurant owners.

Perhaps the Taco Bell experience will help persuade McDonald’s franchisees -- and spur the company’s mobile efforts.

Since debuting an ordering app last year, the Mexican fast-food chain has found customers typically spend 20 percent more than in person. Why? Because adding extras like guacamole, sour cream and bacon is so much easier from a smartphone.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE