IBM, McDonald's to serve up automated drive-thru lanes with strategic partnership

McDonald's has entered into a strategic partnership with IBM in an effort to accelerate the development of automated drive-thru lanes.

Under the agreement, IBM will acquire McD Tech Labs, which has been working to develop, test and deploy an automated ordering system using artificial intelligence-enabled voice recognition. McD Tech Labs was created following the fast food chain's acquisition of Apprente in 2019.  

The transaction is expected to close in December, subject to regulatory approvals and other customary closing conditions. Upon closing, the McD Tech Labs team will become part of the IBM Cloud & Cognitive Software division.  

McDonald's chief financial officer Kevin Ozan told analysts on the company's third quarter earnings call that fewer than 100 employees will leave McDonald's to work for IBM. 

"It isn’t a big financial statement impact, plus or minus, I’ll say, going forward from that," Ozan said.

McDonald's CEO Chris Kempczinski announced at the Alliance Bernstein Strategic Decisions conference in June that the AI technology was being piloted at around 10 drive-thrus in the Chicago area and that the system could fulfill customer orders with 85% accuracy with workers having to step in for approximately one in five orders. 

"McDonald’s development and testing of AOT technology in restaurants has shown substantial benefits to customers and the restaurant crew experience," the companies said in a joint statement Wednesday. "Moving forward, IBM’s expertise in building customer care solutions with AI and natural language processing will help scale the AOT technology across markets and tackle integrations, including additional languages, dialects and menu variations."

The partnership comes after Kempczinski emphasized during the June conference that McDonald's would not go into the business of competing with tech companies who specialize in voice recognition, point of sale or customer relationship management systems.

"If we do acquisitions, it will be for a short period of time, bring it in-house, jumpstart it, turbo it and then spin it back out and find a partner who can kind of take that work and scale it for us," he explained. "I think that's probably more the model. I don't see us spending a lot of time, energy, effort trying to build our own internal capabilities on technology."

The announcement comes as McDonald's third quarter revenue beat Wall Street estimates after being boosted by a combination of bigger order sizes, higher menu prices and a rollback of overseas COVID-19 restrictions. McDonald's also cited the success of its new crispy chicken sandwich and celebrity-endorsed meals. 

McDonald's reported net income of $2.15 billion with total sales of $6.2 billion, up 22% and 14%, respectively, from the same period a year ago. Global same-store sales jumped 10.2% compared to the same period in 2019, while U.S. same store sales rose 14.6% compared to the same period in 2019. 

McDonald's shares have risen approximately 2% following Wednesday's announcement.

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