How Do Digital Tools Drive Innovation in Franchises?
Digital tools are revolutionising the franchise industry, driving innovation and transforming operations across global brands. From mobile apps to artificial intelligence, these technologies are enhancing customer experiences, streamlining processes, and boosting profitability for franchisees and franchisors alike.
Let’s look at how major players including McDonald's, Subway, and Yum! Brands are leading the charge in digital adoption.
Personalised digital menu
Over half of America’s fast-food restaurants are franchises, and, in the case of McDonald’s that rises to 95%.
Back in 2018, McDonald’s rolled out personalised digital menu boards developed by tech firm Dynamic Yield into more than 12,000 of its drive-thru restaurants, making it one of the first restaurant brands to integrate AI into its locations.
Dynamic Yield’s customised digital menu displays respond to time of day, the weather and trending items.
The following year McDonald’s bought Dynamic Yield to help modernise and personalise its drive-thru experience, outdoor menus and digital ordering kiosks.
Today, Digital Yield’s recommendation technology is used in 15,000 McDonald’s restaurant locations across Australia, Canada and the UK, as well as the US, which is just under 40% of all McDonald’s locations.
Of course, none of this comes cheap.
Dynamic Yield cost McDonald’s US$300m to buy, an investment which McDonald’s said gave a competitive advantage to its franchisees.
Franchisees felt otherwise.
They baulked at paying McDonald’s new monthly US$423 monthly technology fee as a thank-you for all this new technology. This was about ten times what they paid a decade ago. Ernst & Young was then brought in to conduct an independent review of the tech fees, and, in the end, the golden arches agreed to slash its fee by 60% to ease tensions with franchisees.
Moreover, some franchisees have called for the establishment of a national technology cooperative to give them more direct say in decisions on how money is spent on tech.
Connecting to takeout services
Subway has around 21,000 restaurant locations across America, making it the largest fast-food chain by footprint. At least 90% of its restaurant locations are franchised.
Until 2022, Subway used Olo across 15,000 locations in a deal “worth a few million dollars” to the technology vendor.
Olo’s Rails software allowed Subway to integrate third-party delivery orders from delivery services such as DoorDash, GrubHub and the like into its POS system. But it has since decided to connect its POS system directly to the delivery providers.
AI-powered demand forecasting
Yum! Brands, the parent company of KFC, Taco Bell, and Pizza Hut, has made digital capabilities a cornerstone of its growth strategy. The company's digital sales reached US$22 billion in 2022, a 20% year-over-year increase.
KFC, in particular, has leveraged artificial intelligence to optimise its operations. The brand uses AI-powered forecasting tools to predict demand and manage inventory more efficiently. This technology has reduced food waste and improved profit margins for franchisees.
Taco Bell, meanwhile, has been experimenting with drive-thru lanes dedicated to mobile order pickup, significantly reducing wait times, with multistory drive-thrus.
Mobile apps
And Pizza Hut’s mobile app allows customers to track their orders in real-time, improving transparency and customer satisfaction.
It’s not just fast food restaurants that have been experimenting with mobile apps.
The majority of 7-Eleven’s 85,000 convenience stores worldwide are franchised and 7Now, the Japanese-owned brand’s proprietary delivery service via mobile app, makes up about 6% of sales for stores which offer the service. 7Now sales were up 30% year on year in the first quarter of 2023.
The challenge of digital tools
These digital innovations are not without challenges. Franchisees must invest in new technologies and train staff to use them effectively.
Data security and privacy concerns also present ongoing challenges for franchise systems handling large volumes of customer data.
Yet the benefits of digital adoption for the most part outweigh the costs. Digital tools can provide franchisees with valuable data insights, enabling more informed decision-making. They can also help franchisors maintain brand consistency across locations while allowing for localised marketing efforts.
For CEOs and senior business leaders in the franchise industry, embracing digital innovation is no longer optional. It's a necessity for remaining competitive in an increasingly digital marketplace.
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