McDonald's IBMAI cashier "dismissed", will Google take over?

According to the financial news app Zhitong Finance, McDonald's (MCD.US) is changing its direction in artificial intelligence plans by ending the AI testing for car shuttle ordering conducted in over 100 restaurants in collaboration with IBM (IBM.US). A memo sent to franchisees last weekend, obtained by foreign media, stated that the automated ordering machines will be shut down by July 26th.

McDonald's global AI partnership with IBM began in 2021, aiming to simplify and expedite operations through voice-controlled ordering.

Mason Smoot, Senior Vice President and Chief Restaurant Officer of McDonald's USA, stated in the franchisee memo, "While we have achieved some success so far, we believe there is still an opportunity to explore voice ordering solutions more broadly. After careful consideration, McDonald's has decided to end the current collaboration with IBM in the AOT area. IBM remains a trusted partner for us, and we will continue to use many of their other products in our systems."

Two sources familiar with the matter mentioned in interviews that one of the challenges faced by this technology is interpreting different accents and dialects, which affects the accuracy of orders. McDonald's declined to comment on accuracy or technical challenges, and IBM did not immediately respond to requests for comments.

Prior to this, restaurants such as DelTaco, Wingstop, and Panera have been testing various AI applications to streamline daily operations. Chipotle and Yum Brands have also been at the forefront of investing in robot technology and artificial intelligence in recent years.

In a statement, McDonald's mentioned that despite ending the collaboration with IBM, they do not rule out potential future AI application plans.

The company stated, "Our collaboration with IBM has given us confidence on our journey forward, and the car shuttle voice ordering solution will be part of future developments. We see tremendous opportunities to drive restaurant technology advancement and will continue to evaluate long-term, scalable solutions to help us make informed decisions on future plans by the end of this year."

IBM stated that with the conclusion of the testing, they will collaborate with McDonald's on "various other projects."

The company mentioned in a statement, "IBM is currently in discussions and pilot projects with several fast-food customers interested in AOT technology."

In 2021, McDonald's sold its McDLabs (formerly known as Apprente) technology to IBM. Additionally, McDonald's sold its predictive ordering technology Dynamic Yield to Mastercard (MA.US) at the end of 2021. As part of its restaurant modernization plan, McDonald's also made a significant acquisition of this technology in 2019.

It is worth noting that while McDonald's future AI plans are not yet clear, many are looking towards Google (GOOGL.US) under Alphabet. At an investor day in December last year, McDonald's announced a new partnership with Google Cloud, but both companies did not provide details on the collaboration Alphabet CEO Sundar Pichai said in a statement, "We are excited to see how McDonald's will utilize our generative artificial intelligence, cloud computing, and edge computing tools to improve the iconic dining experience for its employees and customers around the world."

BTIG analyst Peter Saleh wrote in a report this spring that franchisees have not seen sufficient progress with self-ordering kiosks in drive-thru restaurants, where orders seen were incorrect. "They are frustrated by the dismal update frequency and unsatisfactory demonstration effects at global conferences." The report also mentioned that accuracy is still around 80%-85%, with high operating costs and broader technical testing yet to be conducted.

Saleh added that there are speculations that Google will showcase its capabilities at McDonald's global conference in Barcelona in April, leading some to believe that Google may replace IBM as the company's AI supplier.

In an interview on Monday, Saleh said, "Accuracy is the most important thing right now." Referring to IBM's technology, he said, "Its accuracy should be at least 95%, and it should be more cost-effective than (franchisees) in saving customers money while driving through, but the current design fails to meet both requirements."

Google did not immediately respond to requests for comment on the potential impact of its collaboration with McDonald's. McDonald's declined to comment