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McDonald's tries out DIY
Chain is said to be testing self-service kiosks in bid to shorten lines and speed service.
August 11, 2003: 4:29 PM EDT
By Parija Bhatnagar, CNN/Money Staff Writer

NEW YORK (CNN/Money) - McDonald's apparently is testing a new answer to all those complaints about long queues and slow service at lunch time: "The self-service line is over there, buddy!"

That's right. According to industry reports, the No. 1 fast-food chain is developing a "do-it-yourself checkout" concept that could speed up the order and delivery process for its customers.

"It's a smart idea," said Paul Westra, analyst with S.G. Cowen Securities, who said the company already has a pilot program in place at a few of its locations.

"I think this will be well received by the customer because self-service ensures order accuracy and speed. But this won't happen overnight. I anticipate at least a year to two years before it's implemented in any measurable way," Westra said.

Industry watchers point out that due to the uncertain economic climate and cautious consumer spending, businesses overall are increasingly relying on technological innovation to keep customers interested in the shopping experience.

And D-I-Y is one example.

Several grocery chains such as Kroger (KR: Research, Estimates), Albertson's (ABS: Research, Estimates) and A&P (GAP: Research, Estimates) rolled out self-scan checkouts a few years ago, but the idea only recently has caught on with U.S. mass merchandisers as well.

For example, Atlanta-based Home Depot (HD: Research, Estimates), the nation's largest home improvement chain, debuted the self-checkout system at select stores early this year, and the retailer already is touting its success.

"The self-checkout has reduced length of lines by a third and the time spent in lines by a third," said John Simley, spokesman for Home Depot. "We estimate that 30 percent of all sales are made through self-checkout at stores equipped with them."

"Americans like anything that makes life easier, saves time and is new," said Harry Balzer, analyst with market research firm NPD Group, adding that it was only a matter of time before the restaurant industry hopped onto the D-I-Y bandwagon.

Industry insiders describe McDonald's version of the self-service kiosk as a touch screen with pictures of the various McDonald's products. Customers select what they want, insert the money and pick up their change and food at the counter.

McDonald's (MCD: Research, Estimates) did not immediately respond to calls for comment.

Making the arches more golden

Last month, Oak Brook, Ill.-based McDonald's became the first fast-food restaurant to offer customers a unique technological treat to savor along with the burger and fries -- high-speed wireless access (known as wi-fi) for wireless-enabled notebook computers and handheld devices.

"The restaurant industry has experienced two big turns. There was the growth cycle in 2000 followed by the big downturn that's still going on," Balzer said.

In fact, restaurant-industry sales in 2003 are expected to grow just 1.8 percent, a modest improvement from the 1.3 percent gain registered in 2002, according to the National Restaurant Association.

Additionally, the percentage of Americans eating in restaurants at least once a week is the lowest it's been in 10 years, at 42 percent, down from 45 percent, according to the NPD Group. Interestingly, drive-through traffic is up 20 percent in that same period.

"In a downturn, expect to see all kinds of innovative things take place. Some will succeed, some won't," Balzer said.

Balzer speculates that the major thrust of McDonald's self-service kiosk initiative could also be to boost drive-through orders, which he says is the fastest growing segment of the fast-food industry.

S.G. Cowen's Westra agrees.

"Some analysis shows that a six-second delay at the drive-through can lead to 1 percent decrease in overall sales," Westra said. "So self-service there could be a good idea."

Will it work?

Balzer is optimistic. "With self-service, customers generally fly through. It will save time and money, unless the order is complex."

Others such as Bob Goldin, food industry consultant with Technomic, aren't placing their bets yet. "There's not much of a downside to self-service in a quick-service industry where the service element is marginal," Goldin said.

"I don't think it will revolutionize the industry," Goldin added. "Remember, it's optional. If people don't like it, they don't have to use it."  Top of page

-- Analysts quoted in this story do not own shares of McDonald's and their firms do not have an investment banking relationship with the company.

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