McDonald’s Wants It Their Way

Innovate wasn’t McDonald’s first attempt to capture operational data from its restaurants. Nearly 10 years earlier, in 1991, McDonald’s made its first foray into collecting daily sales data from stores through an electronic register, or point-of-sale, system. But rather than turning to a solution from outsiders, McDonald’s decided to cook up its own.

Most of McDonald’s quick-service restaurant competitors—and most retailers, for that matter—use packaged point-of-sale (POS) software, as those systems aren’t usually viewed as strategic. McDonald’s was convinced that by building its own it could save money and, by tying the software to its enterprise systems at headquarters in Oak Brook, Ill., better manage its supply chain, according to former McDonald’s CIO Carl Dill.

The decision led to a long-running internal development effort, and the eventual spinning-off of McDonald’s point-of-sale (POS) development effort as a separate business with the backing of eMac Digital—a technology incubator supported by McDonald’s and venture capitalists Accel-KKR. After meeting some initial franchisee resistance, the POS system became the standard for its American restaurants. While McDonald’s is looking now to upgrade the system, which is starting to show its age, it remains at the heart of the company’s restaurant operations.

Point-of-sale systems are a key part of automating the relationship between retailers and their customers. By electronically capturing the details of each purchase, they capture not just sales totals, but information on what has been removed from goods on hand. Taken cumulatively, POS data can provide managers with a wealth of information about their business, such as identifying which products are selling and which aren’t, and when their operations are busiest.

Much like what McDonald’s strove to do with Innovate—a $1 billion initiative to collect sales and supply-chain information in real time that McDonald’s canceled in February (see Baseline magazine’s July cover story)—the POS project was intended to help the company improve the efficiency of its supply chain, according to Carl Dill, who oversaw the development of the system while he was McDonald’s chief information officer from 1982 to 1998. By capturing patterns of consumption at its restaurants, McDonald’s hoped to better tune its relationship with suppliers and have a better picture of product demand.

In 1991, after looking at commercially available point-of-sale registers from vendors such as Panasonic and PAR Microsystems, Dill says, McDonald’s decided to go it alone and have systems integrators build the register terminals for its U.S. stores from off-the-shelf PC and peripheral technology.

Dill says that McDonald’s main reason for doing the development itself was the cost of implementation—particularly on the hardware side. Panasonic and PAR Microsystems had proprietary cash registers that cost $30,000 to $40,000 per store, he says. Dill and his team thought that by developing the software internally, and having systems integrators use off-the-shelf hardware to build point-of-sale systems, the company could cut the cost of putting POS in a restaurant. They turned out to be right. As a result, McDonald’s was able to hold the cost of POS systems down to roughly $15,000 to $20,000 per restaurant, according to Dill, cutting the cost in half.

McDonald’s saw the combination of its POS and in-store processor software as a strategic advantage, according to Dill. “The secondary benefit was we knew it would increase annual sales by tens of thousands of dollars for every second of time [it took off of each transaction],” says Dill.

McDonald’s restaurants “do significantly more volume than competitors—somewhere between $60,000 and $90,000 [more business than competitors] per store every year,” he says. And most of that volume comes during the peak hours of operation—the lunch and dinner rush.

The software McDonald’s developed, called PC POS, is a two-part system. The actual point-of-sale terminals at the counter and drive-through window run on software written for Microsoft MS-DOS. It provided “software functionality for cash registers” says Dill, “like taking orders, communicating to cooking operations and giving change.”

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