McDonald's to end AI drive-through test with IBM

• McDonald's is ending a test run of AI drive-throughs with IBM in more than 100 restaurants.
• The technology will be shut off no later than July 26, according to a memo sent to franchisees late last week, obtained by CNBC. 
• McDonald's told CNBC there is a place for AI in its drive-throughs in the future.

McDonald's is changing course on its artificial intelligence plans.

The fast-food giant will end a test run of its AI drive-through technology partnership with IBM in more than 100 restaurants. The so-called Automated Order Taker will be shut off no later than July 26, according to a memo sent to franchisees late last week, obtained by CNBC.

The global AI partnership began in 2021. The combination of technologies from the two companies aimed to simplify and speed up operations with voice-activated ordering.

"While there have been successes to date, we feel there is an opportunity to explore voice ordering solutions more broadly," said the franchisee memo from Mason Smoot, senior vice president and chief restaurant officer for McDonald's U.S. "After thoughtful review, McDonald's has decided to end our current partnership with IBM on AOT. … IBM remains a trusted partner and we will continue to utilize many of their other products across our system."

The decision comes as restaurants from Del Taco to Wingstop to Panera and more have been testing out various ways to use AI, from front to back of house as a way to streamline operations. Chipotle and Yum Brands have also been leaders in both robotics and AI investments in recent years.

In a statement, McDonald's told CNBC it is not ruling out potential AI drive-through plans in the future, even though it ended the IBM partnership.

"As we move forward, our work with IBM has given us the confidence that a voice ordering solution for drive-thru will be part of our restaurants' future," the company said in a statement. "We see tremendous opportunity in advancing our restaurant technology and will continue to evaluate long-term, scalable solutions that will help us make an informed decision on a future voice ordering solution by the end of the year."

In statement, IBM said it will work with McDonald's on "a variety of other projects" as the test ends.

"IBM also is now in discussions and pilots with several Quick-Serve Restaurant clients who are interested in the AOT technology," the company said in a statement.

McDonald's sold its McD Labs technology, formerly known as Apprente, to IBM in 2021. It also sold Dynamic Yield, a predictive ordering technology, to Mastercard in late 2021, after a splashy acquisition in 2019 that was part of its modernization plans for restaurants.

While McDonald's AI plans for the future are unclear, all eyes will be on Alphabet's Google. At its investor day in December, McDonald's announced a new partnership with Google Cloud, but neither company has offered details on what it will entail.

"We're excited to see how McDonald's will use our generative AI, cloud, and edge computing tools to improve their iconic dining experience for their employees and their customers all over the world," Alphabet CEO Sundar Pichai said in a statement at the time.

In a note this spring, BTIG analyst Peter Saleh wrote that franchisees had not seen much progress on the automated order taker in the drive-thru, "expressing frustration that updates were infrequent and the demonstration at the worldwide convention was underwhelming," as all of the orders witnessed there were incorrect.

"We are still hearing that accuracy remains in the low-to-mid 80% range and operating costs are high," while a wider test of the technology had not yet taken place.

Saleh added there was speculation about Google's major presence at April's McDonald's Worldwide Convention held in Barcelona, leading some to believe Google could replace IBM as the company's AI vendor.

"Accuracy is the most important thing right now," Saleh told CNBC on Monday. "It will have to be at least 95% accurate and will have to save [franchisees] money over having a person in the drive thru, and the way it is designed now, does neither," he said of the IBM technology.

Google did not immediately respond to CNBC's request for comment about what its partnership with McDonald's could entail. McDonald's declined to comment.