McDonald's eyes more dot-coms

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Oak Brook, Ill.--McDonald's Corp. is quietly exploring additional dot-com investments following initial e-commerce disappointments. McDonald's March investment in is considered by some observers to be a token entree into the new economy and company insiders say alliance talks with Walt Disney Co. about have stalled. Now McDonald's is shopping deals with several e-commerce companies including Ariba; Commerce One; and Accel-KKR Internet Co., a joint venture fund of venture capital firm Accel Partners and buyout firm Kohlberg Kravis Roberts to create business-to-business e-commerce and online retailing for Fortune 500 companies. Accel Partners was an original investor in and in March helped Wal-Mart Stores create an independent online entity headed by Jeanne P. Jackson, a McDonald's board member. Spokesmen from McDonald's, Ariba and Commerce One wouldn't comment. KKR and Accel Partners didn't return calls.

Despite recent failures of e-tailing concerns by traditional brick-and-mortar companies, the move makes sense to observers. "Part of it is just to be there, but there are some serious [business-to-business initiatives] taking place out there," said Larry Himelfarb, VP-technology development and applications, National Restaurant Association. At the NRA's recent convention, 266 tech-based companies exhibited in record numbers, making up nearly 10% of exhibits. The association is participating in its own venture to launch, an e-commerce portal for small and independent restaurants.

Some of McDonald's competitors are already getting creative with e-commerce on the logistics side of the business, said Bill Michaels, partner, Deloitte & Touche, pointing to early success for Domino's Pizza's logistics and supply chain initiative. "The big challenge for McDonald's is reducing distribution costs and material costs," he said. "Those are proven arenas where e-business can work." He added that in some supply chain-specific channels, clients are seeing cost reductions approaching 10% through supply exchanges.

For McDonald's to use the Web for supply chain activities would save a lot in transaction volume, said Allan Hickok, a senior analyst with U.S. Bancorp Piper Jaffray. "When you have 25,000 units and take a little cost out of each one, that amounts to a lot of savings," he said. "If [McDonald's] can demonstrate that they can take costs out of their system, estimates might go up because they'd be more profitable or could use savings to offset modestly negative comp sales and rising labor costs."

It would also re-establish the burger behemoth's status as industry leader, particularly in the restaurant industry which has been slow to adopt new technologies.

"It would be a wakeup call to companies sitting on their hands, because if they're not doing all the things they can to compete, they'll be left in dust, said Mr. Hickok.

On June 9, Friday, McDonald's reported U.S. year-to-date sales of $7.9 billion, up 2% from the previous year-to-date report. The slower sales report spurred active stock trading which closed down $2.06 to $33.38.

Copyright June 2000, Crain Communications Inc.

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