McDonald’s Sued For Thwarting Third Party’s Solution To Its Broken Ice Cream Machine Problem
from the producing-more-service-contract-revenue-than-actual-ice-cream dept
The ice cream machines used by a majority of McDonald’s franchise owners are notoriously flaky. Produced by Taylor Restaurant Equipment, the machines are so unreliable even the McDonald’s corporate Twitter account has made jokes about them.
This unreliability has created a (very small) cottage industry of solutions. One solution is web-based: it simply tells you which ice cream machines are down, allowing customers to avoid wasting a trip to their local franchise in search of a product that can’t be acquired at the moment.
Another solution was created by Melissa Nelson and Jeremy O’Sullivan. It’s called “Kytch.” It’s a phone-sized gadget that unscrambles the purposely inscrutable error codes generated by Taylor Restaurant Equipment ice cream machines, allowing franchisees to troubleshoot issues without having to call in a Taylor service tech at their own expense. It also allows franchisees to track problem over time to head off future problems and/or address recurring problems.
Taylor doesn’t like this. It has a lucrative contract with McDonald’s that pretty much ensures franchisees are locked into both the machines and their service contracts. The worse the machines perform, the more money Taylor makes. McDonald’s ensures Taylor’s profitability by only allowing certain equipment to be purchased and used by franchise owners. If owners decide to use unapproved equipment, McDonald’s has the power to terminate contracts and eject franchisees. In most cases, McDonald’s owns the land under the restaurant, which gives it considerable leverage when it comes to enforcing contracts.
Kytch had the potential to change the game for franchise owners by saving money on unneeded service calls and generating more revenue with increased up time. Taylor didn’t care for this at all. It managed to secure a device from Kytch through some (alleged) subterfuge and set about making its own (presumably much more expensive) version to sell to franchise owners. It also secured a lawsuit from Kytch over its anti-competitive behavior and (again, alleged) deliberate deception. And that lawsuit has resulted in a temporary restraining order against Taylor — something that followed the Federal Trade Commission opening up a preliminary investigation of McDonald’s and Taylor’s inability to produce soft-serve ice cream on a regular basis.
Now, it’s time for McDonald’s to get sued. Kytch’s co-founders have filed a lawsuit against the company, again alleging anti-competitive behavior and other shady dealings by the most recognizable fast food franchise in the world. This news comes via Andy Greenberg, writing for Wired.
Late Tuesday night, Kytch filed a long-expected legal complaint against McDonald’s, accusing the company of false advertising and tortious interference in its contracts with customers. Kytch’s cofounders, Melissa Nelson and Jeremy O’Sullivan, are asking for no less than $900 million in damages.
$900 million is a big ask, no matter what the claims are. But Kytch had a potential market of nearly 20,000 franchises in North America alone. And that market has been completely destroyed by Taylor Restaurant Machines and its primary enabler, McDonald’s. Rather than allow a third-party to address a problem Taylor obviously feels is more profitable to ignore, McDonald’s and its soft-serve machinery provider of choice colluded to lock Kytch out of the market.
Apparently, McDonald’s and Taylor believe this is an acceptable failure rate. (Screenshot taken at 11:00 am CST, March 6, 2022.)
Nearly 13% of the machines in the nation are down. And that percentage is likely on the low side. The rate is much higher in major cities where a higher number of customers means more accurate reporting of machine downtime. Unbelievably, this 13% is likely an undercount, what with less-populated areas having yet to discover the machine is down and/or report it. And it’s unlikely many people is time zones further west are seeking ice cream at 9 or 10 in the morning.
The first lawsuit filed by Kytch, which targeted alleged Taylor wrongdoing, has given the company access to a large number of internal communications between McDonald’s and the soft-serve machine maker. And those communications have indicated McDonald’s is at least just as culpable in Kytch’s ejection from the market as Taylor is. In fact, it’s beginning to look like McDonald’s did more to lock Kytch out than Taylor did.
Kytch’s cofounders have hinted that they intended to use the discovery process in their lawsuit against Taylor to dig up evidence for a suit against McDonald’s too. In fact, the 800 pages of internal Taylor emails and presentations that Kytch has so far obtained in discovery show that it was McDonald’s, not Taylor, that at many points led the effort to study and develop a response to Kytch in 2020. In February of that year, Taylor president Jeremy Dobrowolski wrote in an email that “McDonald’s is all hot and heavy about this,” referring to Kytch’s growing adoption. A McDonald’s executive later asked for a conference call with Taylor in June of that year to discuss Kytch. When McDonald’s shared with Taylor a draft of the Kytch-killing email it planned to send franchisees, a Taylor executive commented to a colleague that “I am a bit in shock they are willing to take such a strong position.”
This is how the lawsuit [PDF] details just a small portion of the allegations against McDonald’s:
Kytch was the only product on the market that was positioned to fix the soft-serve machines at McDonald’s. Kytch soon gained market dominance after the largest organization of independent McDonald’s operators—the National Owners Association (“NOA”)—endorsed Kytch at its national conference.
McDonald’s took note and met with Taylor after the endorsement. According to Taylor’s internal emails, “McDonald’s [was] putting all of their eggs in this basket to fight Kytch” because “[t]hey have nothing else ready from their own IT Team.”
In the days that followed, McDonald’s Director of Equipment, Mike Zagorski, directed that “[t]hings need to go much faster” with Taylor’s Open Kitchen development, which was moving at a “turtle[’]s pace.” McDonald’s also warned Taylor that independent restaurant operators were demanding that McDonald’s integrate Kytch into the McDonald’s system. This threatened to undermine Taylor’s longstanding service and repair racket that the new Open Kitchen device was being designed to protect. McDonald’s and Taylor needed to buy more time to get Open Kitchen to the market.
To that end, McDonald’s and Taylor worked together to create a stall tactic. Together they fabricated bogus “safety” claims to mislead Kytch’s customers into believing that safety testing determined that the Kytch Solution would cause “serious human injury” to users—claims that are, and that McDonald’s and Taylor both knew at the time to be, demonstrably false.
Emails sent franchisees from McDonald’s corporate offices stated two things: Taylor was coming up with its own version of Kytch (a “strategic connectivity solution” that would “allow operators to receive text notifications” when their machines went down and “provide data on products dispensed”) and that franchise owners using Kytch would “completely void any existing OEM equipment warranty.”
The email also claimed — literally unbelievably — that Kytch devices allowed devices to keep running even when opened for cleaning and repair, which could lead to employees being injured. Kytch calls bullshit on this claim, which its refers to as disparagement and defamation of the upstart company.
[F]ar from being comparatively more dangerous than Taylor’s competing device, the Kytch Solution integrates (and is constrained by) the softserve machines’ safety mechanisms. For example, when the freezer door is removed exposing interior parts of the machine that might create a safety risk, a magnetic interlock system disables motor function to protect the operator from injury, and Kytch cannot operate the machine remotely. Thus, while Kytch does have the ability to remotely control the machine, it is limited by Taylor’s existing control mechanisms—including this magnetic interlock system—to ensure safety.
The lawsuit alleged McDonald’s deliberately misled franchisees to ensure Taylor’s market dominance. How locking itself into a single provider directly benefits McDonald’s isn’t entirely clear. But it clearly benefits Taylor. According to the lawsuit, service contracts account for 25% of Taylor’s annual revenue. Whatever the reasons for McDonald’s actions, its desire to eliminate Kytch prompted it to make seemingly false claims about the safety of the device. Worse, its actions have forced franchisees to throw money away on service contracts with a company whose machines are so unreliable they’ve become the source of McDonald’s corporate punchlines. And that makes this lock-in look more like extortion than a mutually beneficial relationship between franchisees and the corporation overseeing them.
Filed Under: broken machines, competition, ice cream, soft serve ice cream
Companies: kytch, mcdonald's, taylor restaurant equipment
Comments on “McDonald’s Sued For Thwarting Third Party’s Solution To Its Broken Ice Cream Machine Problem”
You could say that through this situation, McDonald’s isn’t Mcloving it.
Don't forget
Allowing the use of the Kytch devices to fix icecream machines “would only be of benefit to stalkers and sexual predators.”
https://www.techdirt.com/articles/20200904/06301945248/auto-industry-pushes-bullshit-claim-that-right-to-repair-laws-aid-sexual-predators.shtml
Normally, it wouldn’t make sense for McDonald’s to sue someone able to fix the machines, but what are they supposed to do if the machine manufacturer voids the warranties if a 3rd party fix is applied?
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McDonald’s isn’t suing. They’re getting sued.
Re: Re:
Yes, McDonald’s is being sued. Because McDonald’s won’t allow any McDonald’s restaurant to use this 3rd party fix. Because the machine manufacturer will void the warranty.
So, like I said, what is McDonald’s supposed to do?
Re: Re: Re:
Switch to a new company that makes soft serve devices.
Re: Re: Re:2
Which is precisely what they are barred from doing by an exclusive contract with Taylor.
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Why is McDonalds inserting themselves into a business-relationship between Taylor and a franchise? If a franchise thinks they’ll save money by using a Kytch I fail to see how McDonalds have any say in that.
Not a fucking thing since they aren’t the owners of the machines. The can go and suck on a sundae for all I care – but their machine is probable “broken” and they have been waiting for service-technician from Taylor for the last 4 weeks that will tell them that the machine was overfilled.
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Because that is how franchises work, every thing is defined as part of the franchise agreement, so that the customer experience is consistent.
Re: Re: Re:3
No franchise agreement defines “every thing”, but McDonald’s seems more restrictive than many, leaving franchise owners with very little control. Other companies, especially small-to-medium ones, might set maintenance standards and let franchisees decide how to best meet them.
For a company to be this openly antagonistic to its franchisees, fighting back against behavior that has seemingly caused nothing remotely problematic for customers or other franchisees, is unusual. (I know Subway cracked down on franchisees tesselating cheese, and Tim Hortons cracked down on larger-than-standard doughnuts; but in those instances, other franchisees had complained it put them at a disadvantage.)
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Nothing, as it is the franchisee that buys and pays for the equipment as specified by McDonald’s. They do not pay for the maintenance either. The relationship between McDonald’s Taylor Restaurant Equipment may be worth investigating in detail.
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Cut off all business with the manufacturer. Maybe sue. This probably isn’t a “consumer product” under the Magnuson–Moss Warranty Act, so such warranty bullshit might be legal depending on the relevant contracts. But I can’t imagine it would be a good idea for Taylor Restaurant Equipment to piss off the most popular restaurant in the country.
I worked at a company where Walmart was our biggest customer, and the biggest company in the relevant market. When our product didn’t work the way they wanted, we didn’t talk about warranties or the way we meant people to use it. We just did whatever we could reasonably do to keep them happy. Quickly, if possible.
I don’t know why McDonald’s and Taylor are working together against the franchisees, but of those companies I doubt it’s Taylor who holds the power. Probably it’s all about McDonald’s corporate wanting control, like when the MAFIAA go up against irrelevant “threats” like camcorders in theaters or youtube-dl. (“It’s almost impossible to enforce standards from afar.… inconsistent menus. Sacramento was selling burritos!” —The Founder, 2016, 27:05)
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Ideally, corporate HQ would warn franchisees of the unreliability of the McFlurry machine vendor, and seek a new supplier of machines. This would be based on a theory that a working machine leads to sale of more ice cream, which means that the franchisees are buying more ice cream mix, which means that corporate makes more money.
Disclaimer: I am not entirely unbiased because I own McD stock and therefore benefit which the stores sell more product.
(note: preview still borken on new site)
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McDonald’s cannot seek a new supplier of machines because it is under exclusive contract with Taylor, and breaking that contract could cost McDonald’s a huge sum of money.
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It’s unlikely the contract prevents them from seeking a new supplier. Maybe from buying from a new supplier, but McDonald’s isn’t stupid. Taylor will have contractual requirements too, e.g. keeping the damn machines working, so McDonald’s should be able to get out of it if they want to. Or to put some other kind of pressure on Taylor.
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You are assuming that this situation isn’t intentionally engineered to extract money from the franchises.
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No; that’s why I wrote “if they want to” (“McDonald’s” referring to the corporate entity which seems to be teaming up with Taylor to strongarm the franchisees).
Follow the money
So McDonald’s thinks that it’s better for its brand to be associated with non-functioning ice-cream machines, than dumping a contractor who makes machines which continually break and who is making big bucks on repair fees.
Something tells me that it might be helpful to know who within McDonald’s top management holds stocks in Taylor.
Service contract?
This seems to imply a very different meaning to “service contract” than what’s common. Usually, it means that you pay one price for all and ANY service a machine needs to make it work. One price, the same every month, and if they can’t make it work, they just haul in a replacement or at least credit you for the monthly cost until it does.
The McD/Taylor version seems to mean nothing like that.
(I wonder if any state’s Lemon Law might apply… probably not but deserves a little thought.)
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Unlikely. They usually apply to consumer goods only, and often only to vehicles. One could perhaps sue for breach of contract. Except, if the contract is between Taylor and McDonald’s (who for some reason are on Taylor’s side), would the franchisees have standing to sue Taylor? Maybe they could sue McDonald’s. Do you think that would end well?
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I’m not sure about that, particularly in the non-consumer space. For example, there are many sources talking about different types of elevator service contracts. You’re describing a full-service contract, but lower levels may include nothing but preventative maintenance visits, with all other parts and labor billed.
Generally, businesses are presumed to have more negotiating power than consumers, and therefore have fewer legal protections against bad contracts.
Re: Re: Service
Even if the cost is billed separately, a good contract will specify that the work actually gets done, with specific penalties if it doesn’t.
“How locking itself into a single provider directly benefits McDonald’s isn’t entirely clear.”
Might want to look up “bribe” or “kickback”.
The free market will solve this!!!!
Except of course we’ve allowed them to set terms that completely blocks any actual competition…
‘Merika!
Why oh Why has this gone on so long
The “brother-in-law” clause?
Follow the money
Somebody at McDs is getting a kickback from Taylor.
There’s a fantastic video on YT where someone, on his own accord, looks into the ice cream machine issue and the results are astounding.
Many fast food companies use the same ice cream systems from Taylor but do not experience any downtime with them.
McD’s is required to use a specific machine in all its restaurants, and it’s this machine which is intentionally coded to be misleading to users, all for the sake of service calls.
While on the face of it, a $100-$300 service call doesn’t seem that expensive, but when the machine continues to fail time and again, it racks up.
It’s 100% legitimately designed this way, as the video shows access to an Administration menu, which is not covered in the handbook given to owners, which explains the error codes and how to fix them without a service call.
Both Taylor and McD’s (which continues to use the machines by Taylor, supporting their “business model”, should be fined billions, separately, for this crap.
I cannot believe these two were allowed to get away with this crap for over 20 years.
Unless the fix is something simple, like holding down two buttons at the same time, or making sure a cover is closed, I can’t see the staff of most McDonald’s fixing their own machines. Most fast food employees don’t even know how to refill the cartridges in the fancy touchscreen soda machines.
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They don’t need to train most employees. They have managers for this sort of thing.
There’s a terrific movie on YouTube where someone independently investigates the
ice cream machine problem, and the findings are amazing.
The identical ice cream systems from Taylor are used by numerous fast food chains without any downtime.
All of McD’s restaurants are mandated to utilize a particular machine, and it is this system that has been specifically programmed to deceive users in order to generate service calls.
On the surface, a $100–$300 service call may not seem like much money, but as the machine keeps failing, the costs add up.
Given that the movie demonstrates access to an Administration menu that is not addressed in the manual, it is properly structured in this manner.
I doubt that most McDonald’s employees will repair their own equipment unless the fix is straightforward, such as pressing two buttons simultaneously or making sure a lid is closed. Even the majority of fast food workers are unable to properly refill the fancy touchscreen soda machines’ cylinders.