It did not take long for Harshraj Ghai to react to this impact California’s new minimum wage is $20 an hour For its 3,700 fast-food employees.
Ghai and his family operate 180 Burger Kings, Taco Bells and Popeyes Chicken restaurants across the state, and one of the first things they did after the law took effect on April 1 was to limit workers’ hours to avoid overtime pay. to do. Additionally, they are closing some outlets a little earlier, and opening others a little later, to avoid paying employees for less profitable periods.
But the biggest thing Ghai and his family are doing doesn’t directly involve workers: They’ve accelerated and expanded the use of technology, especially AI.
Now, they have advanced their plan to install self-service kiosks at all of their locations by several years, including 25 locations outside the state.
But what Ghai hopes most about to offset higher labor costs is that AI can handle customers’ drive-thru orders. He’s testing the machine-learning system in a few locations this month and hopes to launch it company-wide by this time next year.
The drive-thru is definitely California with its car culture and fast lifestyle. And now, with AI coming onto the scene in a big way, the state is emerging as ground zero for what many analysts see as the next big thing in the world of fast food and drinks.
Not that the AI-led drive-thru is quite ready for prime time. As it stands today, the system may be troubled by people’s pronunciation and ambient noise, making it difficult to recognize speech and translate it into text. Pilot programs run by McDonald’s and others so far have often supported AI technology with a single employee, like a Wizard of Oz man behind the curtain. Even from as far away as the Philippines, the invisible worker monitors and occasionally intervenes to complete orders when the AI falters.
Still, Ghai feels that once the glitches are ironed out, it will be a boon for fast-food operators like him.
“It has the potential to be the most impactful,” says Ghai, 39, whose Indian immigrant father Sunny started the family business in 1998 by buying a failing Burger King in San Jose, where he was an assistant manager.
The minimum wage for nearly half a million workers in the fast food industry in California was suddenly increased by 25% for businesses like Ghais’s.
To cope with extraordinary increases in labor costs – which average about a third of a fast food store’s sales – Many affected business owners immediately raised menu prices.,
Ghai said they have increased prices overall this year by just 2%. But this has not been ideal. By the middle of last month, at many franchises across the state — from Jack in the Box to Chipotle to Starbucks — consumers were, on average, paying mid- to high-single-digit percentages more than they were a month or two ago. A survey by investment banking and research firm BTIG.
Relatively few people appear to have resorted to layoffs, partly because many were already staffed at minimum levels. So to prevent further price increases, a growing number of fast-food operators are now rushing to install as much automation as possible.
Perhaps the most visible and soon to be widely adopted are kiosks of all types for ordering food. Self-service machines have been around for more than a decade, but franchise owners like Michaela Mendelsohn resisted the move for years.
“We didn’t want to force our customers to use technology. We thought personal contact was important,” said MendelsonWhich has six El Pollo Loco restaurants in Los Angeles and Ventura County.
But when the industry’s base wage increased to $20 an hour, additional labor costs rose to $180,000 per year per store. Within a month of the pay increase, Mendelsohn purchased two permanent kiosks for each of his six restaurants. This left him paying $25,000 per store for two screens, installation, software and other related costs. One of the two machines accepts cash, which he said was essential for his blue-collar customers.
An LA Carl’s Jr. restaurant. In California, CKE Restaurants, owner and franchisor of Carl’s Jr. and Hardee’s, appears to be at the forefront of the use of AI technology.
(Los Angeles Times)
Mendelsohn estimates the kiosks could save five hours of labor a day. According to that estimate, the machines will pay for themselves within a year and will offset about 20% of the increased costs from the latest minimum wage increase. “We are cutting back on it,” he said.
Self-service kiosks are ubiquitous in Western Europe, but they account for less than 20% of fast-food establishments in the U.S., says Pers Faily, chief executive of Los Angeles-based Tilster, one of the leading kiosk and other digital providers. Platform for restaurant.
The COVID-19 pandemic fueled this trend in the U.S. and now in California, he said, adding, “We’re seeing this complete change in thinking, ‘How do I address my labor costs?'”
Kiosks can be attractive in that they can not only save labor, but also drive higher sales. Unlike people, programmed machines are always trying to “upsell”, never forgetting to ask customers if they want a drink with their meal or something else with their meal.
Feeley, CEO of Tilster since late 2007, did not disclose the company’s sales growth, but said its new customers include Burger King and Popeyes, and employment at the company increased by 75 from a year earlier to 340 currently. Is. “The minimum wage increase has completely changed the landscape,” he said.
Other computer-guided upgrades aimed at cutting labor costs range from an automated avocado peeler and dishwasher. robotic arms Flip burgers and rotate fryer baskets.
But returns on investment, though helpful to the bottom line, are not enough to offset rising payroll expenses. So relatively few fast-food operators, at the moment, are making large investments in robotics and similar mechanical equipment.
On the other hand, AI looks like it could be a game-changer.
Peter Cella, BTIG’s restaurant industry analyst, said the pandemic has increased drive-thru traffic at fast-food locations to about 80% compared with two-thirds pre-COVID. And AI order taking opens up the possibility of speeding up the drive-thru process, increasing sales and reducing significant labor overhead.
But analysts say it will likely take at least a year or two for AI-led drive-thru to become consistent and reach a high level of accuracy where companies will be comfortable with it. According to various accounts, customers frustrated with the tests often demanded to speak to a live person rather than a bot.
Major fast-food brands were reluctant to discuss their AI drive-thru efforts. Nationally, McDonald’s has been at the forefront, using a system developed by IBM. A spokesperson would only say that McDonald’s “continues to learn from the approximately 100 pilot restaurants testing automated order-taking technology in the U.S. We expect to share more later this year.”
In California, CKE Restaurants, owner and franchisor of Carl’s Jr. and Hardee’s, appears to be ahead of the group in terms of technology, but like other chains including Taco Bell, Burger King and El Pollo Loco, CKE declined to comment.
However, analysts say that no AI platform has reached more than 85% success that does not require human intervention.
“The hardest part is when you have people with accents from different states and immigrants. It’s challenging,” said Danilo Gargiulo, senior analyst covering restaurants at Bernstein, an investment and research firm.
Still, Gargiulo sees the day when AI will speed up the drive-thru line, increasing sales and consumer satisfaction. “Right now, drive-thru times are slow due to back-to-back orders,” he said. With accurate AI speech recognition and fast, clear communication with kitchen staff, he said, you can cut up to 90 seconds from the 5½ minutes it typically takes a customer to complete a drive-thru purchase.
Ghai is betting on this.
He says his initial investment for the AI drive-thru technology purchased from San Carlos-based Presto is about $10,000 per store. Ghai estimates that if he can implement this at 90%, a store employee will only have to come forward to pick orders three times per hour, freeing up the employee to do other tasks.
The AI system is getting better as it collects more data, he said, and it will soon be able to communicate in Spanish. Add mobile apps and loyalty programs, and AI has the potential to deliver faster and more personalized service to fast-food customers. And there’s certainly a labor savings part: Ghai thinks AI can shave 10 to 15 hours of labor per day off a drive-thru, and double that where they have two human order takers.
“Our goal is not to get rid of people. We are in the people business at the end of the day,” he said. Plus, Ghai said, in the long run, “we will have fewer people.”
