It didn’t take long for Harshraj Ghai to respond to the impact of California’s new $20-an-hour minimum wage on its 3,700 fast-food workers.
Ghai and his family operate 180 Burger King, Taco Bell and Popeye’s Fried Chicken restaurants across the state, and one of the first things they did after the law took effect on April 1 was start limiting workers’ hours to avoid overtime pay. In addition, they have closed some stores early and delayed the opening of others to avoid paying workers during a less profitable period.
But the most important thing Guy and his family did didn’t directly involve workers at all: they accelerated and expanded the use of technology, especially artificial intelligence.
Currently, they are several years ahead of schedule on installing kiosks at all of their locations, including 25 locations out of state.
But what Ghai most hopes will offset higher labor costs is letting artificial intelligence handle orders placed by customers at the drive-thru. He is testing the machine learning system at several locations this month and hopes to roll it out company-wide by this time next year.
The drive-thru is, of course, quintessential to California, with its car culture and fast lifestyle. Now, with artificial intelligence emerging on a massive scale, the state is becoming ground zero for what many analysts consider the next big thing in fast food and beverages.
That’s not to say AI-led drive-thrus are ready for prime time. As it stands, the system may not be able to recognize people’s accents and ambient noise, making it difficult to recognize speech and translate it into text. So far, pilot programs run by McDonald’s and other companies have typically had an employee supporting the AI technology, like the Wizard of Oz behind the scenes. If something goes wrong with the artificial intelligence, unseen workers from as far away as the Philippines monitor and sometimes step in to fulfill orders.
Even so, Gay believes that once these problems are solved, it will be a godsend for fast-food operators like him.
“It has the potential to be the most influential company,” said Guy, 39, who started the family business in 1998 when his Indian immigrant father, Sunny, bought a moribund Burger King in San Jose. Worked there as assistant manager.
California suddenly raised the minimum wage by 25% for some 500,000 workers in the state’s fast-food industry, creating challenges for businesses like the Gay’s.
In response to the sharp rise in labor costs, which on average account for about a third of a fast-food restaurant’s sales, many affected business owners immediately raised menu prices.
Ghai said his overall prices are up just 2% this year. But this is not the norm. By the middle of last month, at many franchises across the state — from Jack in the Box to Chipotle to Starbucks — consumers were paying, on average, single digits more than they had been a month or two earlier, according to data. A survey conducted by banks and research firm BTIG.
Relatively few companies appear to have taken layoff measures, in part because many companies have already reached a basic level of staff. Therefore, in order to control further price increases, more and more fast food operators are now racing to install as much automation equipment as possible.
Perhaps the most eye-catching and soon to be widely adopted are the various ordering kiosks. Kiosks have been around for more than a decade, but franchisees like Michaela Mendelsohn resisted the move for years.
“We just don’t want to force our customers to use technology. We think the personal touch is important,” said Mendelsohn, who owns six El Pollo Loco restaurants in Los Angeles and Ventura counties.
But she said when the industry’s base wage rises to $20 an hour, the additional labor costs per store are $180,000 per year. Within a month of the pay increase, Mendelsohn purchased two stand-up booths for each of her six restaurants. This saved her $25,000 per store to pay for two screens, installation, software and other related expenses. One of the two machines accepts cash, which she said is what her blue-collar customers need.
Carl’s Jr. restaurant in Los Angeles. In California, CKE Restaurants, owner and franchisee of Carl’s Jr. and Hardee’s, appears to be leading the way in the use of artificial intelligence technology.
(Los Angeles Times)
Mendelsohn believes the kiosks save five hours of labor per day. It is estimated that the machines will pay for themselves within a year and cut around 20% of the cost increase caused by the latest minimum wage increase. “We are working hard to resolve this issue,” she said.
Self-service kiosks are ubiquitous in Western Europe, but in the United States, less than 20% of fast-food restaurants are equipped with kiosks, said Perse Faily, CEO of Tillster in Los Angeles, one of the earliest providers of kiosks and other digital services One of the businessmen.
The COVID-19 pandemic has fueled this trend in the U.S., she said, and now in California, “we’re seeing a complete change in thinking about, ‘How do I solve the labor cost problem?'”
Kiosks can be attractive because they not only save labor but also increase sales. Unlike humans, programmed machines are always trying to “upsell” and never forget to ask a customer if they would like a drink with their meal or something else to go with their entree.
Faily, who has been Tillster’s chief executive since late 2007, would not disclose sales growth but said new customers include Burger King and Popeyes and that the company has more employees than a year ago. An increase of 75 people was added, bringing the current number to 340. “The increase in the minimum wage completely changed the situation,” she said.
Other computer-guided upgrades also aim to reduce labor costs, from automatic avocado peelers and dishwashers to robotic arms that flip burgers and flip fry baskets.
But investment returns, while helping profits, are not enough to offset rising payroll costs. As a result, relatively few fast-food operators are currently making significant investments in robots and similar machinery.
Artificial intelligence, on the other hand, looks like it could be a game-changer.
BTIG catering industry analyst Peter Selah said that the epidemic has caused the drive-thru customer traffic of fast food restaurants to increase from two-thirds before the epidemic to about 80%. Artificial intelligence order taking can speed up the drive-thru process, increase sales and reduce significant labor expenses.
But analysts say it could take at least a year or two, if not longer, for an AI-led drive-thru service to achieve consistent and high-enough accuracy for businesses to be satisfied. By all accounts, the tests often left frustrated customers demanding to speak to a real person rather than a bot.
Major fast food brands are reluctant to discuss their AI drive-thru efforts. Nationwide, McDonald’s has been a leader in using systems developed by IBM. A spokesperson said only that McDonald’s “continues to gather lessons learned from approximately 100 pilot restaurants in the U.S. testing automated ordering technology, and we expect to share more later this year.”
In California, CKE Restaurants, owner and franchisee of Carl’s Jr. and Hardee’s, appears to be leading the way with the technology, but like other chains such as Taco Bell, Burger King and El Pollo Loco, CKE declined to comment.
Yet analysts say no AI platform has achieved more than 85% success without human intervention.
“The hardest part is when you have people with accents from different states and immigrants. It’s challenging,” said Danilo Gargiulo, senior restaurant analyst at investment and research firm Bernstein.
Still, Gargiulo predicts that AI will one day speed up drive-thru production, thereby increasing sales and consumer satisfaction. “Currently, drive-thru times are slower due to duplicate orders,” he said. He said that through accurate AI voice recognition and faster, clearer communication with kitchen staff, you can shave up to 90 seconds off the typical 5.5 minutes it takes for customers to complete a drive-thru purchase.
That’s what Guy is betting on.
He said the initial investment in the AI-powered drive-thru technology he purchased from San Carlos-based Presto was about $10,000 per store. Ghai estimates that if he could get it running at 90 percent speed, store employees might need to step in to take over orders three times an hour, freeing up employees to do other tasks.
As more data is collected, the AI system gets better and better and will soon be able to communicate in Spanish, he said. Add in mobile apps and loyalty programs, and artificial intelligence has the potential to provide faster, more personalized service to fast-food customers. Of course, there’s also the labor-saving part: Ghai believes that the artificial intelligence drive-thru can reduce wages by 10 to 15 hours a day, and if he has two human orderers, wages can be doubled.
“Our goal is not to get rid of people. At the end of the day, we are in the people business,” he said. Meanwhile, Gay added, in the long term, “our numbers will be reduced.”
