It didn’t take long for Harshraj Ghai to respond to the impact of California’s new $20-an-hour minimum wage for his 3,700 fast-food workers.
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 April 1 was start to cap workers’ working hours to avoid paying overtime. Additionally, they close some outlets a little earlier and open others a little later to avoid paying workers for less profitable periods.
But the most important thing Ghai and his family are doing isn’t directly involving workers at all: They’ve accelerated and expanded their use of technology, particularly AI.
Currently, they have moved forward plans by several years to install self-service kiosks at all of their locations, including 25 out of state.
But what gives Ghai the most hope for offsetting higher labor costs is AI handling customer orders placed at the drive-thru. It’s testing the machine learning system this month at a few sites and hopes to roll it out company-wide by next year.
Drive-ins are, of course, quintessentially California, with its car culture and fast-paced lifestyle. And now, with AI on the rise, the state is emerging as the starting point for what many analysts see as the next big thing in the world of fast food and drinks.
Not that AI-powered drive-thru is quite ready for prime time. As it stands, the system can have issues with people’s accents 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 backed AI technology with an employee, like the man from The Wizard of Oz behind the curtain. The invisible worker, from as far away as the Philippines, monitors and sometimes steps in to carry out a command if AI falters.
Despite this, Ghai believes that once the problems are resolved, it will be a boon for fast food operators like him.
“This has the potential to have the most impact,” says Ghai, 39, whose Indian immigrant father, Sunny, started the family business in 1998 by buying a bankrupt Burger King in San Jose, where he was deputy director.
What pushed the envelope for businesses like the Ghais’ was California’s sudden 25 percent minimum wage hike for the state’s half-million fast-food industry workers.
To deal with the extraordinary increase in labor costs – which on average account for about a third of a fast food store’s sales – many affected business owners immediately raised menu prices.
Ghai said he had raised prices overall this year by just 2%. But this is not the norm. As of 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, a mid-to-high single-digit percentage more than a month or two earlier , according to a survey by BTIG, the investment banking and research firm.
Relatively few appear to have resorted to layoffs, in part because many already had staff at bare minimum. So, to contain further price increases, a growing number of fast food operators are now rushing to install as much automation as they can afford.
Perhaps the most visible and soon to be widely adopted are all kinds of kiosks for ordering food. Self-serve machines have been around for more than a decade, but franchise owners like Michaela Mendelsohn have resisted the move for many years.
“We just didn’t want to force our customers to use technology. We thought the personal contact was important,” said Mendelsohn, who owns six El Pollo Loco restaurants in Los Angeles and Ventura counties.
But when the industry’s base wage increased to $20 an hour, she said, that equated to $180,000 in additional labor costs per year per store. Less than a month after the wage increase, Mendelsohn purchased two standing kiosks for each of his six restaurants. It cost him $25,000 per store, for two screens, installation, software and other related costs. One of the two machines accepts cash, which she said is necessary for her 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 ahead of the pack in its use of AI technology.
(Los Angeles Times)
Mendelsohn estimates that the kiosks could save five hours of work per day. By that estimate, the machines would pay for themselves within a year and reduce the cost increase from the latest minimum wage increase by about 20 percent. “We are in the process of reducing it,” she said.
Self-service kiosks are ubiquitous in Western Europe, but they are found in fewer than 20 percent of fast-food restaurants in the United States, says Perse Faily, chief executive of Los Angeles-based Tillster, one of the leading suppliers kiosks and other digital services. platforms for restaurants.
The COVID-19 pandemic has accelerated the trend in the United States, she said, and now in California: “We’re seeing a sea change in thinking about, ‘How do I manage my labor costs?’ -work? »
Kiosks can be attractive as they not only save labor but also generate higher sales. Unlike humans, programmed machines always try to “upsell,” never forgetting to ask customers if they would like a drink with their meal or something else to accompany their dish.
Faily, CEO of Tillster since late 2007, would not disclose the company’s sales increase, but said its new customers include Burger King and Popeyes, and that employment at the company has increased by 75 compared to last year, to reach 340 currently. “Raising the minimum wage completely changed the landscape,” she said.
Other computer-guided improvements also aim to reduce labor costs, from automatic avocado peelers and dishwashers to robotic arms that flip burgers and fryer baskets.
But the return on investment, while useful for the bottom line, is not enough to offset the increase in salary expenses. As a result, relatively few fast food operators are currently making major investments in robotics and similar mechanical devices.
AI, on the other hand, seems to be a game-changer.
The pandemic has increased drive-thru traffic at fast-food establishments to about 80% of sales, up from two-thirds pre-COVID, said Peter Selah, a restaurant industry analyst at BTIG. And AI order taking opens up the possibility of speeding up the drive-thru process, increasing sales and reducing significant labor expenses.
But analysts say it will likely take at least a year or two, if not longer, before AI-driven drive-thru reaches a consistent and high enough level of accuracy for businesses to be comfortable with it. system. The tests often left frustrated customers demanding to speak to a real person rather than a robot, according to various accounts.
Major fast food brands were reluctant to discuss their AI drive-thru efforts. Nationally, McDonald’s took the lead using a system developed by IBM. A spokesperson said only that McDonald’s “continues to collect learnings from approximately 100 pilot restaurants testing automated order-taking technology in the United States. We plan 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 technology curve, but like other chains, including Taco Bell, Burger King and El Pollo Loco, CKE declined to comment.
Analysts, however, say that none of the AI platforms have achieved a success rate above 85% in which human intervention is not necessary.
“The hardest part is when you have people with an accent, who come from different states and have an immigrant background. It’s a challenge,” said Danilo Gargiulo, senior restaurant analyst for 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 time is slowed by repeated orders,” he said. With accurate AI voice recognition and faster, clearer communication with kitchen staff, he said, you can shave up to 90 seconds off what typically takes a customer 5 1/2 minutes to complete. a purchase while driving.
This is what Ghai is betting on.
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 get it running at 90%, a store employee may have to step in to take care of an order just three times an hour, freeing up the worker 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 to that mobile apps and loyalty programs, and AI has the potential to offer fast food customers faster, more personalized service. And of course, there’s the labor-saving aspect: Ghai believes the AI drive-thru could shave 10 to 15 hours of pay per day, and double that figure when he has two attendants in human control.
“Our goal is not to get rid of people. At the end of the day, we are in a people business,” he said. At the same time, Ghai added, in the long term, “we will have fewer people.”
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