Image credit: Nicole Rifkin
This story appears in the June 2017 issue of Entrepreneur. Subscribe »
It’s 1 p.m. in New York City, and the delis and fast-casual joints that line the streets of midtown are devolving into loud, heaving scrums of office workers rattling off orders for turkey on rye, and kale salads with dressing on the side, and Diet Cokes, no ice.
Which is why when I walk into Eatsa on Madison Avenue the first thing I notice is the silence. Some of the customers streaming in approach a phalanx of iPad kiosks; others proceed directly to the far end of the restaurant, where orders materialize within a wall of cubbies that bring to mind food replicators out of Star Trek. Most breeze in and out in less than two minutes without having so much as paused their podcasts. Two red-shirted Eatsa employees mill around, awaiting questions that never come.
Eatsa debuted in 2015 with a menu of customizable quinoa bowls, in flavors like No Worry Curry and Hummus & Falafel, and has since expanded into soups, noodles and salads at some of its seven locations. The concept is a 21st-century automat. Orders are placed in advance through the store’s app or tapped into a kiosk on-site but cannot be dictated to an actual human. Cash is not accepted. Utensils and napkins emerge through holes in the wall. It’s hard not to walk away feeling a certain electric sensation of having met the future head-on, like your first time cruising through an E-ZPass lane and wondering whether human beings are, at last, on the verge of obsolescence.
Eatsa sits on the bleeding edge of the automation spectrum, but the trends embodied there are real, and growing, especially among large quick-service franchises. Last year, more than half of Domino’s orders in the U.S. originated from digital platforms, including Apple Watch, Google Home, Amazon Echo and Facebook Messenger. About half of Pizza Hut’s orders are now digital. Taco Bell, Dunkin’ Donuts and KFC all have their own order-and-pay mobile apps, too. According to the market research firm Business Intelligence, mobile order-ahead will account for around 10 percent of all quick-service-restaurant sales by 2020.
This spring, McDonald’s announced not only that mobile order-and-pay technology would be accepted at 20,000 restaurants by the end of 2017 but that by 2020, most of its 14,000 U.S. restaurants would be outfitted with the “Experience of the Future,” an ambitious upgrade — estimated to cost $100,000 to a few hundred thousand per store — that includes kiosk ordering. Wendy’s has said it will install 1,000 kiosks in stores this year.
Fast-food franchises often get a bad rap for being slow to change, but this time they find themselves in the unique position of being among the first in the food-service realm to make a major investment in automation. As a result, the consensus view among industry leaders and analysts has become that quick-service dining is heading toward a largely automated future. In the heat of the “Fight for $15” movement, which pushed for higher wages for fast-food workers, former Hardee’s/Carl’s Jr. CEO and one-time labor secretary nominee Andrew Puzder made no secret of his enthusiasm for the idea of installing machines in place of human workers. According to a McKinsey & Company analysis, 73 percent of the activities workers perform in food service “have the potential for automation.” A 2013 study out of Oxford University gave fast-food preparation and service a 92 percent probability of becoming automated, albeit over an unspecified period. Yum! Brands CEO Greg Creed says automation will replace fast-food workers within a decade.
Naturally, all this has conjured imagined scenarios involving mass unemployment and robot overlords, but I wanted to see how much actual progress has been made to date toward an automated future for the industry. Is the fully human-free fast-food restaurant imminent or still theoretical? How will customers respond? What will workers do? What will it mean for the bottom lines of franchisees? And is there really a robot that makes only crab bisque? I went to find out.
The first place I went looking for answers was Panera Bread, one of the few quick-service brands to have already made a big push toward automation. Back in 2014, the company announced an ambitious commitment to digitization, dubbed Panera 2.0 — a wholesale reorganization of the business around mobile and kiosk ordering in all of its 2,000 stores. I was eager to pay my local franchisee a visit to see just how many humans had been deleted from the equation. Instead I found green-aproned Panera employees everywhere. They were delivering food to tables, cleaning up around the restaurant, loading orders onto “to-go” shelves and manning registers. “In the early transition, we pretty dramatically increase the staff hours in the café,” Panera Bread’s president, Blaine Hurst, told me over the phone.
It may seem counterintuitive, but it’s true. Panera 2.0 locations employ more, not less, labor than their old-school counterparts. That’s because digital ordering tends to increase order volumes and order sizes, as well as customization, all of which requires extra kitchen labor for production and quality control. Table service also demands employees; in stores that offer delivery, Panera has added drivers. “We want to increase sales — that’s the ultimate mission,” Hurst says. Before Panera 2.0, the company’s labor costs were running 29.7 percent of sales; two years into the digital overhaul, they had jumped to 32.5 percent, while sales have increased multiple percentage points year-over-year in stores where the 2.0 concept is in force. (The company declined to provide profitability numbers.)
Though McDonald’s doesn’t release detailed labor-cost information, a visit to one of its locations operating the “Experience of the Future” suggests similar staffing levels. A bank of large, inviting kiosks has replaced most of the cash registers, but a small army of McDonald’s employees circulates through the dining area delivering orders, wiping down tables and coaching customers on the kiosks.
The decision to use ordering technology to redeploy workers rather than simply fire them is not arbitrary or a handout. It’s about prioritizing growth and keeping up with demand in the digital age. Since launching their mobile order-and-pay app in 2015, Starbucks has had widespread difficulty making all those lattes and macchiatos as fast as the orders are coming in through the app, and the company recently announced it will be adding extra baristas to existing locations, as well as experimenting with a new store design that dispenses with cashiers and seating to maximize space for production.
Hope Neiman, the chief marketing officer of Tillster, a vendor that implements and manages technology at quick-service brands like Burger King, Pizza Hut and KFC, has experienced the same challenges. “You generally get a faster order flow coming off digital platforms,” says Neiman. “We’ve had to work with franchisees after they unplugged kiosks because orders were coming in to the kitchen faster than they could handle them.”
Here’s the crux of the matter: Somebody has to prepare all this food. While some of the displaced labor at companies like Panera and McDonald’s is being diverted from registers into optional, premium job functions — delivering food orders tableside, or keeping the store cleaner — the bulk of it is winding up in one place: the kitchen. And because automation of food production has not kept pace with innovations in ordering, the kitchen remains very much a human domain. “Go to a Shake Shack and look behind the counter,” says Matt Sheppard, the COO of 4ftech, a food-service-technology consultancy. “There are 20-odd employees flipping burgers, making shakes and assembling orders. It doesn’t matter how big the funnel is; if you don’t have technology in the back of house, it’s a bottleneck.”
More than half of the labor in quick-service restaurants has traditionally been occupied with kitchen tasks. Those positions aren’t going anywhere anytime soon. News reports about kitchen automation mostly serve to draw attention to how far we are from having a cookless solution to cooking. Witness Moley Robotics’ “robot chef,” which can make only crab bisque, under hyperspecific conditions, and the coffee kiosk Café X in San Francisco, which features a robotic arm that does nothing but move cups from coffee machine to the counter.
“In order for robotics to work back-of-house in a meaningful way, we’ll need some leapfrog-like innovations, and we haven’t seen that yet,” says Erik Thoresen, of food-industry research firm Technomic.
Still, there are some promising technologies tackling individual kitchen tasks. One is Flippy, a burger-flipping robot prototype invented by Miso Robotics that the company says will debut in a Caliburger restaurant sometime next year. David Zito, the CEO of Miso Robotics, told me that one of the fast-casual chain’s major motivations to pursue this technology was an industry turnover rate that he characterizes as sky-high. The technology is still unproven, but Miso’s hope is that by automating one of the kitchen’s most dangerous and repetitive tasks, humans will end up with more engaging jobs they’re less likely to abandon after a few months.
Similar thinking undergirds Zume Pizza, a largely automated Bay Area pizza startup, according to Julia Collins, co-CEO and co-founder. At Zume, ordering is 100 percent digital. People shape the dough and place the toppings, but then robots repurposed from manufacturing settings sauce the pizzas and transfer them to the oven in a central, commissary-style kitchen. Par-baked pizzas are then loaded into mini ovens on a purpose-built delivery truck, where they finish baking just moments before being delivered. According to Collins, employee satisfaction is a key motivator. “We’re not automating the occupation; we’re automating the repetitive tasks,” she says. “At Zume, human beings have time to do things human beings are great at, like tasting, recipe development and interacting with farmers.”
Nevertheless, Zume is employing fewer people relative to sales volume than comparable operations. The company’s labor costs represent just 14 percent of sales, compared with 25 to 30 percent for competitors — while paying a minimum of $15 per hour, plus benefits. Perhaps here we finally have an example of jobs being handed over to robots, although Collins argues that a leaner workforce enables faster expansion, and therefore net job creation.
If history is any indication, Collins is probably right. The invention of the ATM set off a panic that bank jobs would disappear. In fact, their numbers have grown as a whole, as the efficiencies ATMs created have allowed banks to open more branches. Similar effects have been found with automation in jobs ranging from cloth weavers to paralegals to gas station employees. In a 2015 paper published in the Journal of Economic Perspectives, MIT professor David Autor points out that in the past two centuries, the employment-to-population ratio has trended upward despite rapid automation. “Automation does indeed substitute for labor — as it is typically intended to do,” Autor writes. “However, automation also complements labor [and] raises output in ways that lead to higher demand for labor.”
So what does all this mean for franchisees? One morning in March, I drove out to a McDonald’s not far from where I grew up. When I arrived, the tidy place was humming with mothers and young kids, construction crews on lunch break and retirees, all for the most part ordering their Quarter Pounders and Chicken McNuggets to stay. In the wake of the company’s announcement about the Experience of the Future rolling into all U.S. stores, I wanted to see how one long-term operator was greeting the arrival of the automation age.
The owner — we’ll call him Tom, since he asked not to be identified using his real name — is in his third decade as a McDonald’s franchisee, long enough to have seen such technological advances as the self-service soda machine, a grill that cooks both sides of a hamburger patty at once and digital menu boards. He takes the idea of digital kiosks in stride, seeing it as just another part of keeping the business up-to-date.
“The hope is that the kiosks and mobile-ordering app will be a good experience for the customer and help build sales, and so you’ll get better productivity from the labor you already have,” Tom says.
He employs about 40 people, including five salaried managers and an hourly workforce that he describes as mostly high school kids. He isn’t expecting to cut down his shifts when the kiosks come in; he thinks that freeing up a worker or two from the register will mean extra capacity for table service, tidying or working on orders in the back. That’s what he’s seeing from others who have the kiosks, anyway.
“Listen,” he says. “A hamburger is a hamburger is a hamburger. What keeps people coming back is the value, and the experience they have. So we try to make the environment nice, keep the store clean, make it comfortable. I hear we’re going to be putting in charging stations. Now, imagine being able to sit down and charge your phone or work on your computer and have someone bring you your meal, That’s a nice experience for you — and you know what? Maybe you’re going to be a twice-a-week customer, instead of once-a-week.”
That, in the end, is what everybody from McDonald’s CEO Steve Easterbrook to franchisees like Tom to the 40 folks he employs is counting on — that fueled by the efficiencies produced by automation, the fast-food business will continue to grow, which in turn will stimulate job creation. And in the immediate term, at least, that’s what the industry expects will happen. A UBS equities analyst I spoke with estimated industry growth at 1 to 2 percent per year for the foreseeable future, and the Bureau of Labor Statistics sees food preparation and service jobs increasing in number by 11 percent between 2014 and 2024. It doesn’t seem like food-service jobs are falling by the wayside anytime soon. But whether man and kiosk will see in the 22nd century together? That’s still anybody’s guess.
Source: Feed Burner