The drive-thru menu of a McDonald’s restaurant with various food options and special offers in Buttonwillow in Kern County, California, on March 23, 2024.
Smith Collection | Gado | Archive photos | Getty Images
Looking for ways to cut labor costs, restaurants are hoping artificial intelligence can displace drive-thru orders — but it will likely be years before the technology becomes widely available.
According to a survey by the National Restaurant Association, 16% of restaurant operators plan to invest in artificial intelligence, including voice recognition, this year. Most of the big spending comes from large chains that have the capital and scale to harness the technology for their businesses.
Even before the pandemic, restaurant labor costs had been rising, leading operators to turn to technology to increase their profit margins. Then came Covid, which not only drove up labor costs but also led to a shift from dining rooms to drive-throughs. California’s decision earlier this year to increase wages for fast-food workers to $20 an hour has only further pushed operators to use technology to reduce their labor costs, most notably in automating baking -of-the-house tasks helped.
At the same time, ChatGPT and other AI tools have sparked new enthusiasm for generative AI in restaurants, even though the industry is typically slow to embrace technological advances.
A stumbling block to the burgeoning technology came in June, when MC Donalds told its franchisees that it would end testing of Automated Order Taker, an AI technology for its drive-thru lanes, through a partnership with IBM. Once a frontrunner in the voice ordering race, the fast food giant now plans to turn to other providers.
And then there’s Presto automation, the AI drive-thru technology company that disclosed in Securities and Exchange Commission filings last year that it was using “human agents” in countries like the Philippines and India to fulfill orders. Gee Lefevre, interim CEO of Presto, claims that using humans is common in the AI industry and helps train the technology without putting a strain on the restaurant’s workforce. The company unveiled a fully autonomous version in May. Still, the initial lack of transparency could deter some operators.
While some restaurants may currently be skeptical about using AI for drive-thru, adoption could increase in the coming months and years.
According to TD Cowen analyst Andrew Charles, the tipping point for voice ordering is likely to be 12 to 18 months away. Then he expects at least two of the country’s 25 largest restaurant chains to go all in and expand their small test runs of the technology across their footprint.
“It’s like third-party delivery a few years ago: everyone tested it, and then when McDonald’s chose Uber, everyone else followed with their own partnerships,” Charles said.
This time, McDonald’s probably won’t be the first mover.
The pros and cons of AI ordering
Companies with voice ordering technology say their AI does not replace jobs, but simply frees up employees for other tasks. They also tout secondary benefits.
Sound Hound, an early leader in the space, said its AI can take more than 90% of orders without human intervention; The typical accuracy rate for humans is between 80% and 85%. SoundHound also said its AI can speed up drive-thru lanes by about 10% because it can process orders faster. Additionally, the AI attempts to upsell customers on every order, increasing the average check size.
Additionally, in the future, AI may be able to take commands from non-English speakers, which Charles says represents a big opportunity both internationally and domestically.
But despite all the possible advantages, there are also some disadvantages of generative AI.
Sanford, Florida, McDonald’s restaurant drives through the ordering area, with a line of cars.
Jeff Greenberg | Universal Images Group | Getty Images
For one thing, restaurants risk damaging their reputations through the use of artificial intelligence, Bank of America Securities analyst Sara Senatore wrote in a research note on Friday. For example, inaccurate orders can lead to delays and frustration, even if the AI directs customers to a human restaurant employee.
While younger customers may enjoy the increased efficiency and lack of human interaction, older cohorts tend to think differently. According to a consumer survey from the National Restaurant Association earlier this year, the majority of baby boomers would prefer fewer technology options when dining out.
In addition, the technology is not perfect. Restaurants with weak WiFi need to speed up their internet connections. Locations on noisy highways will likely find that voice ordering technology will take a few years to catch up and better understand customers. And restaurants with long, complicated menus will likely find that AI problems are more pronounced.
Why McDonald’s abandoned the IBM partnership
For McDonald’s, the risks aren’t worth it — for now.
The fast food giant’s foray into AI for the drive-thru began in 2019 when the company purchased Apprente and renamed it McD Tech Labs. Two years later, McDonald’s sold McD Tech Labs to IBM and announced a global partnership with the technology company on undisclosed terms. McDonald’s had already tested the technology at a few locations in the Chicago area. Outsourcing the technology to IBM led to a larger test involving about 100 restaurants.
But the results of the test run fell short of McDonald’s standards. Among other things, the technology had problems interpreting different accents and dialects, compromising the accuracy of the order, say two sources familiar with the matter said CNBC. McDonald’s declined to comment at the time on the technology’s accuracy or challenges, while IBM did not respond to a request for comment on the tool’s accuracy.
Despite the setback, McDonald’s isn’t giving up on its goal of using artificial intelligence to take drive-thru orders.
“While there have been successes to date, we believe there is an opportunity to explore voice ordering solutions more fully,” Mason Smoot, senior vice president and chief restaurant officer of McDonald’s US, wrote in a memo to franchisees.
Yummy, Wendy’s test AI order
The Golden Arches isn’t the only chain with a voice recognition test.
Gastonia, North Carolina, Taco Bell Mexican fast food restaurant and drive-thru at dusk.
Jeff Greenberg | Universal Images Group | Getty Images
Yum Brands’ Taco Bell is expanding its voice AI test from five locations to 30 restaurants in California “based on positive customer feedback,” executives said in early May. White Castle plans to use SoundHound’s technology in more than 100 of its restaurants by year’s end. And last year, Wendy’s announced a test at a company-owned restaurant in Columbus, Ohio, as part of a partnership with Google.
So far, the “early movers” have mainly been companies with lower average unit volumes, said Charles from TD Cowen. The industry figure refers to the average annual sales of a chain per restaurant. Because these chains’ locations have lower sales, Charles says there is more financial incentive to use AI to mitigate higher labor costs.
Panera Bread founder Ron Shaich told CNBC that the real winner will be a “fast follower” and not the first mover with voice ordering. Shaich, who is currently chairman of cava and CEO of his own investment firm Act 3 Holdings, claims to be the pioneer of numerous technological advances in the restaurant industry: free Wi-Fi at Panera’s restaurants, the combination of the chain’s mobile app and loyalty program, and the introduction of self-ordering kiosks.
But in the case of voice ordering, Shaich says it’s better to stay quiet while the technology is being ironed out and focus on ensuring the overall customer experience can outperform the competition.
“No one runs into a restaurant because they have this technology,” he said.
—CNBC’s Kate Rogers contributed to this story.
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2024-07-03 11:00:01
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