Is the end near for fast-food workers?

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Wendy's (NASDAQ: WEN) has become the latest fast-food chain to partially replace its order-taking employees with a digital alternative. The company plans to add self-ordering kiosks at 1,000 locations by the end of the year, and executives noted during an analyst/investor day earlier this month that one benefit will be reducing labor costs.

Chief Information Officer David Trimm also noted that kiosks would allow the company to serve more people during busier times. He said the kiosks pay for themselves in less than two years.

"They are looking to improve their automation and their labor costs, and this is a good way to do it," Darren Tristano, vice president with Technomic, a food-service research and consulting firm, told The Associated Press. "They are also trying to enhance the customer experience. Younger customers prefer to use a kiosk." Trimm said during the analyst/investor day that "... everybody, whether you're a millennial or not, is now expecting to interact with brands via digital channels."

Be it kiosks, mobile ordering via smartphone, or something else, it's very clear that in a number of fast-food and even fast-casual chains, technology can make it unnecessary to speak to a human being when placing an order. That will not only save money, it should also improve customer satisfaction.

Kiosks have many advantages over humans. Kiosks don't call in sick, require breaks, or mishear an order. They also can't be rude to customers, steal from the register, or intentionally screw up the order of a rude customer. Most importantly, though digital ordering technology requires an up-front investment, kiosks, smartphones, and other non-human ordering stations don't get paid hourly wages.

Trimm elaborated on the move to mobile: "... how do we view kiosks and mobile. Well, I think eventually everything will be mobile, right? I think everybody sees that as being written in the future. However, kiosks do [serve] as a steppingstone to that. Because I don't need to persuade anybody to download anything to be able to use a kiosk. They can just go in and use it. Get customers used to self-ordering, get them used to navigating our menus and so on. So we think that's a really important direction; kiosk first leading to mobile certainly over time."

Automation is here

McDonald's (NYSE: MCD) has begun using ordering kiosks in many countries around the world and has plans to increase their rollout in the first half of 2017 while going national with the technology in the second half of the year, Reuters has reported. The company also plans to add mobile order and payment to its app this year.

But, while kiosks are coming to McDonald's, the company's CEO said he does not expect the technology to reduce employee counts. Instead, "traditional order takers would be redeployed to help customers learn to operate kiosks and to deliver food to tables," he told Reuters.

That has also been the case with digital pioneer Starbucks (NASDAQ: SBUX), which first introduced ordering and payment via its app to be able to shift workers in the limited space behind its counters from order-taking to production. Starbucks has also experienced some problems with its Mobile Order & Pay system becoming so popular that while lines are smaller, the drink pickup area has become crowded.

Will automation cost jobs?

While the early days of automation may not lead to major workforce cuts, the reality is that for most chains, the appeal of automating order-taking and eventually production is that it lets stores operate with fewer human workers. This isn't unique to fast food. Grocery stores have been adding in self-serve checkouts for years and most gas stations moved to self-serve checkout decades ago.

"We have a service economy, and the service sector is starting to automate," automation expert Martin Ford told The Los Angeles Times back in 2011. "We've seen that technology does destroy jobs in those sectors."

Currently about 3.7 million Americans work in the fast-food industry. Most of those employees, about 89%, are "front-line workers" including line cooks and cashiers, while another 9% are low-level supervisors, according to the National Employment Law Project (NELP).

What happens next?

Automation is going to cost jobs, but it's not going to happen quickly. Some chains may make a strategic business decision that having employees perform work that could be automated benefits their business. In the case of fast food, however, automated order-taking will eventually mean fewer human order takers. Some of those jobs may shift to customer service, production or order delivery, but many will simply go away.

Eventually, automation will spread to production, but that's a more expensive problem to solve and chains will be slow to make that investment.

In the short term, adding order-taking technology will likely save most of these companies some money, but it will take time to pay off that investment. Automation is fast food's future, but that future is only partially here.

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Daniel Kline has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool has a disclosure policy.


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