McDonald's is now testing automated drive-thru service in select Chicago-area restaurants, yet another indication that forced minimum-wage increases drive low-skill industries to outsource work to computers.
What is the background?
As municipalities and some states enact a $15 minimum wage, low-skill industries, such as fast-food restaurants, have been exploring methods of automation to keep labor costs down while complying with wage laws.
For example, many McDonald's restaurants now include automated ordering machines, allowing customers to order food inside the restaurant without directly interacting with employees. In theory, such machines eliminate the need for a cashier position, which means McDonald's owners can save money by employing fewer people.
What is McDonald's doing now?
CEO Chris Kempczinski announced last week that McDonald's is testing voice-recognition machines at 10 Chicago-area locations to automate the drive-thru experience.
Kempczinski told investors their automated system is about 85% accurate and is able to process most orders. However, he also predicted that automated drive-thru lines won't become a mainstay — at least for the next few years.
"Do I think in five years from now you're going to see a voice in the drive-thru?" Kempczinski said, according to Nation's Restaurant News. "I do, but I don't think that this is going to be something that happens in the next year or so."
"There is a big leap between going from 10 restaurants in Chicago to 14,000 restaurants across the U.S. with an infinite number of promo permutations, menu permutations, dialect permutations, weather — I mean, on and on and on and on," he explained.
The news comes after McDonald's recently announced plans to hike wages for employees who work at McDonald's-owned McDonald's restaurants. The vast majority of McDonald's locations are owned by franchisees, who determine wages at their own restaurant.
"These increases, which have already begun, will be rolled out over the next several months and include shifting the entry level range for crew to at least $11-$17 an hour, and the starting range for shift managers to at least $15-$20 an hour based on restaurant location," McDonald's explained in a news release.
Former McDonald's CEO Ed Rensi said forcing businesses to increase their minimum wage will result in one of two outcomes: increased prices for consumers or further automation of the industry.
"When you raise prices 1%, you lose about 1% of your transaction costs," Rensi told Fox Business. "And you have to work really hard to recover that through promotion, marketing, you know, all kinds of local events and it's not an easy thing to do, particularly when you're living on a very high number of transactions.
"You got a choice, you go broke by raising prices or you go broke by losing money because you can't raise prices," Rensi continued. "So I understand the need to perhaps make a public statement that you're going to $15 and I don't quarrel with that aspect of it. But when the rubber meets the road, you've got to look at what are the franchisees going to do because they're 80% to 90% of the system and a lot of them are already there."
Chipotle chief financial officer Jack Hartung agrees that the cost of forced minimum wage increases will be passed onto customers.
"We're not that far off of like for example, a $15 number. But let's say, for example, that there's going to be an across-the-board 10% increase in our wages," Hartung said in April, Business Insider reported. "And that would, to offset that with menu pricing, that would take us 2% to 3% price increase."