McDonald's, Yum, Wendy's test technology

Looking for methods to cut back labor costs, restaurants are hoping that artificial intelligence can reduce the variety of drive-thru orders, but it can likely be years before the technology is widely available.

This yr, 16% of restaurant operators plan to take a position in artificial intelligence, including voice recognition, based on a survey by National Restaurant Association. Most of the high spending comes from large chains which have the capital and scale to leverage the technology for his or her business.

Even before the pandemic, labor costs for restaurants had been rising, prompting operators to depend on technology to extend their profit margins. Then got here Covid, which not only drove up labor costs but in addition led to a shift from dining rooms to drive-thru counters. California's decision earlier this yr to lift pay for fast-food staff to $20 an hour has only further prompted operators to depend on technology to cut back their labor costs, which until now has mostly helped automate behind-the-scenes tasks.

At the identical time, ChatGPT and other AI tools have created recent enthusiasm for generative AI within the hospitality industry, although the industry is usually slow to adopt technological advances.

A stumbling block for the emerging technology got here in June, when MC Donalds told its franchisees that it could end testing of Automated Order Taker, an AI technology for its drive-thru lanes, under a partnership with IBM. The fast-food giant, once a frontrunner within the voice ordering race, now plans to show to other vendors.

And then there's Presto Automationthe AI ​​drive-thru technology company, which disclosed in filings with the U.S. Securities and Exchange Commission last yr that it uses “human agents” in countries just like the Philippines and India to finish orders. Gee Lefevre, Presto's interim CEO, stresses that using humans is common within the AI ​​industry and helps train the technology without burdening the restaurant's workforce. The company unveiled a totally autonomous version in May. Still, the initial lack of transparency may deter some operators.

While some restaurants are currently skeptical about using AI within the drive-thru, acceptance could increase in the approaching months and years.

The tipping point for voice ordering is prone to be reached in 12 to 18 months, based on TD Cowen analyst Andrew Charles, who believes that by then at the least two of the country's 25 largest restaurant chains might be fully embracing the technology and expanding their small test runs to their entire catchment area.

“It's like third-party delivery a few years ago: everyone tested it, and then when McDonald's partnered with Uber, everyone else followed suit with their own partnerships,” Charles said.

This time, McDonald's will probably not be the primary provider to take this step.

Companies with voice ordering technology claim that their AI doesn’t replace jobs, but simply frees up employees for other tasks. They also tout fringe advantages.

Sound Houndan early leader within the space, said its AI can accept greater than 90% of orders without human intervention; the standard 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 will possibly process orders faster. Additionally, the AI ​​tries to upsell customers with each order, increasing the common bill size.

In addition, AI could take orders from non-English speakers in the long run, which Charles says opens up great opportunities each internationally and domestically.

But despite all of the possible benefits, generative AI also has some disadvantages.

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 Friday. For example, inaccurate orders can result in delays and frustration even when the AI ​​directs customers to a human restaurant worker.

While younger customers benefit from the increased efficiency and lack of human interaction, older age groups think in a different way. According to a study of the child boomer generation, nearly all of baby boomers would favor less technological options when eating out. Consumer survey from earlier this yr, conducted by the National Restaurant Association.

Additionally, the technology isn't perfect. Restaurants with weak Wi-Fi might want to speed up their web connections. In locations along noisy highways, voice ordering technology will likely take just a few years to catch up and higher understand customers. And restaurants with long, complicated menus will likely find that AI's problems are even greater.

For McDonald's, these risks should not value it – at the least not for now.

The fast-food giant's foray into AI for drive-thru restaurants began in 2019, when the corporate bought Apprente and renamed it McD Tech Labs. Two years later, McDonald's sold McD Tech Labs to IBM and announced a world partnership with the technology company on undisclosed terms. McDonald's had already been testing the technology at just a few locations within the Chicago area. Outsourcing the technology to IBM led to a large-scale test in around 100 restaurants.

But the outcomes of the test run fell wanting McDonald's standards. The technology had trouble interpreting different accents and dialects, which affected the accuracy of orders, amongst other things, based on two sources acquainted with the matter. told CNBC. McDonald's declined to comment on the time on the accuracy or challenges of the technology, and IBM didn’t reply to a request for comment on the tool's accuracy.

Despite the setback, McDonald's will not be giving up on its goal of using artificial intelligence to simply accept drive-thru orders.

“While there have been successes to date, we believe there is an opportunity to explore voice ordering solutions more broadly,” wrote Mason Smoot, senior vp and chief restaurant officer of McDonald's within the U.S., in a memo to franchisees.

The Golden Arches should not the one chain conducting a voice ordering test.

Yum Brands' Taco Bell is expanding its voice AI test from five locations to 30 restaurants in California “due to positive customer feedback,” executives said in early May. White Castle plans to make use of SoundHound's technology in greater than 100 of its restaurants by yr's end. And last yr Wendy’s announced a test in a company-owned restaurant in Columbus, Ohio, through a partnership with Google.

So far, the frontrunners have been primarily firms with lower average unit volumes, said TD Cowen's Charles. The industry metric refers to a sequence's average annual revenue per restaurant. Because these chains' locations have lower revenues, Charles said there’s a greater financial incentive to make use of AI to mitigate higher labor costs.

Panera Bread founder Ron Shaich told CNBC that the actual winners might be the “quick followers” ​​relatively than the primary to adopt voice ordering. Shaich, who’s currently chairman of Cava and CEO of his own investment firm, Act 3 Holdings, claims to have pioneered many technological advances within the restaurant industry: free Wi-Fi in Panera's restaurants, the mixture of the chain's mobile app and loyalty program, and the introduction of self-service kiosks.

In the case of phone ordering, nevertheless, Shaich says it's higher to attend until the technology matures and concentrate on ensuring the general customer experience can surpass that of the competition.

“Nobody runs into a restaurant because it has this technology,” he said.