McDonald's, yum, Wendy's test take

Even before the pandemic, labor costs for restaurants were rising, leading operators to look to technology to increase their profit margins. Then came Covid, which not only accelerated labor costs but also shifted them away from dining rooms and toward drive-thru lanes. California's decision earlier this year to raise wages for fast-food workers by $20 an hour has only prompted operators to adopt technology to lower their labor costs, which until now has largely been at home. Assisted in automation of previous tasks. .

At the same time, ChatGPT and other AI tools have fueled renewed enthusiasm for creative AI in restaurants, though the industry has generally been slow to embrace technological advances.

A setback for the growing technology came in June, when McDonald's told its franchisees that it would end a trial of automated order taker, AI technology aimed at its drive-thru lanes through a partnership with IBM. taken After initially leading the race for voice ordering, the fast food giant now plans to turn to other vendors.

Then there's Presto Automation, the AI ​​drive-through technology company that disclosed in a Securities and Exchange Commission filing last year that it uses “human agents” in places like the Philippines and India to complete orders. Gee Lefevre, Presto's interim CEO, says the use of humans is common in the AI ​​industry and helps train technology without straining a restaurant's workforce. The company unveiled a fully autonomous version in May. Still, the initial lack of transparency may scare off some operators.

While some restaurants may be skeptical about using AI for drive-throughs now, adoption may increase in the coming months and years.

According to TD Cowen analyst Andrew Charles, the tipping point for the voice order is likely in 12 to 18 months. That's when he thinks at least two of the nation's top 25 restaurant chains will expand their small trial runs of the technology in their footsteps.

“It's like third-party delivery a few years ago: Everyone was testing it, then when McDonald's went with Uber, everyone else followed with their own partnerships,” Charles said.

This time, McDonald's likely won't be the first mover.

Companies with voice-ordering technology say their AI doesn't replace jobs — it just frees up workers for other tasks. They also mention secondary benefits.

SoundHound, an early leader in the space, said its AI can take more than 90% of orders without human intervention. Normal accuracy rates for humans are between 80% and 85%. SoundHound also said its AI can speed up drive-thru lanes by about 10 percent because it can process orders faster. In addition, AI tries to sell customers every order, increasing the average check size.

Additionally, in the future, according to Charles, AI may be able to take orders from non-English speakers, which represents a huge opportunity both internationally and domestically.

But for all the potential pros, generative AI also has some drawbacks.

For one, restaurants risk damaging their reputations by using artificial intelligence, Bank of America Securities analyst Sarah Senatore wrote in a research note Friday. For example, incorrect orders can cause delays and frustration, even if AI transfers customers to a human restaurant worker.

Additionally, while younger customers may enjoy increased efficiency and a lack of human interaction, older colleagues think differently. According to a consumer survey conducted earlier this year by the National Restaurant Association, the majority of baby boomers prefer less technology options while dining.

Then there is the fact that technology is not perfect. Restaurants with weak Wi-Fi will need to speed up their Internet connection. Noisy highway locations will know that voice-ordering tech will need a few years to catch on and better understand customers. And restaurants with long, complex menus will likely find that AI's struggles are more pronounced.

For McDonald's, the risks aren't worth it — for now.

The fast food giant's foray into AI for drive-throughs began in 2019, when the company bought Apprente, renaming it McD Tech Labs. Two years later, McDonald's sold McD Tech Labs to IBM and announced a global partnership with the tech company for undisclosed terms. McDonald's had already tested the technology at a handful of Chicago-area locations. Offloading the take to IBM led to large-scale tests of about 100 restaurants.

But the trial run results fell short of McDonald's standards. The technology had problems interpreting different accents and dialects, among other challenges, compromising the accuracy of the sequence, two sources familiar with the matter said. told CNBC. At the time, McDonald's declined to comment on the technology's validity or challenges, while IBM did not respond to a request for comment on the tool's validity.

Despite the setback, McDonald's isn't giving up on its goal of using artificial intelligence to pick up drive-thru orders.

“While there have been successes to date, we feel there is an opportunity to explore voice ordering solutions more broadly,” McDonald's US senior vice president and chief restaurant officer Mason Smoot wrote in a memo to franchisees. Is.”

The Golden Arches isn't the only series with a voice ordering test.

Yum Brands' Taco Bell is expanding tests of voice AI 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 the end of the year. And last year, Wendy's partnered with Google to announce a test at a company-owned restaurant in Columbus, Ohio.

So far, early movers have largely been companies with low average unit volume, said TD Cowen's Charles. The industry metric refers to the chain's average annual sales by restaurant. Because these chain locations have fewer sales, according to Charles, there is a greater financial incentive to use AI to reduce high labor costs.

Panera Bread founder Ron Schach told CNBC that the real winners will be the “fast followers” rather than the first movers with a voice order. Schach, who currently serves as Cava's chair and chief executive of his own investment firm, Act 3 Holdings, claims credit for being the first mover on many of the restaurant's tech advances: Free at Panera restaurants; Introducing Wi-Fi, China's mobile app and loyalty program and self-order kiosk.

But in the case of the voice setting, Schach said he thinks it's best to sit tight until the technology takes off and focus on making sure the overall customer experience can beat the competition.

“No one is running into a restaurant because it has this technology,” he said.

– of CNBC Kate Rogers Contributed to the reporting of this story.