Technology

How Technology Is Helping Restaurants Overcome Labor Shortage Challenges

Chef spooning sauce over a dish in a restaurant
Credit: Friends Stock / stock.adobe.com

Even though the U.S. economy has reopened for some time, the ability to attract workers remains a challenge for many industries, especially restaurants. This has led to longer wait times to be seated and served compared to pre-pandemic times. And in many restaurant windows and entryways, help wanted signs are posted. Labor shortage is a pain point for restaurants, but increasingly, technology is helping address this issue. 

The Current Employment Situation

In the second half of 2022, Fed Chair Powell characterized the U.S. labor market as tight, and with an unemployment level of 3.5% in December, it remained tight exiting the year. Amid the growing number of layoff and reduction in force announcements, National Federation of Independent Business (NFIB) continued to find that businesses were having a difficult time finding skilled workers. Yet, data from the Labor Department showed there were 10.5 million job openings as of November, with more than 1 million in the retail sector.

Despite this, the NFIB’s December Small Business Optimism Index shows 51% of owners reporting few or no qualified applicants for positions they are trying to fill while 26% reported few qualified applicants for their open positions and 25% reported none. Part of the disconnect is explained by the U.S. Chamber of Commerce, which found that the pandemic drove more than 3 million adults into early retirement. Other factors that led people to exit the workforce include the post-pandemic lack of access to childcare or care for other family members, continued concerns over health and Covid or the need to re-train in order to re-enter the job market. 

Mounting Wage Pressure

Since 2009, the federal minimum wage has been $7.25 per hour, making it more than 14 years since it has been increased. There have been efforts to raise it. President Joe Biden campaigned to raise the federal minimum wage to $15 per hour. Biden signed an executive order in 2022 raising it to that level for federal workers and contractors, but a broader change to $15 per hour nationally would require a truly bipartisan effort from Congress. Following the pandemic and subsequent inflation pressures, close to half of the states in the U.S. increased hourly minimum wages at the start of 2022, and this year, at least 26 states plan to do the same. Earlier this month Walmart (WMT) announced it was boosting its minimum wage to $14 per hour.

While there are all sorts of arguments supporting boosting the minimum wage, data published by Statista shows the market for minimum wage workers is overwhelmingly skewed toward the leisure and hospitality industry. According to the Bureau of Labor Statistics, that part of the service economy includes arts, entertainment and recreation as well as accommodations and food service. As we see in the December Employment Report, the overall retail trade sector employed 15.8 million people in December 2022 with 3.2 million employed at food and beverage stores.

Sprinkling in the observation that the accommodation and food service sector had 1.339 million job openings per the  November JOLTS report, it’s not a big leap to conclude food service companies are in a bit of a pickle. Clearly, they are not in a position to fill vacant roles and manage rising costs tied to those roles.

Smaller Footprints and Technology to The Rescue

As discussed in Cocktail Investing: Distilling Everyday Noise into Clear Investment Signals for Better Returns, pain points such as the one described above tend to cry out for solutions. We are seeing just that start to unfold in the food service sector, particularly when it comes to restaurants. Long before the pandemic, restaurants were using point-of-sale solutions from the likes of Micros, which was acquired by Oracle (ORCL), as well as Toast (TOST), Square (SQ), Upserve, Lightspeed and privately held Posist among others.

While it may seem hard to fathom, back in 2015 as part of its Experience the Future project, McDonald’s (MCD) introduced self-service ordering kiosks. These were launched with the goal of delivering greater customization, increasing location throughput, redeploying staff, and in some cases shrinking headcount, all while delivering larger check sizes. By 2018, McDonald’s announced it would upgrade 1,000 restaurants per quarter to include kiosks. Other restaurant companies, like Panera, were also rolling them out. Now that we’ve gone through the worst of the Covid pandemic that drove the growth of contactless interactions from order to payment, a study by Tillster found 65% of customers said they would visit a restaurant more often if self-service kiosks were offered. Further, 30% of customers said they prefer to order from a self-ordering kiosk versus a cashier if the lines are of equal length. 

In 2021, Yum! Brands (YUM) introduced a kiosk-only Cantina model and a new restaurant concept called Taco Bell Go Mobile that is designed specifically for diners to order ahead through the chain’s mobile app. The company was leaning into the shift to drive-thru service and mobile app usage that emerged during the pandemic and was soon followed by Chipotle Mexican Grill (CMG). In late 2021, Chipotle opened its first digital-only restaurant, dubbed Chipotlane Digital Kitchen, that offered pickup and delivery only without either a dining room or a full-service line. Recently McDonald’s CEO Chris Kempczinski shared that the company was also contemplating new store formats, including layouts without dining rooms as well as automated delivery systems that deliver customer orders via conveyor belt to a drive-thru pickup complete with a robotic arm that delivers the bag out to the waiting car. Starbucks (SBUX) is also joining the fray as it targets 700 more U.S. stores in the next three years with drive-throughs as the primary means of sales.

What’s one allure of these to-go-only restaurants? Smaller footprints reduce development costs and rent, but also provide labor savings.

Automation, including the use of food robotics, is also helping restaurant companies contain costs tied to rising wages discussed above while also addressing the worker shortage problem. Nala Robotics introduced a fast-food robot named “the Wingman” that can fry chicken wings, French fries, and other foods, and then season and plate them all autonomously. That follows Flippy the hamburger-making robot from privately held Miso Robotics that includes White Castle among its customers. There are other kitchen robots from Connected Robotics, Dexai Robotics, Essilor Instruments USA, Moley Robotics, QSR Automations and others that are automating food processing, cooking and presentation. According to findings from Lightspeed, half of U.S. restaurant operators are planning to deploy automation technology in the next few years.

And while artificial intelligence (AI) is making headlines thanks to ChatGPT, it is also helping fast food restaurants improve their drive-thru operations. One such company is Presto Automation (PRST), which counts Del Taco (TACO), McDonald’s, Checkers and others as customers for its voice AI. According to Del Taco, during its evaluation of Presto’s voice ordering technology, more than 95% of the drive-thru orders were completed with no staff intervention and sent directly to the point-of-sale and kitchen-display systems. The company also shared other benefits as well including minimized human error during the ordering process and reduced wait times, which prompted it to roll out Presto Voice at additional locations nationwide. McDonald’s has tested voice-ordering AI and Panera has done the same with the latter trying out “Tori,” an automated drive-thru voice assistant created by privately held tech company OpenCity. And last year, ConverseNow, which provides voice AI technology for restaurants, secured a round of funding that included well-known restaurateur Danny Meyer’s Enlightened Hospitality Investments.

As mentioned earlier, technology has traditionally been the provider of solutions for many of society’s problems. While filling fast food orders may not rise to the level of a societal problem for some, it is an existential threat for restaurants, their shareholders and folks who want a meal quickly. Technology is lending a hand in helping restaurant companies overcome some of these threats and offering investors new areas of opportunities.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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