McDonald’s, Yum, Wendy’s testing technology

Looking for ways to cut labor costs, restaurants are hoping artificial intelligence can take away drive-thru orders — but it will likely be years before the technology becomes widely available.

This year, 16% of restaurant operators plan to invest in artificial intelligence, including voice recognition, according to a survey by the National Restaurant Association. Most of the big spend comes from large chains, which have the capital and scale to make the technology work for their businesses.

Even before the pandemic, labor costs had risen for restaurants, prompting operators to look to technology to increase their profit margins. Then came Covid, which not only accelerated labor costs but also led to a shift away from dining rooms and towards drive-thru lanes. California’s decision earlier this year to raise wages for fast-food workers to $20 an hour has only made operators more willing to embrace technology to lower their labor costs, which until now it has helped the most in automating homework. .

At the same time, ChatGPT and other AI tools have fueled new excitement about generative AI in restaurants, though the industry is typically slow to embrace technological advances.

A setback for the emerging technology came in June, when McDonald’s told its franchisees that it would end the trial of Automated Order Taker, the AI ​​technology intended for its drive-thru lanes through a partnership with IBM. Once an early mover in the voice-ordering race, the fast-food giant now plans to reach out to other retailers.

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

While some restaurants may be skeptical about using AI to push now, adoption could increase in the coming months and years.

According to TD Cowen analyst Andrew Charles, the tipping point for voice ordering is likely in 12 to 18 months. That’s when he thinks at least two of the nation’s top 25 restaurant chains will go all in, expanding their small tech tests on their footprint.

“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 seek secondary benefits.

SoundHound, an early leader in the space, said its AI can take more than 90% of orders without requiring human intervention; The typical accuracy rate for humans is between 80% and 85%. SoundHound also said its AI can speed up checkout lanes by roughly 10% because it can process orders faster. Plus, AI tries to upsell customers on every order, increasing the average check size.

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

But for all the potential upside, there are also some downsides to generative AI.

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

Additionally, while younger customers may enjoy the increased efficiency and lack of human interaction, older age groups tend to think otherwise. Most growing children would prefer fewer technology options while dining, according to a consumer survey earlier this year conducted by the National Restaurant Association.

Then there’s the fact that technology isn’t perfect. Restaurants with poor Wi-Fi will need to speed up their internet connections. Locations off busy highways will likely find that voice ordering technology will take several years to catch on and better understand customers. And restaurants with long, complicated menus are likely to find AI struggles more pronounced.

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

The fast-food giant’s foray into drive-thru AI began in 2019, when the company acquired Apprente, renaming it McD Tech Labs. Two years later, McDonald’s sold McD Tech Labs to IBM and announced a global partnership with the technology company for undisclosed terms. McDonald’s had already tested the technology in a handful of Chicago areas. Offloading the technology to IBM led to a larger-scale test with about 100 restaurants.

But the test results did not meet McDonald’s standards. The technology had trouble interpreting different accents and dialects, hurting order accuracy, among other challenges, two sources familiar with the matter said. told CNBC. At the time, McDonald’s declined to comment on the accuracy or challenges of the technology, while IBM did not respond to a request for comment on the tool’s accuracy.

Despite the setbacks, McDonald’s isn’t abandoning its goal of using artificial intelligence to take drive-thru orders.

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

The Golden Arches isn’t the only chain with a voice ranking test.

Yum Brands’ Taco Bell is expanding its voice AI test from five locations to 30 restaurants in California “based on positive consumer 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 announced a test at a company-owned restaurant in Columbus, Ohio, through a partnership with Google.

Until now, early movers have mostly been companies with lower average unit volumes, TD Cowen’s Charles said. The industry metric refers to a chain’s average annual sales by restaurant. Because these chain locations have lower sales, there is more financial incentive to use AI to mitigate higher labor costs, according to Charles.

Panera Bread founder Ron Shaich told CNBC that the real winners will be a “fast follower” rather than a first mover with voice ordering. Shaich, who currently serves as chairman of Cava and chief executive of his investment firm Act 3 Holdings, claims credit for being the first mover in many restaurant technology advances: free Wi-Fi in Panera restaurants, combining the chain’s mobile app and loyalty program and the introduction of self-ordering kiosks.

But in the case of voice ordering, Shaich said he thinks it’s better to stay tight-lipped as the technology irons out and focus on making sure the overall customer experience can beat the competition.

“No one is running a restaurant because they have this technology,” he said.

– CNBC Kate Rogers contributed reporting to this story.