September 11, 2019

Restaurants - A.I. Ordering Technology Accelerating Into 2020

CMG, GPN, LPSN, MCD
By Bill Becorest

Integration of A.I.-based technologies for automated voice ordering and real-time menu personalization in the quick-service and fast-casual restaurant sectors is growing rapidly in response to higher labor costs, worker shortages and growing competition.

Three executives at artificial intelligence (A.I.) technology firms serving the restaurant industry said the growth of A.I.-based strategies in the quick-service and fast-casual restaurant sectors will accelerate through 2019 and into 2020, driven by continuing pressure from labor cost increases, workforce shortages and growing competition from third-party delivery aggregators. “2020 will be a big year for deployments in conversational A.I. ordering and intelligent menu customization,” one said. “The industry will follow the lead of companies like Chipotle Mexican Grill Inc. and McDonald’s [Corp.]” Chipotle’s A.I.-powered voice assistant (for phone orders) is now operating in more than 1,800 stores, with plans to expand the system to all U.S. stores by the end of the year. “They are not talking about it as a labor-saving piece, but as a customer convenience,” one executive said. “I think most observers realize that’s a bit of public relations spin.”

All sources cited McDonald’s March acquisition of Dynamic Yield and its A.I.-powered platform as a likely turning point for the quick-service restaurant industry. Dynamic Yield’s decision engine can deliver individualized experiences for every customer touch point (through a variety of tech platforms), and is currently being used in digital menu customization at more than 700 McDonald’s drive-through locations; it will reach near 100% coverage in the United States and Australia by the end of the year. “The fact that they bought [Dynamic Yield] tells you a lot about their commitment to this technology,” said an executive at a large franchise consulting group. “That move woke a lot of people up because as McDonald’s goes, so goes the QSR industry. A lot of big players are scrambling to keep up.” McDonald’s continued its aggressive positioning in A.I. with the Sept. 10 announced agreement to buy Apprente Inc., a conversational A.I. company. One executive at a major U.S. QSR chain acknowledged that McDonald’s accelerated investments in A.I. technology has created some added urgency at his company. “We’re moving as quickly as we can on our voice and chat-enabled ordering system. We’ve invested about $6 million in it so far,” he said.

One tech executive said A.I.-based ordering technology, which includes conversational A.I. (chatbots, messaging apps and speech-based assistants) and real-time personalization (automated suggestive selling) has evolved and improved in a relatively short span of time. “Right now there is this convergence of newly available technology coupled with a fairly urgent need by operators to reduce costs, improve guest experiences and find news ways to drive revenue,” he said. Many A.I. tech companies, like LivePerson Inc.’s Conversable, Valyant AI Inc., 5Thru Inc., Clinc Inc. and ConverseNow Technologies Inc., have emerged just within the last five years. “There’s now a lot of talent and know-how in this space,” he said. “Tech capabilities range from multi-language voice ordering to license plate recognition systems.” Some more established software companies have worked to integrate A.I. elements into existing product lines. For example, Global Payments Inc.’s NEXTEP Systems produces its self-ordering kiosks with facial recognition, now used in more than 22 Burgerfi International LLC. locations. (If users agree to use the technology, the system will recognize the customer and bring up the customer’s last order. As a result, reorders can take as little as 10 seconds).

Investment Returns Look Promising for Voice Automation
All sources said labor issues related to mandated wage increases, worker shortages and higher turnover yy during the last few years have contributed to the acceleration in A.I. tech integration in the restaurant industry. “In the market where we are testing, the minimum wage rate ranges from $13-$16 per hour now,” said one tech executive. “We currently price our [drive-through voice ordering] system at $9.50 per hour. The immediate benefit is obvious. The ROI is indisputable, and as these systems become smarter and more efficient, you will eventually see the cost of this technology go down.”

All three tech executives, noting the public perception related to A.I. and its potentially negative impact on jobs, said their objective was to free workers from repetitive or error-prone tasks so they can take on other important duties. Despite downplaying the possibility of reducing the human workforce, both sources representing drive-through voice ordering tech reported significant labor cost savings. “We are just a few weeks away from the system running a full eight-hour shift [in place of a human order taker].” The source, who noted that his company was in talks with 35 potential customers (a mix of franchise systems and individual franchisees), said their system has shown it is able to successfully process about 95% of all orders, with just 5% needing to reroute to a live person for clarification.

One tech executive said conversational A.I. technology will reduce employee turnover rates and overall labor costs. “In the fast-food industry, the average turnover rate is something like 200%-300%, and costs to replace an employee run $2,500-$5,000,” he said. “When you consider that there are 600,000-900,000 unfilled positions in the QSR space right now, you have to look seriously at supplementing your workforce.” 

One source said another factor driving the use of A.I. in the restaurant industry is pressure from third-party delivery companies like GrubHub Inc., DoorDash Inc., Uber Technologies Inc.’s Uber Eats and Postmates Inc. “Third-party aggregators have done a successful job of helping operators in the restaurant industry increase their exposure to new customers,” he said. “but at the same time, third-party platforms are negatively impacting customer loyalty because they are disrupting the relationship between customer and operator. We’re seeing more need to use A.I. to reinforce and even bring back that direct customer relationship.” 

Another factor cited for driving A.I. technology is the potential for incremental sales. “Our [drive-through] system has been able to achieve a 40%-60% success rate for additive sales at a location that traditionally did just 5%-8% with live order takers,” he said. McDonald’s new digital menu boards for drive-throughs (powered by Dynamic Yield) offer up each customer's additional choices based on their selections, and take into consideration other factors like trending menu items, time of day, current restaurant traffic and weather. “[McDonald’s has already reported higher ticket averages [yy] at locations where the system is in place,” said the franchise executive. “That’s why they are deploying it so quickly.”

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