On Wendy’s Co.’s (WEN) earnings conference call last week, the fast-food chain reaffirmed a plan that will send shudders throughout the low-wage American workforce.
The company will push ahead with self-ordering kiosks – a labor-saving device that’s sweeping across the fast-food industry.
But while some will laud this triumph of technology in terms of saving money, many others view it as a disaster for the low-wage, low-skill labor market.
Want fries with that? Tell it to the machine.
Combined with other ways to order and pay for food – such as mobile apps – a large portion of low-wage labor in fast-food restaurants is on the verge of disappearing forever.
But just how big a disaster is this for the U.S. workforce?
Workers on the Way Out?
According to the Bureau of Labor Statistics, over half of minimum-wage earners work in the service industry, mostly in food preparation or food service jobs.
That’s 1.7 million people, to be exact.
And another study finds that another 3.75 million workers who make “near-minimum” wage are in food preparation or service.
In their constant clamor for “breaking news,” many media outlets treated Wendy’s announcement of food kiosks as new information, but Wendy’s has actually been working on reducing its demand for labor for quite some time. The same goes for its competitors in the fast-food industry, too.
So why the shift? And why now?
It would be all too easy to blame this move toward automation on the recent wave of minimum wage increases in places like California and New York. Indeed, Wendy’s President Todd Penegor even mentioned those mandated increases in his comments call. But he also cited a tighter labor market in general as a contributing factor.
And it’s not just the “front of the house” where automation is taking hold.
The Rise of the Automated Army
A modern fast food kitchen already has an enormous amount of automation designed to minimize the amount of labor required. And as technology improves, the kitchen will only become more automated.
In fact, CKE Restaurants Inc., the parent company of Carl’s Jr. and Hardee’s, has openly spoken of opening a restaurant that’s entirely free of employees.
And White Castle – which spends even more on labor as a percentage of costs than other fast-food restaurants due to its low prices – told the National Review that it faces a key decision: Either raise prices by up to 50%, or significantly increase the amount of automation in its food preparation.
Of course, there are several factors that make automation more attractive than humans to employers: Machines are never late, they never get sick, they never sue, and they never protest about their pay. They know how to do their job on the first day and are much more consistent than humans.
But lest you think I’m a card-carrying member of the Robot Army at the expense of humans, there are three other main trends that are driving the current push towards automation:
- Cost: The cost curve is moving in favor of more automation. At its core, technology is about finding newer, innovative ways of accomplishing tasks – in ways that are better, faster, stronger, more convenient and cheaper than before. Contrast this declining cost curve with wages, which generally head higher over time – even if they’re not goosed by legislation and don’t keep up with inflation. Automation was previously targeted at higher-wage manufacturing jobs because it made greater economic sense to replace a high-wage worker, whereas it wasn’t worth it to replace an already-cheap low-wage worker. That’s no longer true.
- Capability: At the same time as costs for the machines decline, the capabilities of automated systems are increasing. You can see this progress in bank ATMs, for example. They’ve advanced from basic functions like dispensing cash and making deposits to the point where customers can now use an ATM for almost any task that they’d do with a human: transferring money between accounts, depositing checks instantly, and even borrowing money. In the fast-food industry, an automated ordering kiosk would have been fanciful not long ago, not to mention the difficulty that customers would have encountered in operating them. But advancing technology, coupled with the “iGeneration,” where using touchscreens is now second nature, means faster systems using high-quality touchscreens are ubiquitous and simple to use. This speaks to another trend…
- Tech vs. Humans: It’s somewhat sad to say, but customers are increasingly more comfortable dealing with technology than with humans. The use of the internet for communication and commerce has created a world where people are used to conducting most business and life on a computer or smartphone. In fact, the millennial generation has become so accustomed to screens that many of them no longer even want human interaction – at least not if they can avoid it. Case in point: CKE’s chairman tells of restaurants where there’s a line to use ordering kiosks… even though there are human cashiers with no line! And in California, there’s a new restaurant called Eatsa, where customers order, receive their food, and take it away without ever interacting with another human being. Fast food, fast living – no humans required.
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So what does all this mean for the American workforce?
The Irrelevant Fight Over the Minimum Wage
Well, as the U.S. presidential race rumbles on, you’ve no doubt heard plenty (particularly from Senator Bernie Sanders) about increasing the minimum wage.
But the “national conversation” about the minimum wage isn’t going to be very important in the long run, or even in just a few years.
Higher wages may actually increase the adoption of automation.
Either way, more automation is coming. And not just in restaurants, of course. Warehouses, retailers, movie theaters, and other employers of minimum and near-minimum-wage employees have now also targeted low-skilled, low-wage jobs for automation.
So the bigger question isn’t about the appropriate minimum wage level. It’s about what’s actually going to happen when all of those jobs disappear altogether at any wage.
To living and investing in the future,