McDonald’s, Yum, Wendy’s test technology

Even before the pandemic, labor costs were rising at restaurants, leading operators to turn to technology to increase their profit margins. Then came COVID, which not only accelerated labor costs but also led to a shift from dining rooms to drive-thru lanes. California’s decision earlier this year to raise fast-food worker wages to $20 an hour only prompted operators to further embrace technology to reduce labor costs, which so far has mostly helped automate behind-the-scenes tasks.

At the same time, ChatGPT and other AI tools have sparked new enthusiasm for generative AI in restaurants, even though the industry is typically slow to adopt technological advances.

One obstacle to the technology’s growth came in June, when McDonald’s told franchisees it would end its trial of Automated Order Taker, an artificial intelligence technology for its drive-thru lanes, through a partnership with IBM. Once a frontrunner in the voice-ordering race, the fast-food giant is now considering turning to other vendors.

Then there’s Presto Automation, the AI-powered drive-thru technology company that disclosed in filings with the Securities and Exchange Commission last year that it uses “human agents” in countries like the Philippines and India to fulfill orders. Presto interim CEO Gee Lefevre maintains that using humans is common in the AI ​​industry and allows the technology to be trained without taxing restaurant staff. 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 right now, adoption could increase in the months and years to come.

The tipping point for voice ordering will likely come in 12 to 18 months, according to Andrew Charles, an analyst at TD Cowen. That’s when he thinks at least two of the country’s 25 largest restaurant chains will go all-in, expanding their small trials of the technology to all of their locations.

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

This time, McDonald’s probably won’t be the first to act.

Companies using voice-command technology say their AI doesn’t replace jobs: it simply frees up workers for other tasks. They also point to secondary benefits.

SoundHound, an early leader in this space, said its AI can take over 90% of orders without human intervention; the typical accuracy rate for humans is between 80% and 85%. SoundHound also said its AI can speed up drive-thru lanes by about 10% because it can process orders faster. Additionally, the AI ​​tries to upsell customers with each order, increasing the average bill.

Additionally, in the future, AI may be able to take orders from people who don’t speak English, which represents a huge opportunity both internationally and domestically, according to Charles.

But despite all the possible benefits, generative AI also has some drawbacks.

Restaurants do indeed risk damaging their reputations by using artificial intelligence, Bank of America Securities analyst Sara Senatore wrote in a research note Friday. For example, inaccurate orders can lead to delays and frustration, even if the AI ​​transfers customers to a restaurant employee.

Additionally, while younger diners value increased efficiency and the lack of human interaction, older cohorts tend to think differently. The majority of baby boomers would prefer fewer technology options at restaurants, according to a survey conducted earlier this year by the National Restaurant Association.

Second, the technology isn’t perfect. Restaurants with weak Wi-Fi will need to speed up their internet connections. Restaurants located near noisy highways will likely find that voice-ordering technology will need a few years to catch up and better understand customers. And restaurants with long, complicated menus will likely find that AI’s challenges are more pronounced.

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

The fast-food giant’s foray into AI for the drive-thru 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 in a handful of Chicago-area restaurants. Transferring the technology to IBM led to a larger-scale test of about 100 restaurants.

But the test results fell short of McDonald’s expectations. The technology had difficulty interpreting different accents and dialects, which hampered the accuracy of orders, among other issues, according to two people familiar with the matter. At the time, McDonald’s declined to comment on the accuracy or difficulties of the technology, while IBM did not respond to a request for comment on the tool’s accuracy.

Despite this setback, McDonald’s is not abandoning the goal of using artificial intelligence to take orders at the drive-thru.

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

The Golden Arches isn’t the only chain offering a voice command test.

Taco Bell, a subsidiary of Yum Brands, will expand 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.

So far, the early adopters have largely been companies with lower average unit volumes, TD Cowen’s Charles said. The industry metric refers to a chain’s average annual sales per restaurant. Because these chains’ locations have lower sales, there’s a greater financial incentive to use AI to mitigate higher labor costs, Charles said.

Panera Bread founder Ron Shaich told CNBC that the real winners will be the “fast followers” ​​rather than the first to offer voice ordering. Shaich, who is now chairman of Cava and CEO of his own investment firm Act 3 Holdings, claims credit for pioneering many of the restaurant technology advancements: free Wi-Fi in Panera restaurants, the combination of the chain’s mobile app and loyalty program, and the introduction of self-ordering kiosks.

But in the case of voice control, Shaich thinks it’s best to wait until the technology is refined and focus on ensuring the overall customer experience can beat the competition.

“Nobody runs to the restaurant because there’s this technology,” he said.

— CNBC Kate Rogers contributed to the reporting of this article.