Revolution In Restaurant Automation

THE COWEN INSIGHT

The adoption of automation in the restaurant industry is nearing a tipping point, given a tight labor backdrop that is seeing new risks emerge from unionization & the FAST Act. Automation not only helps leverage labor but also helps drive sales and enhance data collection. In this report we discuss the potential impact of kitchen robotics and voice AI ordering at leading fast-food chains.

BENEFITS OF VOICE AI & KITCHEN ROBOTICS

We see voice AI (utilized for phone-in orders and at the drive-thru) and kitchen robotics as approaching a tipping point of adoption. It is also the next logical extension of our long-standing focus on digitization as a key differentiator for restaurant concepts.

We see automation as the next frontier in the industry’s digitization journey, given a similar suite of benefits. For instance, digitization also includes delivering a more frictionless customer experience, enhancing restaurant operations, and improving data collection.

RESTAURANT AUTOMATION AT A TIPPING POINT

Tipping points are hard to call, but we are optimistic advancements in restaurant automation will see broader industry adoption over the next 12-18 months. Automation plays a key role in eliminating the more frictional tasks to either improve crewmember satisfaction or reduce reliance on labor.

This is especially true as:

1. The restaurant industry employs ~9% of the civilian U.S. workforce
2. A tight restaurant labor backdrop faces exogenous risks new to 2022, including unionization and the pending FAST Act in California
3. Improved technology and price points make automation solutions more realistic
4. Operators have greater open-mindedness to automation, given digital inroads amid COVID-19.
5. It is our view that voice AI will scale faster than kitchen robotics due to the ease of implementing software vs. hardware. Furthermore, we posit the world is more ready for voice AI given a greater degree of societal familiarity with voice assistants.

KEY TAKEAWAYS FROM OUR 9-QUESTION ROUNDTABLE

We conducted a 9-question roundtable with three restaurant voice A.I. companies that we perceive to be most topical for investors.

We note the following key takeaways:

1. Key business use cases are labor shortage and  order consistency.
2. Adoption tipping point is on the horizon. It’s a matter of when and not if .
3. The bottleneck for implementation is company adoption, not technology.
4. Voice AI will first supplement labor vs.  the longer-term potential to replace labor.
5. Multiple languages for voice AI are a matter ofwhen and ot if
6. Paybacks as soon as two months for restaurant concepts with $1.3M annualized sales volumes.

The insights from the roundtable helped inform financial analyses and  labor benefits from adopting voice A.I. at the drive-thru and for phone-in orders, respectively.

To learn more about the impact of kitchen robotics on unit economics, listen to our podcast episode with Miso Robotics.

WHAT TO WATCH

We expect announcements of companies piloting or installing voice A.I. and kitchen robotic technology to ramp up over the next 12-18 months. No top 25 limited-service restaurant brand has yet announced adoption at scale. While difficult to predict timing, once two or more of the top 25 brands make announcements to adopt technology at scale, we expect the rest will quickly follow.

We will also watch several macro-dynamics that will help determine the timeline of adoption. In order of importance:

1. Wage inflation is running well above the historical ~4% average.
2. Efforts are in place to make California’s FAST Act a referendum that would delay what we believe to be an inevitable implementation. This carries a risk of contagion to other states & municipalities.
3. Unionization in the restaurant industry is small but detrimental to stock narratives and, thus, restaurant multiples. We believe a faster spread of unionization would assuredly accelerate automation efforts.

The restaurant industry has long employed immigrant workers. We would expect immigration reform at the national or state level to delay automation, though this seems unlikely.