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In another blow to the labor market, McDonald’s Corporation (NYSE:MCD) has made its third buyout of the year with automation in mind in the Silicon Valley start-up company Apprente. Apprente is a developer of voice-based conversational assistants for use in enterprise solutions. Apprente was founded in 2017 by Itamar Arel and Moshe Look to develop AI solutions for voice recognition in loud environments such as restaurants and more specifically the drive-thru. This follows the previous acquisition of the company Dynamic Yield for its decision making technology and the purchase of a 10% stake in the company Plexure which is the vendor for the McDonald's mobile app.
McDonald's in recent years has been on the receiving end of labor strikes, protests and negative coverage from the “Fight for 15” activists and repeated calls to try and unionize its labor force. This latest purchase continues the trend in the fast-food industry as a whole to attempt to replace labor with automation. In recent years we have seen the development of self-service ordering kiosks installed in the restaurants to reduce the dependency on the use of a fickle labor market. Other technologies such as the burger-flipping machine, dubbed “Flippy”, is another such tool companies are exploring to replace employees in the restaurant.
Looking at the technology Apprente offers it would be expected that McDonald's will leverage this technology in its drive-thru as well as indoor registers where customers would no longer be in contact with another person but instead would find themselves 'interfacing' with a machine or tool. With this purchase, McDonald's is starting a new business unit called the McD Tech Labs which the Apprente team is expected lead. The first focus of this group is to integrate the drive-thru with its AI software. “Building our technology infrastructure and digital capabilities are fundamental to our Velocity Growth Plan and enable us to meet rising expectations from our customers while making it simpler and even more enjoyable for crew members to serve guests," said McDonald’s President and CEO Steve Easterbrook in a statement.
McDonald's incurs significant labor costs as a percentage of its restaurant revenues and the low skilled jobs are ripe for automation. Typically these are about a third of the costs in each restaurant. By leveraging its use of technology McDonald's is able to do accomplish a few things: It will be less dependent on labor and reduce the associated costs such as breaks, lunches, taxes and healthcare costs and also be able to maintain or increase profits or pass the cost-saving onto customers. With the complete integration of the various technologies, McDonald's is focused on employing it should see a boost to same-store sales, revenue and additional earnings growth over the coming years.
For the Fight for 15 activists, it is unclear how this latest development will impact their targeting of the fast-food industry. It is quickly becoming apparent that automation is making it much more difficult for low skill employees to engage in market activities that historically provided entry-level positions to gain important skills. In the coming years, this trend is going to work it's way up to higher skill jobs like finance as previously discussed here and here. In addition to activist concerns, there may also be negative media attention due to the reduction in jobs available since this technology would be used to replace crew members at the window.