In the post-World War II era, automobile manufacturers began producing cars that fit the average consumer’s budget. As more and more people took to the road for vacations and sought the comfort of living in the suburbs, fast-food outlets took notice.
While the drive-thru window is often associated with McDonald’s, the megachain didn’t open its first drive-thru restaurant until the 1970s. One of the first drive-thru restaurants was Red’s Giant Hamburg on Route 66 in Springfield, Missouri. In 1948, however, In-N Out Burger upped the ante by opening a drive-thru with a two-way speaker system. The rest, as they say, is history.
Fast-forward nearly three-quarters of a century, and a new technological revolution is taking shape within the fast-food industry — digital-only locations. It means for consumers that they will no longer have to wait in line to place their orders.
Chipotle opened its first digital-only location last November. Last summer, Starbucks announced it would close 400 traditional stores and open 300 “pickup-only” stores. Taco Bell recently announced it would open a digital-only “cantina” in New York’s Times Square.
The innovations take advantage of mobile apps and kiosks that remove the human element, allowing customers to place orders ahead of time or at kiosks within the locations. At the Times Square Taco Bell, customers will pick up their orders from pink, illuminated heated cubbies.
Several factors figure into these latest moves and innovations.
First, the coronavirus pandemic created an environment in which dining indoors at fast-food restaurants became untenable with government-ordered lockdowns and capacity limits. Most states still have capacity limits. Many people have remained cautious, choosing delivery and drive-thru options when craving a Big Mac from McDonald’s or a gordita from Taco Bell. In urban, walkable areas, drive-thru options are limited, and ordering from fast-food eateries can get more expensive when using traditional food delivery services such as Uber Eats or DoorDash, which have service fees and push customers to tip drivers.
Second, fast-food restaurants are having difficulty keeping employees. The turnover ratio in the industry is anywhere from 130% to 150%. When Panera Bread reported losing 100% of its workforce every year, it accepted it as good news. It’s a statistic that years ago, the companies built into their business plans. The standardization and routine work associated with the available jobs didn’t require many resources to train new employees. However, turnover typically took place over a period of months. Now, that sometimes lasts only weeks or even days. As more companies offer perks and benefits commonly associated with full-time employees, the incentive to jump ship and work elsewhere is high. It’s also a laborer’s market. Employers are more willing to hire back former employees because of their skill sets and knowledge of the company and work culture.
That turnover comes at a price. While the exact figures may differ for the fast-food restaurants, Black Box Intelligence, a data analysis firm, said the average turnover cost for an hourly restaurant employee is $2,000 and continues to increase year over year. If fast-food companies can reduce turnover by bringing in more digital stores and kiosks, they can take less of a hit.
The labor market is also tight due to pandemic unemployment benefits paid by the federal government in addition to whatever state unemployment pays. The $1.9 trillion American Rescue Plan extended payments until Labor Day at the cost of $300 a week. Combined with state unemployment benefits that typically range between $200 and $350, some of the employees laid off due to the pandemic aren’t rushing back to work. As companies such as Amazon picked up the slack — the company hired 400,000 new employees as of last fall to deal with the surge in online shopping — the restaurant industry, and the fast-food sector particularly, is having trouble filling holes.
Also, the threat of the $15 minimum wage still looms. The Senate did not include the wage increase in the American Rescue Plan after the Senate parliamentarian ruled that it did not fit within the complex rules that govern budget bills in the Senate. However, there is still pressure coming from the more liberal flank of the Democratic Party to make it happen. A bipartisan bill recently introduced by Utah Republican Sen. Mitt Romney and Arizona Democratic Sen. Kyrsten Sinema to raise the minimum wage to $11 an hour is already facing criticism from liberal Democrats, activists, and labor groups.
President Joe Biden continues to face pressure to give Senate Majority Leader Chuck Schumer approval to end the legislative filibuster and allow any legislation to pass the Senate chamber without reaching a cloture vote threshold of 60 votes. After that, any legislation could pass the Senate with a 51-49 vote. And with a 50-50 split in the Senate, Vice President Kamala Harris could cast a tiebreaking vote on a minimum wage bill.
Most fast-food operations pay much more than the federally mandated minimum wage of $7.25, but big retailers, including Amazon, have pushed for the $15 minimum wage because it is easier for them to absorb the costs. It creates a challenge for fast-food employers, and the more economical route for them to take is to continue innovating in ways in which they can continue to improve offerings to customers while keeping labor costs in check.
The digital and pickup-only expansion is just getting started. If the fast-food industry finds it works to its benefit, then a rapid development in 2021 and 2022 is likely.
