AI: The Unsung Hero for Quick-Service Restaurants?
As we all know, artificial intelligence (AI) has been the belle of the ball for big cloud companies like Amazon, Google, and Microsoft, as well as hardware gurus like Nvidia. Their stocks have skyrocketed this year, but there’s more to this AI party than meets the eye, particularly when it comes to the unsung opportunities it can bring to other sectors. Case in point: the quick-serve restaurant (QSR) industry.
Wendy’s and Jack in the Box have already caught on to the potential of AI to revolutionize their drive-thrus, and I propose that Starbucks could also benefit from embracing this technology.
A Drive-Thru Makeover
Why are QSRs, particularly drive-thrus, the perfect candidates for an AI makeover? For one, we’ve seen Wendy’s team up with Alphabet to create a custom AI chatbot for its drive-thrus, showing that the technology is already being tested in the wild. And Jack in the Box is exploring how AI can enhance efficiency and combat rising food costs.
So, let’s imagine what AI could do for Starbucks’ drive-thrus. By implementing AI in place of human workers for certain tasks, Starbucks could potentially reassign hard-to-find employees to tasks that require a human touch or even use them to open new stores.
The controlled nature of the drive-thru experience makes it an ideal environment for AI chatbots to handle the vast majority of customer interactions. And with advancements in AI technology like OpenAI’s ChatGPT and Alphabet’s Bard, the line between human interaction and digital ordering is becoming increasingly blurred.
Starbucks: The Reluctant AI Adopter?
Now, Starbucks isn’t exactly jumping on the AI bandwagon – at least not publicly. When asked about their AI initiatives, they pointed to their Deep Brew initiative, which focuses on using AI as a “super-smart sidekick”for inventory management, supply chain logistics, and drink replenishment rather than replacing human workers.
But what if Starbucks could have the best of both worlds? Implementing generative AI doesn’t necessarily mean layoffs. It could simply mean increased operating leverage and a greater opportunity for expansion in the U.S. and abroad.
Crunching the Numbers
Let’s take a closer look at the financial opportunity AI could bring to Starbucks. With wages and benefits accounting for over 30% of sales at company-operated stores, there’s a clear opportunity for margin improvement through AI adoption.
If Starbucks replaced 19% of its in-store U.S. workforce with AI, it could decrease its U.S. wages and benefits expenses by over $1.06 billion. Applying the same logic to international locations could result in global total savings of $1.26 billion. This could potentially expand the company-run store operating margin by about 4.7 percentage points to 22.1%, equating to a roughly 27% increase in total operating profit.
The Bottom Line
The point here isn’t to demand mass layoffs in favor of AI adoption. Rather, it’s to highlight the potential for increased operating leverage and the massive opportunity for margin expansion across industries outside of the technology sector.
As investors, we should keep an eye on companies with a large number of employees in roles that AI is already showing promise in disrupting. The profit opportunity outside of tech could prove even larger than the one in tech right now, and it’s high time we start paying attention to the unsung heroes of AI adoption.
