Date: 08/09/2021
Author: Mr. X
Some predicted the pandemic would be a disaster for fast food companies. Instead, it’s been something of a boon. Chipotle [CMG] surged in response to COVID-19 and is up more than 43% year-to-date. Shake Shack Inc. [SHAK] is up almost 73% over the last year, though its 2021 has not been nearly as successful as its 2020 so far.
Domino’s Pizza, Inc. [DPZ] was at $247.83 two years ago and is over $533 as of this writing. Despite some, uh, relatively recent controversies, Papa John’s [PZZA] is up more than 40% year-to-date. Both pizza companies beat Wall Street estimates in their latest earnings reports.
The pandemic has also introduced some fundamental ways in the way these companies approach their business. Delivery services like DoorDash [DASH] and UberEats have complemented several fast food companies. Delivery for McDonald’s, something that sounds like a punchline from a few years ago, is commonplace today.
Nonetheless, fast food companies face some new challenges. With the rise of the delta variant, the bet that indoor dining will return suddenly looks far more questionable. The “fastest” of the fast food companies – McDonald’s, Taco Bell, Wendy’s (who will report earnings August 11) – and others also face labor challenges.
There are reports around the country of entire staffs walking off the job mid-shift, leaving franchises utterly bereft. The labor movement of “Fight for Fifteen,” meaning a minimum wage of at least $15 for workers, has been especially focused on fast food companies. While it’s debatable that such a measure would truly hurt these companies, they would have to adjust. Recent research suggests that least part of the increased cost gets passed on to consumers in the form of higher prices after minimum wage increases. This could be especially difficult for these companies at a time of high inflation, cutting into sales.
One way we can expect companies to try to overcome this would be to replace as much of the workforce as possible with automation. Already, “Flippy,” a robot that makes fries, is a “team member” at a White Castle outside Chicago.
Two companies mentioned in a recent Wall Street Journal article about robots in fast food are Karikuri and Miso Robotics. Neither are publicly traded, though the latter does allow people to invest via a Series D fundraising program at a current rate of $56.62 per share and a minimum investment of $963 website. Less than a year ago, the stock cost about $17.16 a share.
Not everyone would be eligible for this investment, and this should not be taken as investment advice. Caution is especially required when dealing with companies that have not yet gone public. Still, investors should be aware about what is emerging.
Also near Chicago, ten McDonald’s restaurants are using voice ordering technology to take orders. The machines are about 85% accurate. This was enabled by McDonald’s purchase of Apprentee.
Pizza delivery companies are also striving to element the human element. In Austin, Texas, robots powered by Refraction AI are delivering from Southside Flying Pizza. Of course, even these robots require “pilots” who can remotely control them and help them get past problems.
Another autonomous vehicle company, Nuro, is already delivering pizzas for Dominos in Houston. Nuro is also not yet publicly traded.
Taking a broad view, the assumption of labor organizers and some political movements has been that capital requires labor. However, we may be approaching a point where labor has nothing to offer capital, at least in this sector. In the service sector, the human element is often a liability. With the pandemic, limiting exposure to pathogens, people, and social conflicts make robotic workers more attractive.
Some disturbing stories have provided admittedly anecdotal evidence that diners have become less well behaved and occasionally more disruptive since restaurants have been allowed to reopen. Articles detailing the abusive conditions some retail workers have faced during the pandemic have appeared in The Daily Mail, Business Insider, The Atlantic, and Buzzfeed, among other publications.
Local papers around the country and the world have even featured stories of businesses shutting down for a day simply to give their workers a break or to celebrate “kindness.”
My belief has always been that the bottom line will ultimately triumph over any idealistic system. We could dream that people will just start getting along. That probably won’t happen. The way fast food companies, restaurants, and retail systems generally will triumph over this societal breakdown will be to remove the human element entirely, insofar as this possible. Right now, it’s just a question of reducing cost and the need for human supervision.
Where does the opportunity lie here? Beyond looking to the restaurants and fast food companies that are pioneering this transition, there are smaller companies that have created the infrastructure needed. Many of these companies are not yet public. They are covered almost as “local color” by journalists who think a robot serving food is still newsworthy. It may be for now. It won’t be for much longer.
I don’t know what it says about us as a society, but the answer to societal breakdown and widespread alienation will probably be to replace the human factor entirely. The companies that can manage this transition first, and those that can build the equipment to allow them to do it, are where investors should be putting their attention. It’s our job to make money and provide for our families, not repair the torn social fabric. Even if you can’t keep buy stocks directly for some of these companies, keep tabs on them and be especially alert about which companies are making acquisitions.
Of course, there will still be human workers managing, repairing, and trouble-shooting these new robotic employees. However, they won’t have to deal with as much stress as retail and restaurant workers today. They will essentially be support staff, “in the rear with the gear,” rather than confronting angry customers in what seems like a society gone mad. The stress level will be far reduced and worker satisfaction will probably be much higher.
“Team members” like “Flippy” the robot might seem expensive for now. However, compared to the cost of managing workforces that are being pushed to the brink, he may eventually seem like a bargain. In the long run, efficiency will always triumph over sentimentality. If labor becomes too expensive, capital will turn to technology to replace it entirely.
