McDonald's is going all in on drive-thru automation as it fights the labor crisis

• McDonald's just sold its drive-thru tech lab to IBM, and the companies will partner on automation.
• McDonald's tested voice recognition software in 10 drive-thrus this summer.

McDonald's just announced it will partner with IBM to automate drive-thrus, and the results could potentially allow the fast-food giant to operate with far fewer workers.

IBM bought McD Tech Labs, an AI startup formerly called Apprente that was acquired by McDonald's in 2019. The fast-food giant planned to use Apprente's AI technology to provide "faster, simpler and more accurate order taking" at drive-thrus, McDonald's said in a statement at the time.

McDonald's tested the AI technology in 10 Chicago restaurants this summer, to some success. The test restaurants reported that the AI had an 85% accuracy in recognizing orders using voice recognition software, and employees had to step in around once in every five orders.

Even with promising results, McDonald's acknowledged that expanding this technology further would be technical and difficult.

"Now there's a big leap from going to 10 restaurants in Chicago to 14,000 restaurants across the U.S., with an infinite number of promo permutations, menu permutations, dialect permutations, weather - and on and on and on," McDonald's Chris Kempczinski said in June. That's why, McDonald's says, it is partnering with IBM.

"In my mind, IBM is the ideal partner for McDonald's given their expertise in building AI-powered customer care solutions and voice recognition," Kempczinski said in a third-quarter earnings call.

Finding ways to use less labor is front of mind of many fast-food chains, as they struggle to hire and retain enough workers to stay open. Business owners across the industry say they're unable to find staff and in some cases even cite a lack of desire to work, while workers say they can demand better pay and benefits in the tight labor market. This mismatch has led to restaurants decreasing hours and closing dining rooms, throwing the fast-food world into crisis. As a result, 78% of restaurant operators told the National Restaurant Association that they didn't have enough workers to handle business, and a recent analyst note said that lack of staff could be keeping McDonald's sales down as much as 3 or 4%.

Automating parts of the fast-food ordering and preparation process could help McDonald's buck the trends of slower service and longer wait times, and partially immunize the chain to labor supply woes as the price of labor increases.

As McDonald's invests in technology that cuts down on workers in the drive-thru, other major quick-service chains are staffing up drive-thrus with even more employees. Chick-fil-A famously sends workers into lines to take orders on iPads from customers sitting in their cars. Starbucks is rolling out handheld devices for baristas to input orders on as of summer 2020, and Taco Bell announced bellhops taking orders on iPads would come to some restaurants.

This new investment by McDonald's doesn't mean the chain is necessarily branching off from the labor-intensive approach that competitors are using in drive-thrus right now, Mark Kalinowski, founder and CEO of Kalinowski Equity Research CEO and founder, told Insider, but it shows that they're thinking further ahead.

"There's a lot of work to be done," he said, but "This IBM technology will be optimized for McDonald's, so they'll have an advantage" as drive-thru tech and automation become more mainstream in the future.

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