The effect of recent minimum-wage increases isn’t yet clear, but increased use of automation technology is likely to be a result.
By Richard Slawsky for Kiosk Industry Group
As California and New York each prepare to raise their minimum wage to $15 an hour, operators of quick service and fast casual restaurants as well as other small businesses in those states are wondering how they will be able to cope.
And those questions aren’t likely to go away any time soon. Seattle and several other cities have already approved a $15
minimum wage, while officials in Oregon plan to increase the minimum to $14.75 an hour in cities and $12.50 in rural areas over the next six years. Other jurisdictions are likely to follow suit.
“There is no question that a $15 minimum wage would have devastating impacts on small businesses in California,” said Tom Scott, executive director for the National Federation of Independent Businesses in California. “Over 90 percent of our 22,000 small businesses across the state have told us in no uncertain terms that an increase in the minimum wage will negatively affect their ability to operate, and potentially put them at risk of closing their doors permanently.”
The increases don’t go into effect immediately; instead rising gradually over the next several years. Wages in California and New York won’t reach their peak until 2022, giving restaurant operators a bit of time to consider their options.
As such, much of the impact of an increased minimum wage remains to be seen. Although in the short term the move may put more money in the pockets of workers, in the longer term it is likely to end up in higher prices, lower profits and business closures.
Ultimately, though, rising wages are likely to prompt operators to look at automation as a way to preserve their profits.
Moving to automation
Self-service technology is already widespread in scenarios such as casino rewards, airport check-in kiosks, self-service photo booths and, of course, the ubiquitous ATM. Self-order kiosks are already gaining a foothold in the restaurant industry, and minimum wage increases are likely to increase the speed of adoption.
“The higher the compensation, the greater the incentive to
replace labor with capital. The other thing to figure in here is the declining cost of automation,” Mark Muro, a senior fellow at the Washington, D.C. think tank the Brookings Institution, told the San Jose Mercury News. “Likely there will be some greater demand for automation, but meanwhile, others will likely find other solutions using the people they have.”
CKE Restaurants, operator of fast food brands Hardee’s and Carl’s Junior, began testing self-order kiosks at some of its restaurants in 2015, and CKE chief Andy Puzder has publicly said he’d be interested in developing a restaurant run entirely via self-service devices.
“They’re always polite, they always upsell, they never take a vacation, they never show up late, there’s never a slip-and-fall, or an age, sex, or race discrimination case,” Puzder told Business Insider.
Fast food giant McDonald’s is also rolling out self-order kiosks at locations throughout the United States, and fast-casual brand Panera Bread has introduced the devices as part of its “Panera 2.0” brand reinvention.
That doesn’t mean live workers are going to disappear any time soon. Although self-service technology can handle basic tasks such as order-taking or the filling of drinks, some of the more complicated procedures in the kitchen may not be so easy to automate. In many cases, the technology allows operators to redeploy labor to other areas and help speed up service.
And for operators seeking to make personal service an integral part of their business, there’s no substitute (yet) for a smiling face behind the counter.
Although many business owners have been looking at the minimum wage increase in direct terms, calculating how added labor dollars or adopting self-service technology will affect their bottom line, there are some potential consequences they haven’t considered.
First and foremost is morale and the potential for job losses beyond those prompted by cost-cutting. How is that long-term worker, who strived for years to attain a wage of $15 an hour or greater, going to cope with the fact that the person they’re training is making the same wage on their first day?
A clue to that can be found in the example of Dan Price, the CEO of Seattle-based payments processor Gravity Payments. If that name sounds familiar, it’s likely because Price made headlines in 2015 when he announced that he planned to raise the salary of everyone at his company to $70,000 a year. Price made the move, he claimed, after reading a study making the case that additional income improved the happiness of those who earn less than $75,000 a year.
Although the company was inundated with resumes after the announcement – 4,500 in the first week – it also lost two employees who felt it was unfair that that others were getting big pay raises with little additional effort, and that the value of their own skills had been diminished. And several of Gravity’s clients left, suspecting the wage increases would lead to higher costs for the company’s services. Other clients felt as if Price was making a political statement, and left for that reason.
The long-term effects of Price’s move remain to be seen, but it’s clear those effects will be a mixture of good and bad.
And while automation may be the key to managing the impact of a minimum wage increase, increasing adoption is likely to affect the cost of automation itself. Increased demand is likely to lead to price adjustments, while the push for higher wages will eventually lead to higher costs for the makers of self-service technology. In addition, widespread adoption will create a shortage of technicians to maintain those devices, in turn driving up service costs.
The message? Small business operators would be well-served by investigating the potential of self-service technology now and lock in long-term agreements before the floodgates open and demand skyrockets.
“Those that can invest now and keep costs low during the transition will weather the storm long enough for competition to go under because they didn’t plan ahead,” said Frank Olea of Olea Kiosks. “The cost of automation is going to rise as well if the companies making and designing automation don’t get a handle of how to automate making automation.”
Editor picks for Minimum Wage Kiosk
- McDonalds – former CEO predicts massive layoffs – link
- McDonalds results – automation equation resulting in more employees — link
- Wendys To Offer Kiosks to franchisees to mitigate minimum wage. Investors Daily article.
- The Ugly Truth – ex-McD chairman in Forbes article
- Fallout over $15 – from QSR magazine
- Smart Restaurant Tech – foodabletv.com
- Why Starbucks Hasn’t Automated – Vox.com
- Mythbusters from Department of Labor
- Five Facts from Pew Research
- Research & Key Lessons – more academic, economic theory
- Interview with CEO of Popeyes in which she points to strategy of more customer and employee facing technology. Customer service is key. Prices on food may need to rise.
- How much would a Big Mac cost?
- Job growth or decline numbers for regions
- So what did California pass exactly? When is it $15?
- The Effects of Minimum Wage – CBO study
- McDonalds Store of the Future – by Fox news. This is all you can eat fries article with video.
For more information
Send email to [email protected] for more info
PS: And then there was Josh White in 1942…