McDonalds Is Replacing 2,500 Human Cashiers With Digital Kiosks: Here Is Its Math

Tyler Durden's picture

The stock market is luvin' McDonalds stock, which has continued its recent relentless rise to all time highs, up 26% YTD, oblivious to the carnage among the broader restaurant and fast-food sector. There is a reason for Wall Street's euphoria: the same one we discussed in January in "Dear Bernie, Meet the "Big Mac ATM" That Will Replace All Of Your $15 Per Hour Fast Food Workers."

In a report released this week by Cowen's Andrew Charles, the analyst calculates the jump in sales as a result of the company's new Experience of the Future strategy which anticipates that digital ordering kiosks (shown above) will replace cashiers in at least 2,500 restaurants by the end of 2017 and another 3,000 over 2018. Cowen also cited plans for the restaurant chain to roll out mobile ordering across 14,000 U.S. locations by the end of 2017 (we did not show that particular math, but the logic was similarly compelling).

Here is a snapshot of the math that Cowen, likely in conjunction with management, used to come up with the cost-savings as McDonalds increasingly lays off more and more minimum wage workers and replaces them with "Big Mac ATMs"

MCD is cultivating a digital platform through mobile ordering and Experience of the Future (EOTF), an in-store technological overhaul most conspicuous through kiosk ordering and table delivery. Our analysis suggests efforts should bear fruit in 2018 with a combined 130 bps contribution to U.S. comps. We believe mobile ordering better supplements the drive-thru business where 70%+ of U.S. sales are transacted. In our view, MCD's differentiation lies in the operational enhancements of mobile ordering that includes curbside pick-up of orders in order to not disrupt the drive-thru.

Below we show Cowen's full math laying out why the restaurant chain's client-facing fast food workers are now obsolete:

We are most excited for mobile ordering, Experience of the Future and the launch of fresh beef to help drive U.S. same store sales in 2018. We provide analysis for the latter three, which cumulatively we expect to contribute roughly 150 bps to U.S. same store sales in 2018, respectively. This gives us confidence to raise our 2018 U.S. same store sales forecast from 2% to 3%, in excess of Consensus Metrix’s 2.5%.

 

Experience of the Future Features Lower ROI Than Mobile Order, But Offers Greater Potential Longer Term

 

We are constructive on the use of guest facing technology for the restaurant industry. MCD’s longer-term U.S. story revolves around Experience of the Future (EOTF), a holistic operational and technological overhaul to the store base. MCD’s March 2017 investor meeting centered around the initiative with interactive displays. Perhaps the most conspicuous piece of Experience of the Future lies in digital kiosk ordering, which have seen success in International Lead Markets. Additionally, food ordered via the kiosk is delivered to the customer’s table. We believe EOTF better enhances the instore experience, which represents roughly 30% of domestic sales compared to mobile ordering, which allows customers to avoid leaving their cars.

 

Our ROI math suggests EOTF leads to a 9% cash/cash return in Year 1 in the 55% of domestic stores that do not require a store remodel, and 5% in the 45% of stores that require a remodel, which is a predecessor to implementing EOTF. Our math is premised on total costs of $150,000 for the Experience of the Future enhancement, and $700,000 of all-in costs when including EOTF as well as a store remodel. MCD has offered to pay 55% of the cost for Experience of the Future, in excess of the 40% the company contributed to the store remodel initiative beginning in 2010, for restaurants that commit to the program by the end of 2017.

 

McDonald’s targets a high-teens return on incrementally invested capital (ROIIC, or McSpeak for evaluating ROI), improving to the mid-20% range beginning in 2019. We believe EOTF’s ROI is captured over time as the sales lift does not dissolve as in the case of a traditional restaurant remodel. Rather, the lift should sustain as we expect consumers to increasingly embrace technological change. This is evidenced across concepts, such as Panera’s experience with 2.0, as well as McDonald’s own experience in Canada, where kiosks saw 12-13% sales mix in Year 1 and 27% in Year 2. We also note kiosk ordering will also likely lead to labor savings over time which should help boost ROIIC, but is unlikely for the foreseeable future.

 

 

In 2017, MCD expects to end the year with EOTF offered in 2,500 domestic locations from 500 at 2016-end. MCD targets the majority of domestic locations to feature EOTF by 2020, but has not given intermediary targets. The amount of stores adding EOTF depends on franchise reception to the initiative but we see positive indicators given our checks as well as the company’s disclosure that 90% of franchisees approved of the initiative after taking the same interactive tour that was given at the March 2017 investor day.

 

We estimate 3,000 locations to add EOTF in 2018, which should lead to a 70 bps contribution to U.S. same store sales assuming an even cadence of restaurants adding the initiative over the course of the year. Further we assume the mix of stores adding EOTF in 2018 reflects the mix of overall stores needed to add EOTF, or 55% of stores that already have a remodel while 45% require a store remodel. McDonald’s  has previously announced plans to remodel 650 restaurants in 2017, which we expect will also add EOTF.

Summarizing all of the above: the workers you see in the photo below are now an endangered species.

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saudade's picture

I demand my Universal Basic Income now! Fuck wage slavery.

DieselChadron's picture

seriously!  machines are smart enough now to plow fields, plant food, harvest food, transport food (this will happen in the coming years), sort food, cook food, and sell food.  any other industry can work in this way too.  at some point, all of the unemployed will have to wonder who truly deserves the fruits of a machine's labor.

bamawatson's picture

they deserve a break today
mickey d

peddling-fiction's picture

The fatal blow to job growth. Baristas buh-bye..

Now say thanks to your zio masters.

Doubts? thezog.info

NoDebt's picture

Skynet loves when people demand $15/hour.  It has become self-aware and is capable of pushing the picture of a Big Mac on the order screen when somebody orders a Big Mac.  

 

JRev's picture

The saddest part about the advance of automation for the food service/retail space is that the deliberate dumbing down of Amerikans is now so thorough, so complete, that even someone like myself who would rather support biological employment no longer does so.

The kiosk doesn't take 15 fucking minutes to enter the price of a tomato because "it's not in da komputer." The kiosk doesn't slather the occasional burger with shit you specifically asked to be left off.  The kiosk isn't a sumg little shit because the manager isn't in today.

Stuck on Zero's picture

Maybe with a kiosk I'll get a correct order for once.

JRev's picture

I don't eat at any large or even regional chain. Grass fed organics all the way, baby, subliminals and Bernays-esque techniques be damned. It was merely an example.

By the way, the presenter in the video shows a picture of the old Michigan Central Station and claims it's the GM building. 

Shocker's picture

Technology is great, but there is a point where we gone too far. Eventually working Humans out of every aspect, and every job?

Layoff List: http://www.dailyjobcuts.com

-

Stuck on Zero's picture

Why do we pay someone to listen to my order and enter the correct buttons on a kiosk when I can push the buttons on the kiosk myself with greater accuracy?

DarkestbeforeDawn's picture

And avoid that feeling that something is VERY wrong with our yutes-as in "Your honor, the two yutes..."

GoldRulesPaperDrools's picture

THE DEPOPULATION IS COMING AND IT WILL BE GLORIOUS!!!

MOAR GUNS AND AMMO BITCHEZ!!!

Majestic12's picture

GRPD:

You're still not invited to the "club"...dork!

Your a fucking nobody, like the other 99.99%

rockface's picture

Remember UN Agenda 21 which involves the reduction of the world's population by 90%.  It's all about "Sustainability" and you and your family have been found to be unsustainable.

Mr 9x19's picture

technology is great but dumbfuck rabit fuck style humans should learn to not reproduce, liv for themselves and accept the goal of a specie, is to survive and duplicate, but not you all are allowed in full natural environment to do it because those who fail are not able to produce, create, stay sharp & simple.

the problem is not AI or robotics, problem is humans are fucking bonobo who gest ass fisted for fun spit babies by the cunt like you count 1 2 3 on your fingers.

mass genocide to regulate, period.
ps: i do not have fucking kiddos, so fuck off.

Citxmech's picture

So, I guess the route to future income is to start buying robots to lease to businesses.

Sudden Debt's picture

today I went to a little italian restaurant with my sister, get owner shook my hand, was very friendly and we ate a very nice tagiatelli, drank a nice win, martini and a coffee.

25 euro's each and the food was really good and healthy in a nice interior.

 

Now if you see what kind of crap you get from those chains for that money, it becomes mindbogling why people still go there.

 

silvercity's picture

Bet that you were not in and out in 12 minutes. Americans like 12 minute meals.

Majestic12's picture

That's what your wife said the other night.

DarkestbeforeDawn's picture

The other night?  That tramp said she was only seeing me

DoctorFix's picture

Ironic that the best Italian restayrant ive been to so far was in Thailand.  Italian owner and chef.  Fabulous food. And like yourself the owner and his wife greeted us.  It was a wonderful experience and i know I'll return there.

edotabin's picture

Point well made and well-taken.

On the other hand (assuming we would venture to call what MCD serves food) the MCD drive through will hand you 4 cheeseburgers in about 2-3 minutes, it will cost you $4 and you can eat them while driving and texting at the same time. Many locations are open 24 hours too. It is fast, convenient, reliable and cheap.

The Italian restaurant experience you described would be considered a "high class dinner" by many. There's a steep drop in awareness and true quality of life.

Majestic12's picture

Here, here! Organics and grass fed all the way!

He also doesn't explain...what fucking ROI?

Simple economics dictates that our 80% "consumer-demand driven" economy will have that much "less" to spend at the kiosk each time they fire people and take away salaries...

...salaries that bought this shitty food.

Moar of the "ever-shrinking" corporate Oligarch cabal run by ass-kissing VPs and robots...America #! !!!!

Handful of Dust's picture

<< Simple economics dictates that our 80% "consumer-demand driven" economy will have that much "less" to spend at the kiosk each time they fire people and take away salaries... >>

 

One more reason the USA economy is going to collapse Big Time next time. I hate to quote doom-sayers like Jim Rogers, but I think he is right this time; the next crash will be the worse in our lifetimes. Broke Donkey consumers, massive leverages, >$250 trillion in derivatives (at least), broke nation (USA), and on and on.

....now I'm depressed ::((

targayren hous's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.jobproplan.com

New_Meat's picture

Hey, MDB's Bot!  Yes, YOU.

Are you going to be replaced by an automated kiosk?  Oh, wait, you are an automated process.  How come you haven't worked yourself out of your job yet?

Majestic12's picture

Hey Tar"gay"ren hous...$7k a month?

That"s a lot of dicks....all in a row?

atomp's picture

They'll still fuck you at the drive-through.

Chandos's picture

We still have to replace all the kitchen workers...That's coming as wellof course..

JamesBond's picture

That's where I would have 'started'

 

jb

August's picture

I've used these kiosks quite a bit in New Zealand, where they are common.

They easily replace the human "order taker" function, and are more accurate/reliable than most teenagers.

DocBerg's picture

And since it is a machine, and not a surly and  obnoxious minority individual, it will be fluent in English, and not discriminate against WWII veterans in favor of their own ethnic group.  This might even make fast food an option eventually!

silvercity's picture

Humans still will make the food and deliver it to you. The order will still be wrong.

DoctorFix's picture

Im reminded of a comment a friend of mine said abiut the mexican counter lady as he was trying to order and she simply looked right through him and, in Spanish, took the other from the mexican dude right behind him, "Now I know what it feels to be a nigger".  To be honest... people need only vote with their wallets and avoid these places and let them and their robots starve.  Corporate only understands one thing... Money.  And when the money disappears theyll eventually figure out why.   They wont ever admit to being wrong.   Theyll simply see the McLight and get the McMessage.

SoDamnMad's picture

There is a gorgeous girl in the Hessburger in Daugvipils, Latvia who greets me in English, gets my order correct and smiles when my order is quickly completed. 

JamesBond's picture

and then you woke up?

 

;)

Lea's picture

The saddest part about the advance of automation for the food service/retail space is that the deliberate dumbing down of Amerikans is now so thorough, so complete, that even people who would rather support biological employment end up supporting robots.

Even if it means less jobs on behalf of someone who may well have voted for the dude who promised more jobs.

logicalman's picture

'if da code ain't in da computa' it will take longer than 15 minutes as 'da computa' will need reprogramming.

I don't use self-pay lines.

A while back while standing in line, the cashier said 'why don't you use the automatic system?

My reply was 'I'm trying to keep you in a job'

At least I got a smile.

IndyPat's picture

I've said the exact same thing at Lowes.

I usually get a somewhat bewildered look back instead of a smile, though...

SoDamnMad's picture

I really would like to know how much goes out the door "unpaid for" at the automatic Home Depot lines. I guess I am picking up the cost of this.

edotabin's picture

lol......Similar scenario in post office.

BryanM's picture

If I could use a machine and order instead of talking to a moron who can't even make change or get my order right I might give MCD another try...oh wait...improve the food quality first also. The robots solve the customer facing part of the people issue. Now just work on the food quality and get rid of the people in the back who, in my experience from long ago, don't look anything like the two women in the picture above. 

DarkestbeforeDawn's picture

Yeah-those (2) women are no where to be found at a McDeaths

Occident Mortal's picture

Automation is nothing more than an arms race or a race to the bottom.

When one company automates they benefit from a productivity boost.
When every company automates they all suffer from demand destruction.

My guess is that if any more than 20% of the economy is automated then EVERYONE will be poorer.

Vilfredo Pareto's picture

Maybe you will be.   Lol.  My demand curve is highly inelastic

tmosley's picture

Your "guess" is stupid.

Learn supply and demand. If supply is up, and demand stays the same, what happens to price?

When your supply chain is fully automated, there is no price stickiness. No families to support.

Vilfredo Pareto's picture

Yeah.

 

Employees are a real pain.   Businesses will run a lot better without them.   As soon as I have good enough AI to rid myself of a secretary then I am a one man show.