Restaurants Balance the Need for Well-Trained Employees and Automation

By Motley Fool Staff Markets Fool.com

On this episode ofIndustry Focus: Consumer Goods, Vincent Shen is joined by Fool.com contributor Daniel Kline to discuss the ongoing challenges of staffing restaurants and how labor demand will change with the growth of technology.

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Plagued by high turnover and more competitive wages in other parts of the retail industry, major chains will have to increase their appeal as employers for the time being before automation potentially removes the problem entirely.

A full transcript follows the video.

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This video was recorded on May 16, 2017.

Vincent Shen: An overarching theme,in terms of some of the technology we've had,eliminating the need for anemployee, or someone to actually be the cashier, to be theserver, also maybe minimizingsome of the inconsistency that you can getin terms of the service experience.I want to end the show, though, ona bit of irony. Youbrought this upbefore we filmed, andI thought it was really interesting. Some reports that we have frominsiders in the fast food industry, variousrecruiters for these companies who are running into a lot of problems,actually,staffing restaurants, andreducing some of the turnover that we see,which is at record levels right now, and keeping well-trainedemployees there. Themanagement team at Chipotle,for example, has spoken about how they lost sight of that service side,about keeping restaurants clean,keeping the beverage andfountain machine clean,napkins off tables,trash off tables.I just thought it was interesting that,on the one hand, if you look out 10 to 20 years,you have this idea that you're going to eliminate the need for theseemployees entirely. But right now, evenas they're testing thingslike these kiosks and tablets, which helpeliminate the need, they'realso running into issueskeeping the restaurant staffed. The median wage for fast food work in this country is $8 to $9 per hour. ButWal-Mart, just two years ago --

Dan Kline:Went to $10.

Shen:-- went to$10 across the country. Acrosstheir entire network of stores,at the minimum. They're runninginto this competitionacross all of retail.

Kline:AndI think you're seeing ajustification for the companies thatinvested in employees. If you look at a Starbucks, which hashealthcare and the college benefits, theirturnover is less.I worked in retail, I ran a store. Justteaching someone all the procedures to run the register took months before they were good at it. If you'reintegrating someone onto the line atChipotle, orworking the fry later and knowing theprocedural manual to clean theshake machine at McDonald's, which is horrifying,my wife having worked there in college -- that's not ice cream. But there's a hugeopportunity cost. If you have been paying better all along, youmight have actually been able to do it with less workers. Now, you're seeinga bit of ahierarchy. IfI'm a worker atDunkin' Donuts,I might be able to get hired at Starbucks, which willtreat me better. IfI'm aTaco Bellworker,maybe I can go to Chipotle or Starbucks.

Andyou're going to start seeing the bottom of the chain --during the last time we had a boom economy, my wife and Iused to joke that you would go to the Dunkin' Donuts andthe people working there would just point, and youwouldn't get what you wanted, buteventually they would get to something you like, andyou would just take that anyway. And you'regoing to start to see realdifferences in service. As acountry, you can argue what fullemployment means. But on a technical basis, we're at full employment, or right close to it, meaning there's not a huge pool of people --there might be lots of people looking for better jobs, butthere's not a huge pool of peoplelooking for entry-level jobs. So you're going to start to see more teenagers.Starbucks doesn't hire a lot of 16 year olds in most markets. But you're probably going to see people like that, younger people, getsome of these jobs, which can be good, but it's also a training issue,it's a scheduling issuebecause they can only work so many hours, theycan't work during school, theycan't work late at night. This is goingto be a major factor, andfor successful chains, it's going to forceautomation.

Shen:Yeah. Andwe've talked before about how,ultimately, labor costs fora lot of these major chains, as much as 25% to 30% of their coststructure is there. It'sinteresting, trying to see them commit to this balancing act that they have, ofmaking sure that right now, where they'renot at the point where they can automate everything, having theiremployees be trained well,making sure the serviceexperience is positive, andkeeping customers coming back.

Kline:I think if you're a worker --I'm not 15 anymore, butI have a 13 year old child, andif he told me he wanted to be amanager someday of a restaurant chain,I would tell him to look at the ones thathave a commitment to people.Starbucks has endlessly said andproven that withautomation, they'renot looking to replace workers, they'relooking to shift the labor flow into production, meaning that there's always going to be an art to building a latte. Yes,you can go to Wawa and get a lattemade by a machine, butthat's not the same as one built by a person. IfStarbucks is saying, "Yeah,we may not haveorder takers who are people, but we'reabsolutely going to have customer service and baristas and product experts, and we're going to put in theseupscale bars, andyou'll be incentivized to learn more about coffee," well,those are the chains thatare going to attract whatever worker pool there is. AndI think McDonald's is going to automate,because it's a difficult job, there's someupward mobility but it's still a hot,sweaty, unpleasant place to work, for the most part. It's allgoing to sort itself out, aslong as the economy stays strong.

Daniel Kline has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool has a disclosure policy.