McDonalds Is Replacing 2,500 Minimum Wage Workers With Digital Cashiers: Here Is Its Math

While the latest employment figures in the USA appeared to signal a pick up in the jobs market, with unemployment benefit claim falling, only people unaware if the statistical prestadigitation used to massage the figures (people unemployed for two years or more are not counted as unemployed – they are, to borrow a term from the old Soviet Union, ‘unpersoned.’) oblivious to the carnage among the broader restaurant and fast-food sector or what financial news website Zero Hedge calls the waiters and bartenders economy.

McDonald’s are doing particularly well, after several years of looking like the sick man of the stock market, the fast food chani’s latest innovation has sent share prices soaring. In a report published this week, analyst Andrew Charles, the calculates the jump in sales as a result of Ronald McDonald’s new Experience of the Future strategy of replacing minimum wage workers with digital ordering and payment kiosks (shown above). As a result of legally mandated increases in minimum wages, the biggest employer of minimum wage workers will replace cashiers in at least 2,500 restaurants by the end of 2017 and another 3,000 over 2018. Cowen also mentioned plans for the fast food chain to roll out mobile ordering across 14,000 U.S. locations by the end of 2017.
Here is a snapshot of the figures that Cowen, 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” It shows the full costing and identifies the increases in minimum wage mandated under the Obama administration as the reason  why the Ronald McDonald’s little munchkins, the client-facing minimum wage  workers are now obsolete. And you can bet in a highly competitive business other fast food chains will be quick to follow suit.

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.
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.

Or to put it more succinctly, the great achievement of the Social Justice Warriors and the Community Organiser In Chief in the closing stages of the Obama presidency has succeeded not in doubling the wages of low paid workers but in putting them out of jobs.

Throughout the US presidential election campaign one of the main policy pledges of Democratic nomination contender Bernie Sanders was that the minimum wage would be lifted to $15 per hour. This current move by McDonalds is a direct reaction to minimum wage laws in some states where liberals dominate the state legislature. The jobs being lost to technology are simply not worth $15 an hour, so well done Bernie Sanders & Co. as predicted in January 2016 thanks to your economic illiteracy many thousands of people who used to earn minimum wage will have no job at all.

MCDONALDS is using the excuse of 15 dollar an hour minimum wage, to eliminate PEOPLE from their workforce, however to maintain profits they need people with money who can afford to buy their toxic-shiteburgers. The endless pursuit of the lowest possible labor coast means ‘things’ and ‘services’ cost less BUT what do you do when nobody below the to ten per cent is still working (strike that, I’m still in the top ten per cent and I haven’t worked for twenty years,) How will the global economy keep growing when the majority of people have no money to buy anything but the most basic essentials?

And I promise you the top ten per cent are not going to be buying many burgers from McDonalds. The new serfdom is going to be worse than the 12th century version and the path there is going to see a bigger die off than the Black Death. What was it Ted Turner desired? A reduction in global population to six hundred million?

They’re not just killing off minimum wage jobs – they’re slashing all they can at levels all the way up to the top. Anything to make better numbers.
Katos’s picture

John Steinbeck said “the bank is a monster that men created.” It’s true, but does not go far enough, the global corporations are monsters too, and all monsters are insatiable! Steinbeck also said if the monster does not grow it dies, and if the monster is to grow it must be fed. Think about that, who feeds the monsters but the wage slaves. And when the wage slaves cannot produce enough to satisfy the monster, it will consume them, starting at the bottom. Then the people who comtrol the monster will find find that the botton was supporting them the whole time!

As thousands of stores close across Europe and the USA close, partly due to online competition and partly to people having no money for anything but essentials, the corporations think they can solve the problem by replacing people with robits and Artificial Intelligence?

AI is a pipe dream. Show me the program that writes its own classes and functions, fixes its own bugs, and I’ll start to believe. Many prominent computer science programs in the country have already changed their course names from “AI” to “Machine Learning” for just this reason – as complex as algorithmic design has gotten, machine learning is still just a series of complex decision trees. It’s only natural that they become more accurate as they’re fed more data and refined. Incredible tools for good and for evil, but hardly conscious.

There’s a bizzare religiosity to transhumanism and AGI has become its de-facto “Deus ex Machina.” As I’ve yet to find a “God” (in the religious sense) that actually exists, I’m left to assume that transhumans will follow in the footsteps of their Trinity-based counterparts and use an entrenched (technological) Priest class to sell their “God” to the largely tech – illiterate masses.

I mean, your average schmuck already believes their Amazon Alexa is some kind of AI. When you try to explain to them that it’s simply a device for retrieval, manipulation, and presentation of stored data (like all computers), their eyes glaze over as their preference for a world of “magic” watched over by machines of loving grace kicks in.

As for the zero cost promise of automation, if molecular printing and near-free energy show up anytime soon, this is a possibility; but certain industries are already highly automated with no such overwhelming price/supply effect. Look at the way food production is going, almost entirely automated, getting cheaper all the time yet still suffering from the ravages of inflation, to say nothing of the quality!

We have little to fear from automation and Artifical Intelligence. Except for the minimum wage workers of course.

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