Twenty dollars an hour…
That’s the minimum pay California fast-food workers will earn, by law, as of April 1, 2024.
It’s thanks to a new law the state’s democratic governor, Gavin Newsom, passed last month.
Working full-time, that’s $41,600 a year.
Once the new law comes into effect, it means a couple working fast-food jobs will make just shy of the state’s median household income of $85,300.
You don’t have to be a PhD economist to know that paying fast-food workers $20 an hour is going to drive up the cost of your meal.
But companies aren’t taking these new rules lying down.
Chipotle, White Castle, and Domino’s are testing out meal preparation robots that will cut down on the number of expensive kitchen staff they have to hire.
That’s great news for investors in companies that are automating food preparation.
And although it’s counterintuitive, it’s also great news for folks working fast-food jobs.
I’ll show you why in a moment. First, you must understand how big a problem rising costs are for fast-food chains.
Threat to the Bottom Line
Take Chipotle, as an example.
The company serves tacos, burritos, and bowls to about 750,000 customers across the U.S. every day.
In 2018, a chicken burrito at Chipotle cost $7.05.
Today, the same burrito will set you back $9. That’s a roughly 25% jump in price.
That’s because inflation has made nearly everything, from cooking oil to plastic forks, more expensive.
Now, Chipotle is fighting wage inflation.
California’s new $20 hourly minimum wage mandate is a 33% increase from the current minimum wage of $15 per hour.
Chipotle generated $9.2 billion in revenues this past year. It spent $3 billion on food… and $2.5 billion on staffing its restaurants.
If we saw the rest of the nation hike fast-food wages by 33%, Chipotle would spend more on workers than food. And Chipotle’s profitability would plunge by 64% from $1.16 billion to $410 million.
Chipotle’s leadership is well aware of this threat to their bottom line.
That’s why they’re turning to robotic automation to reduce the number of workers they need.
Why Robot Chefs Will Create More Jobs
In 2022, Chipotle introduced a robot to make tortilla chips. A year later, it created another robot that could prep guacamole.
Now, Chipotle is working on a robotic chef to prepare its salads and bowls.
At the Chipotle Cultivate Center – its innovation hub in Irvine, California – the company is piloting an automated “digital makeline.” It’s the same place it first tested its chip and guacamole robots.
Here’s how it works…
When a customer places an order for a bowl or salad through the Chipotle app, this triggers a request to the robotic system to get to work. The human staff at Chipotle are then free to roll burritos and cook and prep other food.
Once the robotic chef finishes making the salad or bowl, the dish emerges at countertop level. Then, a staff member secures a lid and adds any accompanying items to the order.
Chipotle estimates roughly 65% of its app-based orders are for bowls and salads. And it reckons it can use robots to make these items more efficiently.
Once these systems are fine-tuned, I expect to see them rolled out nationwide. That will cut down on the number of workers needed for each restaurant.
Now, that will get rid of the need for human salad and bowl assemblers.
But, as I mentioned, this will likely be a net creator of jobs.
Expect the Unexpected
Consider what happened in the 1970s to bank teller jobs after the introduction of ATMs.
Economists thought ATMs would destroy bank teller jobs.
It was a reasonable assumption. The main task of bank tellers was to count out money for customer cash withdrawals.
And after the introduction of ATMs, the average number of tellers at banks went from 21 to 13.
But then something unexpected happened.
Banks were getting more done with fewer workers. They used this boost in efficiency to open more branches.
Instead of destroying teller jobs, the introduction of ATMs increased the number of tellers.
This is from James Besson, an economist and technologist at Boston University…
Basically, starting in the mid-1990s, ATM machines came in in big numbers. We have, now, something like 400,000-some installed in the U.S.
Everybody assumed – including some of the bank managers, at first – that this was going to eliminate the teller job. And it didn’t. In fact, since 2000, not only have teller jobs increased, but they’ve been growing a bit faster than the labor force as a whole.
That may eventually change. But the impact of the ATM machine was not to destroy tellers; actually, it was to increase it.
And something similar will happen as a result of the introduction of robot chefs.
As Chipotle rolls out its robots, it will cut the cost of running each of its restaurants. And like how banks were able to open more branches thanks to the ATM, Chipotle will be able to afford more restaurants thanks to the lower cost base.
This is the part of the story you won’t hear from fearmongering pundits in the mainstream press.
They’ll paint robots, automation, and AI as job killers. But the data from past tech breakthroughs doesn’t back this up.
Quite the contrary. Technology has helped create the world of abundance and comfort we live in today.
I anticipate a surge in automation and robotics as labor costs soar and availability becomes more challenging. Chipotle and other companies that embrace this new technology will flourish.
Regards,
Colin Tedards
Editor, The Bleeding Edge