Jack in the Box Inc. (NASDAQ:JACK) is strongly considering replacing some human cashiers with self-ordering automated kiosks and other technology methods.
Why Is Jack in the Box Pondering This Decision?
In a business, there are a few items that negatively impact profit margins, such as real estate costs, technology-related expenses, and employee wages. From these three notable business expenses, employee wages are the most concerning for the business.
For one thing, there is no choice for the business; whatever the state of operations government decides regarding employee wages must be reflected in the accounts payable numbers to employees. For instance, if the state decides to increase minimum wages, then the higher wage must be paid to employees, even if it results in less retained earnings for the company.
One state seeing major changes in its minimum wage is California, where Jack in the Box is headquartered. In 2018, the minimum wage is a maximum of $11.00 per hour. By 2022, this same hourly wage will increase to $15.00. Over this short period of time, employee wages will have increased approximately 36%.
One method for Jack in the Box to offset the higher hourly wage is to increase the prices charged to its consumers. However, this could result in consumers looking for an alternative burger restaurant since Jack in the Box is considered a value restaurant.
Rather than upsetting customers, automatic order kiosks are the answer. There is a one-time fee and then regular technology updates are needed (which is a small fee). This would remove the worry about compressing margins and minimum wage hikes.
To further reiterate this point, Jack in the Box CEO Leonard Comma said, “as we see the rising costs of labor, it just makes sense,” at the ICR Conference in Florida earlier this week.
Other Restaurants Are On-Board with Automation
When one restaurant makes changes to its business even in the smallest way, it is normally followed through with competitors pulling a similar trigger. For example, many stores of McDonald’s Corporation (NYSE:MCD) already have self-order kiosks. McDonald’s is looking to add more automated services to 2,500 stores in its restaurant network. Even Wendy’s Co (NASDAQ:WEN) is planning on adding self-ordering kiosks to approximately 1,000 of its locations.
All of these restaurants are looking to stay relevant and offer as many options to their customers, in order to boost profitability. In the end, this will benefit both the restaurants and the customers purchasing their meals. However, the one downside is that there will be an elimination of jobs by a self-order kiosk. In the future, these cashier positions will not be available for employment seekers since fewer opportunities would be available. Or there is the possibility that, over time, everything is done through self-order, which would require no cashier at the front desks of restaurants.
“Jack in the Box CEO Says It “Makes Sense” to Consider Replacing Human Cashiers with Robots If Wages Rise,” Slate, January 10, 2018.
“Fast-food CEO says ‘it just makes sense’ to consider replacing cashiers with machines as minimum wages rise,” Business Insider, January 9, 2018.
“Minimum Wage,” State of California- Department of Industrial Relations, December 2016.