• Increasing cost pressure. Labor and food represent a significant portion of restaurants’ cost structure. While these inputs have been relatively predictable in the past, the twin threats of rising wages and increasingly volatile food prices suggest a more challenging environment ahead. It’s not clear that cost inflation can be consistently offset by raising menu prices, so companies are considering new strategies to protect margins.
• Is automating an option? The foodservice industry has been a relative laggard in adopting automation, a factor which may help explain the sector’s modest productivity gains. But converging technologies are yielding faster, cheaper, and more dynamic applications in foodservice. We examine these applications and conduct proprietary analysis to determine their potential impact – both in timing and scale.
• An acceleration is ahead. The key reasons for automating are to drive sales growth, to reduce labor costs, or a combination thereof. Our assessment suggests that automation is currently complementing labor, particularly in the ordering process. Should wage pressure intensify, however, the focus will likely shift and companies will look to replace labor.
• Investment implications. From an industry perspective, we believe automation will have a positive impact, both by driving sales growth and managing labor costs. All else equal, companies that are focused on integrating automation technology with an already well-compensated and productive labor force are less vulnerable to rising wages.
Source: Cornerstone Capital Group
For more information about this report please contact Tanya.Khotin@cornerstonecapinc.com or Alice.Petrofsky@cornerstonecapinc.com.
Michael Shavel, CFA, is a Global Thematic Analyst at Cornerstone Capital Group and a former Research Analyst at AllianceBernstein’s Global Growth and Thematic team. Andy Zheng is a Research Associate at Cornerstone Capital Group.