The Real Impact of Technology on QSR Restaurant Growth & Margins
How technology is helping improve resturant-level operations
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I love investing in restaurant companies because they’re one of those tangible areas where you can try the product and service yourself, judge the quality, and understand the potential for the name.
Costs are easy to understand because rent, food, and labor costs ultimately make up much of a restaurant’s core expenses.
These days, labor costs and food inflation have put pressure on restaurant operating margins and companies are looking at technology to help with this. So, what got me thinking about this topic was remembering the video that came out last year from Chipotle (CMG) regarding their automated assembly line robot for their burrito and salad bowls (see below).
Seemed like a game-changer, right?
Many were excited by Hyphen's innovation due to the presumed margin-accretive nature of robots in an “assembly line” type of environment. Robots doing the work of people would mean less needed labor and thus, less payroll costs.
In addition to the above, Chipotle also pushed forward by launching its “Autocado” robot, which can cut, core, and peel avocados in an average of 26 seconds.

At face value, it seems like the goal is to optimize stores for costs, which naturally gets an investor excited as more cash flows through to the bottom line and valuation goes up over time.
However, investors are looking at technology implementation in restaurants the wrong way. Technology, at least at the moment, is not based solely on cutting costs, but on optimizing each unit for efficiency to drive sales.
Driving sales through efficiency > traditional cost cuts.
This sounds counter-intuitive because with all the headlines coming out about how labor costs are killing restaurants, and it’s getting hard to find people to work these jobs, you’d naturally agree that robots are needed to fill the void.
In fact, the number of employees in the Food Servies and Drinking Places only surpassed pre-COVID levels as of February of this year.

But what is interesting about the implementation of technology in restaurants is how it’s driving incremental sales through efficiency.
Because a restaurant only has X amount of space and can only afford X number of employees, optimizing the restaurant’s manpower and time is of the utmost importance.
Chipotle themselves stated that they are identifying the most time-consuming and less favorable tasks among their workers to apply technology to.
Kiosks
One of these improvements that a QSR chain like McDonald’s (MCD) invested heavily in were kiosks. Kiosks were meant to disrupt the cashier position, a position I’m sure many who are reading this are bringing back flashbacks to a high school/college job you once had.
In one of the earliest mentions of kiosks in fast-food settings in 1999, now-defunct trade industry publication Business Information said that McDonald’s was working to
“develop an electronic order-taking system that may eventually replace some of its human equivalents.”

Instead, touchscreen kiosks have added extra work for kitchen staff and pushed customers to order more food than they do at the cash register. Self-serve kiosks take 40% less time to process an order and can increase the average ticket size by 15% - 20%. Kiosks also allow for improved order accuracy which helps with consistency and reputation.
But McDonald’s isn’t the only example of a successful kiosk technology rollout, Yum Brand's Q3 2022 earnings call included news that KFC's kiosk sales grew more than 40% year over year and now represent 6% of sales – even though only 15% of its restaurants have kiosks.
“In theory, kiosks should help save on labor, but in reality, restaurants have added complexity due to mobile ordering and delivery, and the labor saved from kiosks is often reallocated for these efforts.” - RJ Hottovy, Placer.ai
But kiosks aren’t the main point of this post. Kiosks are front-of-house technological improvements but it’s the back-of-house robots that got everyone interested.
Robot Chefs
As you saw in the video at the beginning of this post, a whole Chipotle burrito bowl was assembled on its own, but unlike kiosks, the assembly helps but does not technically eliminate an employee.
After being filled, a human would still need to place a lid on the bowl, and add any chips, guac, and salsas before moving it to the package pickup area (if ordered online) or to the cash register.
Because of the limitations of the Hyphen robot, all burritos, kids’ meals, quesadillas, or tacos will be made by humans. Even with improved technology, there still needs to be employees around to finish the job, which is why Chipotle is targeting their digital orders with the Augmented Makeline robot (new name given for Hyphen robot).
“Around 65% of Chipotle’s digital orders consist of bowls or salads, so with Hyphen on board, team members would be freed up to focus on guest experiences, while increasing the amount of digital orders during peak periods”
And if you’re wondering how can these robots keep up with peak periods, the Hyphen robot can process >350 meals from digital orders every hour, which can easily mean employees can focus on the in-person ordering customers.
While the 350 per hour is impressive, another QSR concept I’ve written about in the past, Sweetgreen (SG), has utilized their Spyce robotics acquisition to launch Infinite Kitchens in a few cities.
The Infinite Kitchen system robotically assembles salads and bowls, with the ability to make up to 500 meals an hour—50% faster than humans can.
In an earnings call earlier in the year, Sweetgreen reported average tickets at those units were over 10% higher than in surrounding markets and a 7% margin improvement.
The chain plans to open between 23 and 27 restaurants in 2024, seven of which will contain Infinite Kitchen technology.
Bottom Line
So while technology is playing a key role in improving margins on a per unit basis, it’s not completely accurate to assume that these costs are directly associated with less employees at the restaurant but rather driving increased sales through operational efficiency.
It’s an interesting trend to keep track of as we’ll start to see more tech focused products come to life in the coming years, like Taco Bell’s recently announced AI ordering tool for drive-thrus.
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Until next time,
Paul Cerro | Cedar Grove Capital
Personal Twitter: @paulcerro
Fund Twitter: @cedargrovecm