Finding the right balance between automation and people

Discussion
May 23, 2016

By John Lofstock, Editor-in-Chief, Convenience Store Decisions

Through a special arrangement, presented here for discussion is a summary of an article from Convenience Store Decisions magazine.

McDonald’s has very publicly had to bear the brunt of wage hike advocates that are pushing for a national increase in the minimum wage to $15, regardless of the impact it has on businesses, the local economy and current staffing levels.

Yet the reality is that $1 hamburgers, the high cost of real estate and $15 per hour wages just don’t add up.

One McDonald’s franchisee recently told Business Insider that the price increases needed to offset any added labor costs “would cause a complete collapse in guest counts. I see no other options but the company paying to keep operators alive until they figure out how to reduce the labor required by 30 percent.”

The labor movement may win the battle for wage increases, but it’s unlikely to win the war.

In fact, Home Depot, Lowe’s and many supermarket chains have been training their customers for years to use self-checkout systems, which often utilize one employee for every four checkout lanes. An early c-store adopter is New Jersey’s Quick Chek, which operates a high-volume store on Route 46 in Lodi that has proved every bit as fast and convenient as a manned register.

McDonald’s, which reportedly ordered more than 10,000 touchscreen kiosks in Europe last year to replace cashiers, is also said to be testing robotic arms to serve customers after they have ordered. A self-serve McCafé coffee station last month was spotted in test mode in downtown Chicago.

Touchscreen technology is meant to speed up the ordering and offer more customization options for consumers, all while reducing opportunities for human error. More importantly, they don’t call in sick and never forget to upsell.

Such retail technology investments offer no easy choices; it is precisely the people technology is replacing that help connect you to your consumers. In many chains, people are the competitive advantage.

The challenge is going to be finding the right balance for your organization. These are tough decisions, but they are important decisions that have to be made sooner rather than later.

Photo: Wikimedia – By Kgbo

DISCUSSION QUESTIONS: Will the increasing use of automation lead to more detached shopping experiences at retail? What tips would you have for stores looking to balance the benefits of automation versus the costs and benefits of labor?

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26 Comments on "Finding the right balance between automation and people"


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Bob Phibbs
BrainTrust

If a person can improve the experience or explain something — like most of retail — that is the competitive advantage. McDonald’s seems to have given up friendly and personable counter help a long time ago. When I’m there it seems counter people are shouting for orders or scrambling to try to keep up with demand. Does an iPad make that experience more or less personable? Doubtful.

The hubris of saying the franchisor will have to pay to keep the franchisees alive is a bit astounding for a franchisee that averages $500,000 to $1 million profits a year.

As long as you look at labor as a cost and not an advantage you’ll continue looking for ways to make your store as nondescript and cold as the others. When you look at employees as your only success — you’ll reward and maintain them to truly craft an exceptional experience for your customers. You’ll share the wealth instead of trying to hoard it and bemoan having to give a bit extra in wages.

Gene Detroyer
BrainTrust

The question is not about the cost of labor. It is about customer preference. Are we really worried about $1 hamburgers? Heck, I remember when they were 15 cents. I don’t think anyone lost much business as the price increased over the years.

And particularly in the hamburger business, people seem a lot more willing to spend more for a better experience.

Peter Charness
BrainTrust

If Bob’s suggestion that Franchise holders do “just fine” from a profitability stand point is valid, then there is probably room for a little “fairness reset” — living wages for associates and a little less in profit growth for the owners. Automation as described in some ways replaces labor that is hard to find, and hard to keep, as well as providing a convenience in time and accuracy for the customer. One has to wonder, though, if the mobile phone should be the target for providing this automation, not installing expensive kiosks in every store. Grocery has a different problem than most retailers/restaurants where the number of items ordered/checked out is much lower.

Zel Bianco
BrainTrust

I think it depends on the business and their clientele. Certain times people want to get in and out, while other times people prefer to deal with a person. Finding the right balance is the key. I recently went into a CVS and a friendly and knowledgeable clerk was monitoring and helping customers with three different kiosks which worked well. It was a nice balance of human interaction while using a kiosk.

Kiosks lack flexibility and certain demographics may not be as comfortable using them so businesses that have both options available are probably going to fair better. Additionally, when customers are asked to use self-service kiosks they are being asked to shoulder more of the work so kiosks that run efficiently, are well maintained and are user friendly, should be what businesses aim for.

Lee Kent
BrainTrust

I must admit that I am not a regular at McDonald’s. With that said, when I have been there, the staff have done little or nothing to improve the experience other than serve me quickly.

If they have a well-placed and perhaps more senior person up front to greet and who can solve problems, make sure everything is working right and get out into the dinning room to speak and check on folks, can they get away with more automation? Sure.

We live in a concierge world where we want it our way (oops, that’s another fast food brand) and we want it now so, in a fast food joint like McDonald’s, I don’t think we mind placing our own orders.

Let’s not forget that it was McDonald’s who taught us all how to clean up after ourselves when we were out for a meal. Surely they can teach us to place our own orders. Happily.

But that’s just my 2 cents.

David Livingston
Guest
2 years 8 months ago
Retailers where people are a competitive advantage are already paying much higher wages and are having a good laugh watching warm-body retailers scramble to find technology so they don’t have to pay someone worth minimum wage $15 an hour. And $15 an hour is coming, too. It’s feel-good legislation that will win elections. I’ve been to markets where the minimum wage is $15 and hour and I see HR tables in front of the stores desperately looking to fill positions with people worth $15 an hour. It’s a strange paradox that there are lots and lots of unemployed people yet stores can’t find people worth $15 a hour to hire. In markets where the minimum wage is $15 an hour you will see homeless people sitting in front of the stores begging. They have been priced out of the labor market. Warm-body retailers with a mediocre workforce already have a detached shopping experience so it really isn’t going to get much worse. In my opinion, replacing mediocre workers with automation will improve the shopping experience.… Read more »
Cathy Hotka
BrainTrust

Bob’s right. Where there is an advantage to human interaction, associates will be paid more and will carry more responsibility. Where there isn’t (checking out of CVS with a bottle of shampoo) machines can do the job.

It will do us well as a country to focus better attention on education, with an eye toward ensuring we have a competent and able workforce.

Ben Ball
BrainTrust
This is a difficult subject — but we may be missing the real disruption in our discussion. We tend to talk in terms of the “value of the employee to the business” and “fairness in wages versus owner profits.” Those are arguments of aspiration and morality. Or maybe “human interest” would be a better term. The truly disruptive force behind changes in all industry — not just retail — is that technology is surpassing the productivity and lowering the cost of activity versus human beings. There is going to be some marginal utility trade-offs for sure. There is the employee who actually creates customer loyalty with their service. There is the process where having a human being visually inspect final production inventory is more apt to find defects than optical scanning. But there aren’t many. This is a fundamental paradigm shift in what “work” is. We are going to have to figure it out as a society. And arguments about higher pay for low value-added work are not going to help us. Not unless we… Read more »
Ian Percy
BrainTrust
Many are affirming Bob Phibbs’ comments as do I. What we don’t understand very well is where and when a brilliant human interaction is needed. The retail experience is made up of almost uncountable points of energy or connection — from how easy it is to park, to efficiency and thoughtfulness of the service, to the ambience of the place, to the quality of the products. That energetic experience can be positive and make you glad you are there and some are negative and make you look around for another place to go. When the positive energy consistently outweighs the negative you get customer loyalty. Unfortunately it often takes just one “dropped ball” to lose the game. There’s a restaurant near my home that is wonderful in all regards … except it is exceptionally noisy because of poor acoustical design. I went there only once. Some of those connection points are best- and well-handled by automation, and some by knowledgeable and aware human beings. So far we’re only guessing at which is which. And think… Read more »
Bob Phibbs
BrainTrust

Excellent point Ian about word-of-mouth automation!

Robert DiPietro
BrainTrust

I was able to witness self checkout in the grocery industry early in my career circa 1995 — when it was a one to six ratio and was all about improving efficacy and reducing cost at checkout. It didn’t work great back then for that as the equipment cost was high, customer efficiency was worse and one worker couldn’t watch six self checkouts.

I do think it can help in the case of fast food! I’ve heard that Domnino’s drove online ordering and app ordering to improve order accuracy not to cut costs. And it also seems that it will drive average order size when you have a chance to customize your food order while looking at the options versus thinking of what you want to eat.

W. Frank Dell II
BrainTrust

There are two sides to this issue. The more you automate the lower the customer interaction. Yes consumers are checking out of retail stores and internet sites without human interaction. If you believe associates can or will not change the shopping experience then self-checkout works. Automation is another issue. Capital investment must be paid back with savings, pure and simple. The most common issue I see is over-automation. Tasks are automated as it was easy to do, but will require 99 years to payback the investment. Automation that does not pay back with labor savings in three to five years is a bad use of capital. After five years the world changes too much for forecasting.

Herb Sorensen
BrainTrust

There is no right balance! As time goes by, robots will become more humanoid automatons, and may exceed their supplanted humans in very nearly every respect. A date after work? Hmmm!

Kai Clarke
BrainTrust

McDonald’s or any QSR is perhaps not the appropriate example for using the argument of a higher wage of $15 per hour by leveraging the growth of technology in their stead. Employees are the heartbeat of our business, our productivity advantage and our country. Any business who is successful recognizes this, since it is their employees who personalize the customer experience and enhance customer service. It is this premium customer service that brings customers in, not automation. Great businesses realize this and strive for happy, enthusiastic employees as the focus of their company — which brings back happy customers!

Ed Rosenbaum
BrainTrust

Automation has a good place to fill in operations such as a McDonald’s or other fast food operations. Certainly the customer will not notice a personality change in the manner orders are submitted. After a period of time the cost of automation is leveraged by the reduced cost of labor. My concern then becomes, where are those displaced people going to find acceptable work? This entire process may lead back to training, or a lack thereof, in the education system when preparing people to go out into the real world.

HY Louis
Guest
2 years 8 months ago

If you are not making at least $15 an hour in the US, it means you are really bad at interacting with other humans. You are doing something that is turning employers off. Americans are not only detached from retail, but from each other. Look at your divorce rate. Using online shopping, self-checkouts, automation is like being divorced. Someone doesn’t think you are acceptable or vice versa.

Either as a society or and an individual, too many people have lost value to to others. My tip is to find ways to be acceptable to others and you will never be unemployed and you will never be alone, unless you choose to be.

Patricia Vekich Waldron
BrainTrust
Patricia Vekich Waldron
Founder and CEO, Vision First
2 years 8 months ago

I’m happy to self-serve when it makes my experience more convenient. Ordering a meal at McDonald’s is a perfect example of when automation is (more) useful than people. Person-2-person is essential when customers need immediate assistance to resolve issues or want high-touch services.

Matt Talbot
Guest

Obviously, one of the huge perks of technology is that automated systems save customers and employees time. However, a serious concern to both consumers and the retail industry at large is that an increased use of machines will eliminate or lessen the human element that draws people into stores. The challenge, then, is integrating technology to enhance the experience without removing the human element entirely.

Some customers thoroughly enjoy self-checkout systems, which are already prevalent at places like grocery stores. However, self-checkout systems at retail may be less accepted. Various demographics and generations may view technology like kiosks differently, requiring retailers to gain a new sense of understanding.

Lee Peterson
BrainTrust

We always talk about what it is that Amazon can’t do, and people is the big one. The sooner retailers realize that good people are their only future, the sooner they’ll start competing with the convenience of online shopping. And, oh yeah, you have to pay to get good people.

Craig Sundstrom
Guest

I can’t add much to the comments offered here regarding the main question (i.e. that levels of automation have changed over time — and will continue to do so — and will vary from store-to-store), but I find Mr. Lofstock’s description of wage increases as “a war” telling. So much, I guess, for the idea of “the rising tide lifts all boats.”

Ken Morris
BrainTrust
The success or failure of automation for self-service depends on many factors like sector, geography and demographics. The reality is that self-checkout doesn’t work well in all locations. My local Shaw’s just removed them after having them in place for 10 years! Technology and automation is a double edged sword. While automation, like self-checkout, can help speed overall checkout times and reduce labor costs, it can also frustrate consumers when it isn’t intuitive or it is finicky. Self-checkout also is a detriment to customer engagement, as it offers no personal connection to the brand. Each retailer has to strike a balance between People, Process and Technology. The right mix is not static but bends to the preferences of your demographic segments and the processes that work best. I believe that a living wage, like that Costco pays their associates, creates associate loyalty that results in happy customer and will pay off in the long run. That doesn’t mean technology isn’t important. It just means the mix of people, process and technology has to be harmonized… Read more »
Kenneth Leung
BrainTrust

I think it depends on the transaction. In the case of McDonald’s, their strategy has always been to formalize process with as little deviation as possible, so automation is obviously the next step. I think going forward you will see a mix of fully automated order and checkout and a mix of employee driven mobile and stationery checkout. Nordstrom rack’s mobile checkout works well as a line buster for their traditional checkout, based on my experience.

Larry Negrich
BrainTrust

Understanding the customer’s need for, desire of, and comfort with assistance at specific points in the shopping journey allows retailer to evaluate the need for assistance and then determine if that assistance is best handled by technology, a person, or a combination. I don’t think this is a pure cost issue. Determine the service profiles of the target shopper and evaluate options to best fulfill the needs.

Lance Thornswood
Guest

It’s all about adding value to the customer experience. Automate those things that don’t add significant experience value (or those for which automation can actually improve the experience). Then focus your people on doing things that do the most to create a delightful customer experience.

Starbucks has nailed an essential automation win with the order function in their apps. They found their store capacity was limited by a key pinch-point: POS time was driving long, unpleasant wait times in line. By allowing customers to place their own, highly-customizable orders, consumers discover new options, get exactly what they want, and the lines get much shorter. Hopefully that means the baristas can take an extra moment to say hello and give you a genuine smile.

Hamburger-making robots aren’t the answer — even though I’d love to see C-3PO ask, “Would you like fries with that?”

Brian Numainville
BrainTrust

Much depends on the type of environment, the expectation of the customer, the intuitive (or lack thereof) interface of the automated system and ability to get assistance when needed. Environments with little deviation or specialization lend themselves much more to automation versus those where interaction with associates is key. And if the interface isn’t intuitive and the shopper can’t get help, even in the right environment, this could be a recipe for frustration and lost sales.

Kevin Cundiff
Guest

In many ways, automation is already part of the transaction. The ability for customers to “showroom” — look at products online—while they’re at a retail location — means the customer is already armed with automation. And yet they chose to come to your store. Why? It might be a desire for tactile interaction with the product, but it’s more likely a search for valuable insights from sales staff that can’t be had online.

Even with automation now a regular part of the equation, a consultative sales process paired with a strong value proposition around the benefits of buying in store can keep brick-and-mortar retail relevant. Paired with a willingness to compete on price, a trip to the store can still provide value versus a fully automated alternative.

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Braintrust
"As long as you look at labor as a cost and not an advantage you’ll continue looking for ways to make your store as nondescript and cold as the others."
"Are we really worried about $1 hamburgers?"
"Employees are the heartbeat of our business, our productivity advantage and our country."

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