This strategy comes at a critical time for Starbucks. The company, once known for its cozy, community-driven spaces, has evolved over the past several years into more of a transactional environment, largely driven by mobile orders and to-go orders. Niccol’s challenge is to balance the growing demand for fast service while reestablishing the coffeehouse as a space for people to gather, relax, and connect.

We’ll focus initially on four key areas that we know will have the biggest impact:

1. Empowering our baristas to take care of our customers: We’ll make sure our baristas have the tools and time to craft great drinks every time, delivered personally to each customer. For our partners, we’ll build on our tradition of leadership in retail by making Starbucks the best place to work, with career opportunities and a clear path to growth.
2. Get the morning right, every morning: People start their day with us, and we need to meet their expectations. This means delivering outstanding drinks and food, on time, every time.
3. Reestablishing Starbucks as the community coffeehouse: We’re committed to elevating the in-store experience — ensuring our spaces reflect the sights, smells and sounds that define Starbucks. Our stores will be inviting places to linger, with comfortable seating, thoughtful design and a clear distinction between “to-go” and “for-here” service.
4. Telling our story: It’s time for us to tell our story again — reminding people of our unmatched coffee expertise, our role in communities and the special experience that only Starbucks can provide. We won’t let others define who we are.

Back to Basics: Crafting a Welcoming Experience

One of Niccol’s first initiatives is to refocus on making Starbucks cafes inviting, comfortable places for customers to spend time, rather than just pick up a drink and leave. “Our stores have always been more than a place to get a drink. They’ve been gathering spaces,” he wrote, stressing the need for the coffee chain to get back to what made it successful in the first place. The physical layout of stores is a key element Niccol is targeting. He wants a clearer distinction between “to-go” and “for-here” services, which means redesigning stores to allow for a better dine-in experience.

$SBUX New Starbucks CEO Brian Niccol's message to shareholders. pic.twitter.com/YN1MfE8tPO

— CMac (@InvestmentTalkk) September 10, 2024

Niccol has emphasized the importance of “comfortable seating” and “thoughtful design” to ensure that Starbucks locations are more than just another stop on a customer’s daily routine. For a brand that once prided itself on being a “third place” between home and work, the new CEO’s plan signals a return to the familiar ambiance that helped make Starbucks a cultural institution.

Empowering Baristas to Shine

In addition to physical changes to stores, Niccol is pushing for operational improvements that give baristas more time and the proper tools to craft high-quality drinks. “We’ll make sure our baristas have the tools and time to craft great drinks every time,” he said. For Starbucks employees, this represents a significant shift. In recent years, the chain has faced criticism for placing too much emphasis on speed and efficiency at the cost of quality and customer connection. Niccol’s plan includes simplifying the menu and focusing on delivering consistent, high-quality coffee, particularly during the busy morning rush.

“People start their day with us, and we need to meet their expectations,” he wrote, signaling a renewed focus on the morning crowd, which represents a large portion of Starbucks’ revenue. Niccol believes that by better equipping staff and focusing on customer interactions, Starbucks can create an experience that transcends the typical transactional nature of fast coffee service.

Telling Starbucks’ Story: A New Marketing Push

Niccol also noted that Starbucks needs to reclaim its narrative, both in terms of its coffee expertise and its role in communities. He pointed out that Starbucks has a rich story to tell, from its investments in coffee farms to the roasting process at its various global facilities. “It’s time for us to tell our story again—reminding people of our unmatched coffee expertise and our role in communities,” Niccol stated, emphasizing that Starbucks should not let others define what the brand represents.

This messaging push will likely involve a more transparent communication strategy with consumers, particularly as Starbucks navigates through challenges that have arisen in recent years, including boycotts related to left-of-center political events and criticisms over labor relations.

Facing International Challenges: The China Conundrum

While Niccol’s initial focus will be on the U.S. market, he is also keenly aware of the challenges and opportunities Starbucks faces globally. One of the most pressing concerns is China, where Starbucks has struggled to maintain its competitive edge amidst an economic slowdown and growing competition from local rivals. Comparable store sales in China fell by 14% in the third quarter of 2024, driven by a decrease in both average ticket size and comparable transactions.

Niccol acknowledged the difficulties of navigating this “dynamic market” but expressed confidence that Starbucks can still capture growth in China and other international regions. “We see enormous potential for growth, especially in regions like the Middle East, Asia Pacific, Europe, and Latin America,” he said, noting that Starbucks will need to work hard to dispel any misconceptions about the brand, especially in politically sensitive markets like the Middle East.

A Clear Path Forward

As Niccol embarks on his first 100 days as CEO, his goals are clear: reinvigorate the in-store experience, empower baristas, deliver consistent quality, and reclaim Starbucks’ position as a community-driven brand. “I’ll spend time in our stores and at our Support Centers, meeting with key partners and suppliers, and working with our team to drive these critical first steps,” Niccol said, outlining a hands-on approach to leadership.

For Wall Street and Starbucks investors, the stakes are high. Starbucks’ stock has been under pressure, and the brand’s performance in key markets like the U.S. and China will be closely watched. However, Niccol’s track record of turning around Chipotle has inspired optimism that he can guide Starbucks through its current challenges and lead the company back to sustained growth.

My focus for the first 100 days is clear. I’ll spend time in our stores and at our Support Centers, meeting with key partners and suppliers, and working with our team to drive these critical first steps. Together, we will get back to what makes Starbucks, Starbucks.

On we go,

Brian Niccol
chairman & ceo

As Niccol put it in his letter: “We’re getting back to Starbucks.” The coming months will reveal whether this bold commitment can restore the coffeehouse giant to its former glory.

The Current Challenges at Starbucks

Starbucks’ recent struggles stem from several critical issues that have affected both its operations and customer experience. From rising prices to operational inefficiencies, the coffee giant is grappling with problems that are alienating both long-time customers and new ones. Understanding these challenges is key to assessing whether Niccol can engineer a successful turnaround.

A Decline in In-Store Experience

Starbucks built its reputation on being a “third place” between work and home, a comfortable spot where people could enjoy high-quality coffee in a welcoming atmosphere. However, as the company pivoted towards convenience-focused models, like mobile ordering and drive-thru service, the in-store experience suffered. Long-time customers feel disconnected, and some no longer find the environment inviting.

A clear example of this shift is seen in Steve Weeks, a loyal customer, who lamented in The Wall Street Journal: “The removal of seating and homey atmospheres has made Starbucks less inviting.” This sentiment reflects the broader discontent among long-time patrons who miss the days when Starbucks was as much about the experience as it was about the coffee.

Operational Inefficiencies

The surge in mobile orders has put immense pressure on Starbucks’ baristas, who are struggling to balance both in-store and digital orders. The system has led to longer wait times, order mix-ups, and overall customer dissatisfaction. Chief Financial Officer Rachel Ruggeri acknowledged the operational strains, noting, “We have to give customers reasons to come in,” alluding to the need for faster and more efficient service.

Niccol’s experience at Chipotle, where he introduced a second make-line to handle digital orders without disrupting in-store service, could provide the blueprint Starbucks needs to resolve this issue. Streamlining operations and improving the efficiency of order fulfillment will be essential for Niccol’s turnaround strategy.

Declining Sales and Tough Competition

Sales have continued to fall, particularly in core markets like the U.S. and China. In the U.S., same-store sales dropped by 2%, and in China, they fell by a steep 14%, primarily due to increased competition from local chains like Luckin Coffee.

Starbucks’ reputation as a premium coffee destination is also being challenged by competitors like Dunkin’ and McDonald’s, who offer similar products at lower prices. Boutique coffee shops, offering unique and artisanal experiences, are also attracting younger consumers. To remain competitive, Starbucks will need to refine its value proposition, particularly in terms of pricing and the quality of its core product—coffee.

The Niccol Playbook: What’s Next for Starbucks?

Brian Niccol’s track record of turning around struggling brands gives Starbucks hope. His experience at Chipotle, where he revamped the digital ordering experience and introduced successful new menu items, will likely play a crucial role in Starbucks’ strategy moving forward.

Reviving the In-Store Experience

Niccol’s first order of business will be to restore Starbucks’ brand identity as a premium coffee destination. Industry analysts agree that Starbucks has moved too far towards convenience, diluting its premium image. Niccol will likely focus on revitalizing the in-store experience, making it a more comfortable and inviting place for customers to linger, socialize, and enjoy their coffee.

As Tom Cook, a restaurant consultant, pointed out to CNN, “Niccol needs to juice up the brand and bring back some of that cachet and vibe and make Starbucks hip again.” Reintroducing the “third place” concept could be key to regaining lost customers.

Fixing Operational Inefficiencies

Streamlining operations will be another area where Niccol’s expertise shines. Starbucks’ reliance on mobile orders has caused a strain on its systems, with baristas struggling to keep up with demand. At Chipotle, Niccol introduced a second line specifically for digital orders, improving service speed without sacrificing the in-store experience. A similar approach at Starbucks could help alleviate the operational bottleneck.

Accelerating the rollout of the Siren System, which allows baristas to prepare drinks more efficiently, could also help. With Niccol’s focus on operational excellence, these changes could make a significant impact on customer satisfaction.

Reinventing the Menu

Starbucks has launched a slew of new beverages, from energy drinks to seasonal refreshers, but none have significantly moved the needle. Industry experts have criticized the brand for introducing too many products without properly marketing them. Lauren Silberman, an analyst at Deutsche Bank, noted, “They are just throwing more stuff at the wall.”

Niccol will likely implement a more disciplined approach to menu innovation. At Chipotle, he introduced a stage-gate process that tested new items in select markets before rolling them out nationally. Applying this method at Starbucks could ensure that new drinks resonate with customers and drive sales.

Is a Turnaround Possible?

Turning around Starbucks is no small task, but if anyone can do it, it’s Brian Niccol. His success at Chipotle, where he revitalized the brand by focusing on operational efficiency and digital innovation, provides a solid foundation for what he could achieve at Starbucks.

However, Starbucks faces deeper systemic challenges than Chipotle did, including labor unrest, increased competition, and an evolving consumer base that values both quality and convenience. Niccol will need to address these issues head-on while also rebuilding the company’s brand as a premium coffee destination.

As Howard Schultz once said, “The answer does not lie in data, but in the stores.” Niccol will need to focus on both operational excellence and the customer experience to succeed. While the road ahead is long, with Niccol at the helm, Starbucks has a real shot at brewing a successful recovery.

Uber purchased Drizly in 2021 for $1.1 billion. It seems, after a little more than three years owning the startup, Uber has decided it’s had enough and is killing it off.

“After three years of Drizly operating independently within the Uber family, we’ve decided to close the business and focus on our core Uber Eats strategy of helping consumers get almost anything — from food to groceries to alcohol — all on a single app,” Pierre-Dimitri Gore-Coty, Uber’s SVP of delivery, told Axios in an exclusive interview.

“We’re grateful to the Drizly team for their many contributions to the growth of the BevAlc delivery category as the original industry pioneer,” he added.

Drizly has had a troubled history that has seen it run afoul of the US government. In 2022, the Federal Trade Commission fined Drizly and CEO James Cory Rellas for a data breach that occurred as a result of the company’s negligence. Drizly had a cybersecurity incident in 2018, but failed to do anything to fix the vulnerability, leading to a much larger breach two years later.

“Our proposed order against Drizly not only restricts what the company can retain and collect going forward but also ensures the CEO faces consequences for the company’s carelessness,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection, at the time. “CEOs who take shortcuts on security should take note.”

It’s unclear if the cybersecurity issues played a role in Uber’s decision, but it’s certainly difficult to imagine it didn’t play a part.

McDonald’s began testing AI-powered ordering in 2021, relying on IBM to power the technology. The company has reportedly ended its contract with IBM, also ending the AI-powered ordering.

“While there have been successes to date, we feel there is an opportunity to explore voice ordering solutions more broadly,” Mason Smoot, chief restaurant officer for McDonald’s USA, said in an email sent to franchisees that was obtained by Restaurant Business. “After a thoughtful review, McDonald’s has decided to end our current partnership with IBM on AOT and the technology will be shut off in all restaurants currently testing it no later than July 26, 2024.”

The company is continuing to hold out the possibility of a return to AI-powered ordering in the future, saying it will make “an informed decision on a future voice ordering solution by the end of the year.”

Interestingly, McDonald’s also emphasized to the outlet that its canceled contract with IBM only pertains to this specific application, and that IBM remains a “trusted partner and we will still utilize many of their products across our global system.”

“As we move forward, our work with IBM has given us the confidence that a voice-ordering solution for drive-thru will be part of our restaurants’ future,” McDonald’s said in a statement to Restaurant Business. “We see tremendous opportunity in advancing our restaurant technology and will continue to evaluate long-term, scalable solutions that will help us make an informed decision on a future voice ordering solution by the end of the year.”

IBM told Restaurant Business that it was shopping its technology to other restaurants.

“IBM developed automated order taker technologies with McDonald’s to support the emerging use of voice-activated AI in restaurant drive-thrus,” the company said. “This technology is proven to have some of the most comprehensive capabilities in the industry, fast and accurate in some of the most demanding conditions.

“While McDonald’s is reevaluating and refining its plans for AOT, we look forward to continuing to work with them on a variety of other projects.”

The recent move by McDonald’s to offer a $5 meal deal is a stark indication of the challenges facing the American consumer. McDonald’s has been a bellwether for consumer spending, particularly among lower-income earners. The company’s robust performance during the pandemic, bolstered by government stimulus checks and increased demand for convenient dining options, masked underlying economic vulnerabilities now coming to light.

“This is not just about McDonald’s; it’s a signal about the broader economic landscape,” says Steven Van Metre, a financial analyst. “The fact that McDonald’s feels the need to promote low-cost meal options aggressively indicates that a significant portion of their customer base is struggling financially. This is a red flag for the overall health of the economy.”

Recent economic data echo McDonald’s concerns, suggesting that the financial cushion provided by pandemic-era stimulus measures has eroded. With inflation continuing to outpace wage growth, many consumers are finding it difficult to maintain their standard of living. This economic strain is particularly evident among low-income households, who are often the first to feel the effects of an economic downturn.

The Reality Behind the Numbers

Despite headline data suggesting a robust economy, the reality on the ground paints a different picture. Steven Van Metre, a financial analyst, pointed out that while political leaders tout economic growth, many consumers are running out of money. This issue has become increasingly visible at McDonald’s, where sales and traffic are weakening, especially among low-income earners who constitute a significant portion of the chain’s clientele.

“McDonald’s is seeing a shift in consumer behavior due to the lack of disposable income among low-income families,” Van Metre explained. “This is particularly concerning because it signals broader economic issues that start from the bottom and move up through the ranks.”

Economic Slowdown and Consumer Spending

The decline in consumer spending at McDonald’s indicates a larger economic slowdown. Historically, lower-income households first feel economic downturns before spreading throughout the economy. The fact that McDonald’s is now emphasizing affordability with its new meal deal is a stark indicator that many consumers are prioritizing essential expenses over dining out.

The Federal Reserve had previously indicated that the economy might run out of stimulus money, a prediction that seems to be materializing. With pandemic-era stimulus checks and other forms of financial aid drying up, many Americans find it increasingly difficult to make ends meet. This financial strain is forcing consumers to cut back on discretionary spending, including dining at fast-food restaurants.

Inflation and Wage Growth Disparities

Inflation remains a significant challenge, with price increases outpacing wage growth. This disparity is particularly evident in the fast-food industry, where rising costs of goods and services are not being matched by increases in consumer wages. “If the economy were truly booming, we’d see wage growth exceeding inflation and more hours for workers,” Van Metre noted. “The current scenario, where wages are stagnant and inflation remains high, puts enormous pressure on consumers.”

The Federal Reserve’s data shows that while buy-now-pay-later schemes and other short-term financial strategies did provide some economic boost, they are not sustainable solutions. As consumers face the realities of their financial obligations, including high debt service costs, their spending power diminishes further.

McDonald’s Response and Broader Implications

McDonald’s response to these economic pressures includes a strategic pivot towards more affordable menu options. The company’s CEO emphasized the need to focus on affordability to attract and retain customers. However, this move also highlights the underlying weakness in consumer spending power.

“This isn’t just about McDonald’s,” Van Metre emphasized. “It’s about the broader economy. McDonald’s serves as a bellwether for consumer confidence and spending. When a giant like McDonald’s signals trouble, it clearly indicates that the economy is not as strong as some might believe.”

The Bigger Economic Picture

The issues facing McDonald’s are reflective of broader economic challenges. Rising gasoline prices, higher costs of living, and significant debt burdens are all contributing to the financial squeeze on consumers. The Consumer Price Index (CPI) shows that inflation erodes purchasing power, while total compensation growth remains sluggish.

Van Metre pointed out that the labor market is cooling, with average hourly earnings rising at the slowest pace since the first quarter of 2021. This slowdown in wage growth and high inflation suggest that consumers will continue to struggle in the near term. Additionally, the “quits rate,” a leading indicator of wage trends, indicates further deceleration in wage growth.

Government and Policy Responses

The Biden administration and the Federal Reserve are keenly aware of these issues but face significant challenges in addressing them. Treasury Secretary Janet Yellen recently expressed concerns about the economic outlook, emphasizing the need to bring down inflation without sacrificing the labor market. However, the administration’s ability to implement effective measures remains constrained by broader economic conditions and geopolitical factors.

Inflation and Wage Growth Disparities

Inflation remains a significant challenge, with price increases outpacing wage growth. This disparity is particularly evident in the fast-food industry, where rising costs of goods and services are not being matched by increases in consumer wages. “If the economy were truly booming, we’d see wage growth exceeding inflation and more hours for workers,” Van Metre noted. “The current scenario, where wages are stagnant and inflation remains high, puts enormous pressure on consumers.”

The Federal Reserve’s data shows that while buy-now-pay-later schemes and other short-term financial strategies did provide some economic boost, they are not sustainable solutions. As consumers face the realities of their financial obligations, including high debt service costs, their spending power diminishes further.

The Ripple Effect Across the Economy

McDonald’s’s challenges are not isolated; they indicate a broader economic malaise. Rising gasoline prices, higher costs of living, and significant debt burdens are all contributing to the financial squeeze on consumers. The Consumer Price Index (CPI) shows that inflation is eroding purchasing power, while total compensation growth remains sluggish.

The labor market, a critical component of economic health, is also showing signs of strain. Average hourly earnings are rising at the slowest pace since early 2021, and the quits rate, a leading indicator of wage trends, indicates further deceleration. This slowdown in wage growth, combined with high inflation, suggests that consumers will continue to struggle to keep up with rising prices.

McDonald’s Response and Broader Implications

McDonald’s has responded to these economic pressures by pivoting towards more affordable menu options. The company’s CEO emphasized the need to focus on affordability to attract and retain customers. However, this move also highlights the underlying weakness in consumer spending power.

“This isn’t just about McDonald’s,” Van Metre emphasized. “It’s about the broader economy. McDonald’s serves as a bellwether for consumer confidence and spending. When a giant like McDonald’s signals trouble, it clearly indicates that the economy is not as strong as some might believe.”

The Government’s Role and Future Outlook

The Biden administration and the Federal Reserve are keenly aware of these issues but face significant challenges in addressing them. Treasury Secretary Janet Yellen recently expressed concerns about the economic outlook, emphasizing the need to bring down inflation without sacrificing the labor market. However, the administration’s ability to implement effective measures remains constrained by broader economic conditions and geopolitical factors.

The government’s efforts to rein in inflation through measures like prescription drug reforms and other cost-cutting initiatives have had some impact. However, the complexity of the current economic situation means that there are no easy fixes. “Bringing down inflation is a top priority,” Yellen said. “But we must do so in a way that does not jeopardize the labor market.”

Conclusion: A Warning Sign

McDonald’s warning is a stark reminder of the fragile state of the U.S. economy. As consumers grapple with rising costs and stagnant wages, discretionary spending will likely decline further, impacting not just fast-food chains but the broader retail sector and overall economic growth.

“The situation at McDonald’s is a microcosm of the larger economic issues,” Van Metre concluded. “It’s a warning sign that policymakers, businesses, and consumers must heed. Without significant changes, the financial pressures on American households are likely to intensify, leading to a broader economic slowdown.”

The road ahead is uncertain, and the actions taken in the coming months will be critical in determining whether the economy can navigate these turbulent times. For now, McDonald’s message is clear: Consumers are feeling the pinch, and the broader economy may soon follow.

This shift has caused dismay among customers and triggered strategic reevaluations within major fast-food corporations. The rapid inflation in fast food prices, which has outpaced general economic inflation rates, reflects broader economic pressures and raises questions about sustainability and consumer loyalty.

Jeremy from the popular YouTube channel TheQuartering highlighted the stark reality facing the industry and its consumers. “The price of a quarter pounder meal at McDonald’s, a staple for many American families, has nearly doubled, pushing the cost to around $10. This price point is nearly three times what it was a decade ago,” Jeremy noted in a recent video. He reflects on the impact this has on typical American families who, amid their busy schedules, have traditionally relied on fast food for quick, budget-friendly meals.

The issue resonates beyond the price at the counter. It speaks to a larger economic struggle within the middle and lower income brackets where discretionary spending is most constrained. Fast food, once a budget-friendly option for families and individuals in a hurry, is becoming a less viable choice due to these cost increases.

The fast food industry’s challenges are compounded by a broader economic context marked by rising inflation and wage stagnation. While wages have seen some increases, they have not kept pace with the overall cost of living, squeezing consumers further and forcing them to make more discerning choices about where to spend their money.

Executives at major chains like McDonald’s have publicly acknowledged the issue. In a recent earnings call, McDonald’s CEO expressed concern over the financial pressure on consumers and its impact on their spending habits, emphasizing that the company is aware of the need to be more price-sensitive without compromising quality and service.

This fast food pricing crisis is pushing companies to rethink their strategies. Marketing efforts and value deals are becoming more aggressive to retain customer loyalty and keep foot traffic steady. However, the long-term implications of these price hikes could include significantly reshaping the fast food landscape, with potential declines in customer visits and a shift towards other dining options that offer better-perceived value.

Industry analysts suggest that unless a strategic shift in pricing or economic conditions improve, the fast food industry could face a downturn in popularity, as consumers increasingly view these meals as poor value for money. The situation highlights a crucial juncture for the industry: continue with high pricing and risk losing the core customer base, or adjust strategies to address economic realities and sustain consumer engagement.

As the industry grapples with these challenges, the coming months will be critical in determining whether fast food can maintain its place as a cornerstone of convenient, affordable dining in America or will need to evolve dramatically in response to the financial pressures facing its most loyal customers.

Opening the conversation, Doyle addressed the economic climate, acknowledging that employment rates remain robust despite widespread concerns—a key indicator of consumer spending potential in the quick-service restaurant industry. “Employment is pretty darn healthy out there,” Doyle affirmed, suggesting that a stable job market supports discretionary spending, even as broader economic indicators fluctuate.

However, Doyle was candid about the impact of recent price increases on consumer behavior, particularly in core products like burgers. “You can’t double the price of a burger,” he stated emphatically, highlighting the company’s sensitivity to consumer price thresholds. This acknowledgment comes as inflationary pressures have forced many in the industry to reconsider their pricing strategies.

Reflecting on the company’s pricing strategy, Doyle elaborated on the delicate balance Restaurant Brands strives to maintain. “We’ve had to take a lot of price increases, some did it smarter, some not quite as well,” he noted, underscoring the nuanced approach needed in pricing decisions to avoid alienating budget-conscious consumers.

To combat the potential adverse effects of price hikes, Restaurant Brands International has diversified its menu to cater to various economic situations. Doyle pointed out that the company offers a mix of higher-end items and entry-level options, ensuring that the menu has something to offer whether a customer wants to indulge or spend minimally. “Wherever the customer wants to come in and do business with us, we’ve got a great offering for them,” Doyle explained.

This strategy has proven effective, as Doyle shared that traffic to their restaurants has been “basically flat,” which he considers a success relative to the declines seen elsewhere in the industry. “That muted things a bit, but as long as we are executing and pulling lots of other levers then doing something crazy from a value perspective, we think we have an offering that’s going to meet the customer for whatever they want to buy and whatever they have got to spend,” he elaborated.

Looking forward, Doyle emphasized the importance of continued innovation and responsiveness to consumer needs. “We’re going to continue making investments in Burger King,” he declared, signaling the company’s ongoing commitment to one of its key brands. This includes maintaining a flexible and appealing menu and enhancing the overall customer experience.

In conclusion, Patrick Doyle’s insights reveal a strategic emphasis on employment trends, pricing sensitivity, and menu diversity as foundational elements of Restaurant Brands International’s approach to navigating uncertain economic times. By closely aligning its offerings with consumer expectations and financial realities, Doyle is confident in its ability to maintain relevance and appeal in the competitive fast-food market.

Testing the Technology
Stern’s examination of the AI-driven order system involved several challenging scenarios to evaluate the technology’s robustness and adaptability. Through repeated visits, she presented the AI with various speech recognition challenges, including placing orders amidst loud noises like car horns and barking dogs. The AI chatbot’s response to these interruptions was critical in understanding its capability to function in typical noisy environments occurring daily at many drive-thru locations.

Speech Recognition Capabilities
The first phase of Stern’s testing focused on the chatbot’s ability to convert spoken words into text accurately. This is essential for the AI to interpret the customer’s order correctly. Stern ordered items like the Big Hardee Combo, modifying the order with requests for extra ketchup and a Diet Coke to see how well the AI could handle specific and detailed instructions. The chatbot’s performance was generally good, recognizing and confirming the order details despite disruptive noises, a testament to its sophisticated speech recognition technology.

Challenges with Background Noise
Despite the AI’s adept handling of straightforward speech recognition, Stern’s tests revealed that the system is not impervious to errors introduced by ambient noise, a common feature of drive-thru environments. For example, when ordering chicken nuggets with the sound of barking dogs in the background, the chatbot asked about the choice of dipping sauce but struggled with follow-up questions, showcasing limitations in handling unexpected auditory disturbances.

Understanding and Processing Orders
After converting speech to text, the next step involves the AI’s understanding of the order through its Natural Language Understanding module. This system needs to grasp the basic request and anticipate and manage follow-up queries related to the order. Stern’s interaction included changing an order partway through. She initially asked for a Big Hardee Combo but then switched to the Superstar with cheese. The AI successfully navigated this change, suggesting it can handle typical customer modifications without confusion.

Complex Queries and Human Intervention
However, the AI system showed shortcomings when dealing with complex customer questions beyond simple order modifications. Inquiries about ingredients or calorie content often stumped the AI, leading to a prompt for human assistance. This indicates that while AI can manage routine orders effectively, it still relies on human employees to handle more detailed or nuanced customer interactions.

The Role of AI in Customer Service
Integrating AI into drive-thru service points towards a future where fast food operations can become more efficient while relying on human oversight for quality control and complex decision-making. Stern’s tests suggest that AI can enhance service speed and accuracy but also highlight the need for ongoing human involvement, especially for quality assurance and customer satisfaction.

As AI technology continues to evolve, its potential to support the fast food industry grows. However, the tests conducted by Stern illustrate that while AI can significantly streamline some aspects of the service process, complete autonomy without human backup is still far off. The balance between automated efficiency and human judgment remains crucial, ensuring that as AI takes on more roles in the industry, it enhances rather than detracts from the overall customer experience.

The wage hike was intended to alleviate the financial strain on fast-food employees. Yet, it has precipitated a chain reaction of price increases that have disproportionately impacted the very demographic it aimed to support—the state’s lower-income workers. As fast food outlets adjust their pricing strategies to absorb the increased labor costs, everyday consumers face steeper prices for quick-service meals, fundamentally altering their consumption habits.

“This wage increase has translated directly into higher operational costs, which we’ve had to pass on to our customers,” explained a fast-food restaurant owner in San Diego. “It’s a tough sell; as much as our customers would like to support our workers, they’re also feeling the pinch and choosing cheaper alternatives or simply dining out less frequently.”

The YouTube Channel TheQuartering explores the impact of California’s new $20 per-hour fast food minimum wage.

Economists have long cautioned about the inflationary risks of abrupt wage hikes, particularly within industries operating on thin profit margins. “The policy, while commendable for its intentions, overlooks basic economic principles,” stated a labor economist from UCLA. “When you increase the cost of labor, businesses must compensate either by raising prices, reducing staff hours, investing in automation, or cutting jobs altogether.”

Indeed, the rise in automation within the fast food sector has accelerated as employers seek to mitigate labor costs. Self-service kiosks and digital ordering systems are becoming commonplace, signaling a shift that could diminish the number of workers these businesses employ.

“The irony is stark,” commented a financial analyst monitoring the impact. “A policy meant to improve workers’ livelihoods is catalyzing a shift towards automation that could reduce overall employment in the industry. Additionally, the burden of increased meal prices invariably falls on lower-income individuals—the exact group this wage increase aimed to empower.”

Moreover, the broader implications for the California economy are profound. The fast food industry, often a gateway for entry-level workers to gain employment skills, may no longer serve as an accessible career starter if positions become scarce due to automation and higher labor costs.

As California navigates these turbulent economic waters, the outcomes will undoubtedly influence other regions considering similar wage adjustments. Policymakers must balance the desire for fair wages with the economic realities of business operations and consumer affordability, especially in sectors like fast food, where price sensitivity is particularly acute.

The ongoing developments in California offer a cautionary tale about the complexities of wage policy in practice, underscoring the need for a nuanced approach that considers all stakeholders in the economic equation.

At the heart of Wendy’s technological push is the goal of automating drive-thru ordering, which promises increased speed, accuracy, and consistency. According to Wendy’s, the Fresh AI system is designed to manage the complexities of drive-thru service, which can be one of the most challenging aspects of fast food operations.

However, introducing AI in this setting has not been without criticism. A recent TikTok video, posted by user Britney and 222, went viral for showing a drive-thru experience where an AI voice took orders. The video highlighted several concerns, notably the slower response times of the AI system and potential errors in order taking. One specific instance showed the AI misunderstanding an order, a mistake that required human intervention at the pickup window.

Critics argue that while the technology might streamline some processes, it could also impact jobs traditionally held by humans. Often seen as stepping stones for individuals in the workforce, these positions are crucial for many who rely on them to make ends meet. Wendy’s move towards AI-driven services thus sparks a debate about the balance between technological advancement and the preservation of employment opportunities.

Despite these concerns, Wendy’s remains optimistic about the future of Fresh AI. The company plans to expand the technology across various platforms, including mobile devices and smart home systems, suggesting a shift towards a more integrated and technology-driven customer experience.

As other fast food giants observe Wendy’s experiment with keen interest, the industry stands on the brink of a potential overhaul where AI could become the norm. Whether this shift will be for better or worse remains to be seen as stakeholders continue to evaluate the trade-offs between efficiency and the human touch.

As we stand at this crossroads, the question remains: is the future of fast food human or machine? Wendy’s is betting on AI, and only time will tell if this gamble pays off.

Chef Andrew Gruel, a prominent restaurateur and vocal opponent of the wage hike, minced no words in his assessment of the situation. “This is a recipe for disaster,” Gruel remarked. “The government is effectively driving businesses into the ground by mandating such exorbitant wages.”

Indeed, California’s wage mandate already has repercussions across the state, with fast-food establishments grappling with the stark reality of paying their workers double the minimum wage. For industry giants like McDonald’s, the burden is hefty, leading to widespread layoffs as they struggle to stay afloat in an increasingly challenging economic landscape.

“We’ve seen layoffs and price increases—that is inflation,” Gruel pointed out. “And who does it hurt the most? This new $20 minimum wage is supposed to help those very people.”

The fallout from the wage hike extends beyond job losses, with small businesses also feeling the squeeze as they scramble to adjust to the new mandate. With razor-thin profit margins, many find it impossible to absorb the additional costs, leading to closures and layoffs that further exacerbate the state’s unemployment woes.

“This bill was marketed as something to help workers and hurt corporations, but it’s doing the opposite,” Gruel emphasized. “It’s helping the corporations by driving out competition and hurting the workers by putting them out of a job.”

Of course, the $20 minimum wage impacts many restaurants—except, it seems, for employees at establishments owned by Governor Gavin Newsom himself.

The revelation has reignited accusations of hypocrisy against Newsom, with critics pointing to a glaring inconsistency between his rhetoric and actions. Gruel minced no words in his condemnation, calling it “classic Newsom” and accusing the governor of embodying the hypocrisy he claims to oppose.

“This reminds me of pandemic, restaurant, Newsom, and hypocrisy,” Gruel remarked. “He can’t stand behind all things he virtue signals. This is typical, not just of Newsom, but of all politicians who talk about the need for a $50 minimum wage while government workers make $15 an hour. It’s absurd and typical of California.”

As the debate rages on, the future remains uncertain for California’s restaurant industry, with the $20 minimum wage casting a long shadow over its viability. For Chef Andrew Gruel and others like him, the stakes couldn’t be higher as they sound the alarm on what they see as a misguided and detrimental policy that threatens to upend the very foundation of the state’s economy. As the dust settles, the actual cost of California’s wage experiment may become painfully clear, leaving many wondering if the price of progress was worth the toll it has taken on businesses and workers alike.

Harley Finkelstein, COO of Shopify, discusses how COVID has dramatically sped up the timeline for commerce moving online and has also moved Shopify closer to its goal of becoming the world’s first retail operating system:

Shopify Evolving Into World’s First Retail Operating System

Most people assume that Shopify is an ecommerce provider. We have more than a million stores on Shopify. If you were to aggregate our stores in the US we’d be the second-largest online retailer in America. Of course, we’re not a retailer but we’re a platform. But we now have these great economies of scale that we’re using to level the playing field for entrepreneurs and small businesses. That being said, what really Shopify is evolving into is the world’s first retail operating system. 

What we’re trying to figure out is what do brands and entrepreneurs and retailers need, not just now but in the future? We think the future of retail is retail everywhere. A brand that’s going to be successful in 5, 10 or 15 years from now needs to sell across any platform and across any channel where they have customers. This idea of enabling Shopify merchants to very easily push their products to the Amazon Marketplace or the eBay marketplace or now the Walmart marketplace, that gives them access to a new set of consumers. The idea is that it all feeds back in one centralized back-office, the retail operating system, which is Shopify. 

Then we’ve gone ahead and asked what else can we do for these merchants? Can we do capital? We’ve now given out about a billion dollars worth of cash advances and loans to small businesses. We’re doing fulfillment and we’re doing shipping. We’re increasing the scope and the relationship that we have with the million stores on Shopify. This is allowing them to become category leaders.

COVID Speeds Up The Ecommerce Revolution

From our view, it seems like the commerce world that would have existed in the year 2030 has really been pulled into the year 2020 (as a result of the COVID crisis). We’ve seen ecommerce as a percent of total retail go from 15 percent to 25 percent in the last three months. That’s the same growth rate that we’ve seen over the last 10 years. What really has emerged here is sort of this tale of two retail worlds. On one side you have these resilient retailers that are doing great, they’re pivoting, and they’re expanding their businesses. On the other side, you have these resistant retailers who have not made it. In many ways, it’s probably the most exciting time for retail in a very long time. 

We talk a lot about these direct to consumer brands that are becoming category leaders. The Allbirds and the Gymsharks who started on Shopify when they were very small and have grown to become the incumbents in their industry. Every 25 seconds a brand new entrepreneur makes his or her (products) for sale on Shopify. We talk a lot about those new startups, those new DTC brands. But actually, what we’re also seeing on Shopify are companies like Lindt Chocolate or Heinz ketchup or Chipotle. They are signing up for Shopify and basically from like five days from contract to launch they are completely changing their businesses. 

This resiliency isn’t simply in the hands of just the smallest of brands. Big companies are also beginning to think a lot more about how to stay resilient in this time. They’re moving well beyond ecommerce or thinking about offline commerce now. They’re thinking about how do they sell across social media? How do they sell across different marketplaces? So no, I don’t think it’s too late (to enter ecommerce) but I do think they have to rethink their strategies.

Farfetch plans to use their IPO windfall to dramatically improve their technology which they see as the best way to improve the consumer experience.

Farfetch Founder and CEO José Manuel Ferreira Neves recently discussed Farfetch and the online luxury brand industry on Bloomberg:

Online Luxury is Growing 25 Percent a Year

It’s a very unique opportunity. You have this amazing global industry. It’s $300 billion, the personal luxury goods industry and only 9 percent is online. There are two opportunities here really. One is the growth of online luxury which is going to grow to 25 percent a year for the next seven years. This is a $100 billion opportunity shift in online luxury.

The big question is how is technology going to help brands and retailers really improve the consumer experience in the physical store. This is something at Farfetch that we are very passionate about.

China is an Incredible Opportunity for Online Luxury

China is a very exciting opportunity. Chinese citizens are at the onset of the luxury industry, whether they shop at home or when they’re shopping abroad. Online penetration is very low in China so this means that there is an incredible growth runway for Farfetch in the territory.

That led to our partnership with JD.com where we have our own team. We have the Farfetch China app and website, we have local customer service, local payment systems, and local marketing. It’s a truly localized service. That is what’s driving incredible growth to the Farfetch brand in that region.

José Neves, founder and CEO of @farfetch, told us about the company’s grand ambitions for China at the WWD’s Men’s Wear Summit this week. https://t.co/MrMj7y5VCG

— Jing Daily | 精日传媒 (@JingDaily) March 29, 2018

WeChat is an amazing app with over 900 million users. It is the Instagram, plus WeChat, plus PayPal, etc. of China in one app. That is very powerful and very interesting. Now with our acquisition CuriosityChina we are powering the retail presence of 80 luxury brands. We think that is very interesting for the industry and we think that is probably something that we will see for the western world.

How Farfetch plans to capture the growth in online luxury e-commerce https://t.co/t9HI0igMFV pic.twitter.com/RjvAel79li

— Bloomberg TV (@BloombergTV) September 21, 2018

Brands Now Using Social and Digital Marketing Extensively

I think brands move cautiously and they choose their marketing channels very carefully. As these newer channels have developed the brands have adapted to them and their now using social media and digital media extensively to create desire, to drive discovery of new products obviously transactions as well.

It’s a gradual pace but it’s really exciting that were at that inflection point where the brands see this as a tremendous opportunity.

According to Oracle, the second-largest hamburger chain has moved its “business-critical workloads to Oracle Cloud Infrastructure (OCI)” in an effort to “increase productivity, expand business insights, and improve the experience it delivers to its growing customer base.”

Wendy’s previously relied on a number of manual processes which were ill-suited to the chain’s global expansion, leading to various customer support issues.

“Our vision is to create fast, frictionless, and fun user experiences for our employees, franchisees, and front-line workers to help drive consistent, quick, and convenient customer experiences,” said Stephanie Shaw, vice president of enterprise technology, Wendy’s. “Aligning Finance and HR on Oracle Fusion Applications Suite has allowed us to simplify and automate business processes to help build a culture of innovation and inclusivity and enable employees to spend less time on administrative tasks and more time thinking about and engaging with our customers.”

Moving the company’s HR operations to Oracle Fusion Cloud Human Capital Management (HCM) will similarly help the company streamline its HR processes.

“The quick-service restaurant industry is fiercely competitive, and employees and managers play a key role in elevating brands through fast and friendly customer service,” said Steve Miranda, executive vice president of applications development, Oracle. “With Oracle Fusion Applications Suite, Wendy’s can automate processes and make faster, better-informed decisions to deliver exceptional customer experiences. Moving forward, Wendy’s has the technology foundation to embrace new services as it pursues its company vision.”

The announcement is a big win for Oracle and underscores the company’s long-standing claim that it offers the best-integrated cloud experience.

Simon served as President and CEO of Walmart U.S. from 2010 to 2014, giving him a unique perspective on the retail industry. Rather than predicting doom-and-gloom for traditional retail, Simon believe technology has the ability to transform the industry and open all new possibilities.

Even something as simple as trying on clothes may be revolutionized by technology, such as virtual reality.

“Could we have virtual changing rooms so that you can just scan an item in a store with your phone and try it on yourself without actually having to go try it on?” Simon said on CNBC’s “Squawk on the Street.”

Simon believes successful retailers will combine online sales with a brick-and-mortar presence, and cites Target and Amazon as two examples of companies that are making it work.

Niren Chaudhary, CEO of Panera, discusses how the company has focused on ecommerce and the “off-premise channel” to drive dramatic growth:

Panera’s Ecommerce Pivot Sparks Dramatic Growth

Panera is actually emerging quite strongly through the pandemic because we’ve been completely focused on what we have control over. By focusing on servicing customers through our off-premise channels, leveraging e-commerce, and then rapidly innovating we’ve seen a very smart recovery on our brand and also a stronger business model emerging from the pandemic. What’s clearly playing out is the off-premise channel is seeing dramatic growth.

To give you a sense, our delivery is growing by over 100 percent, drive-throughs are growing by over 60-70 percent, and rapid pickup is seeing strong growth. The off-premise channels are growing very strongly and in some ways compensating for the decline in business on-premise. Pre-pandemic we were probably about 60-40 in terms of off-premise versus on-premise. Now it is predominantly off-premise convenience for our customers as we’re moving in that direction.

Close to 60 percent of our sales are coming from e-commerce. Brands that are able to leverage their e-commerce strength and pivot very sharply on providing convenience and off-premise are beginning to see a smart recovery.

It’s All About Convenience, Ecommerce, and Innovation

There are three levers that we’re working on to get our business back on track: convenience, e-commerce, and then meaningful innovation. Included in that are cool foods, a coffee subscription program, and most recently the flatbread pizza launch. We’re very excited about this because it’s the launch of a new food category at Panera, one that we haven’t had before. It’s a bullseye innovation in terms of what the customer is looking for at this time. Customers are looking for a warm shareable at-home meal solution for their families. The flatbread pizza fits perfectly for that.

We’re doing it in a uniquely Panera way as you would expect. We’re leveraging the credibility of our breads. We have unique ingredients that are all clean, they’re fresh, we have double blend cheese, bold flavors of our sauces, and it’s stone-baked. Think of this as a pizza that customers love but done in a very unique Panera way. That’s why we’re so excited.

According to Wendy’s, 75-80% of its customers choose the drive-thru for their orders, providing an opportunity to positively impact a majority of the chain’s customers. Wendy’s plans to launch its first pilot of its AI system in June in the Columbus, Ohio area.

“Wendy’s introduced the first modern pick-up window in the industry more than 50 years ago, and we’re thrilled to continue our work with Google Cloud to bring a new wave of innovation to the drive-thru experience,” said Todd Penegor, President and CEO of Wendy’s. “Google Cloud’s generative AI technology creates a huge opportunity for us to deliver a truly differentiated, faster and frictionless experience for our customers, and allows our employees to continue focusing on making great food and building relationships with fans that keep them coming back time and again.”

“Wendy’s has always been at the forefront of innovation, and we’re thrilled to build upon our partnership with the company with our new generative AI technologies,” said Thomas Kurian, CEO at Google Cloud. “Generative AI is fundamentally changing how people interact with brands, and we anticipate Wendy’s integration of Google Cloud’s generative AI technology will set a new standard for great drive-thru experiences for the quick-service industry.”

Burt Flickinger, Managing Director of SRG, a consumer industry business consulting firm, discussed how Walmart is winning the retail wars in an interview on Fox Business:

Walmart is the Roman Empire of Retail

This earnings report just reinforces its winning. Amazon is going sideways. This is a reenactment of the Punic Wars, Rome versus Carthage. Walmart is the Roman empire of retail. Like Hannibal and the Carthaginians, Amazon is starting to go the wrong way. Big win for Walmart today and they will accelerate that in the next two to seven years.

What’s doubly impressive, we talk to a lot of vendors and shoppers around the world, what the vendors are saying is Walmart is reinvesting all the PPA (price and promotional allowances) in lower prices. Lower prices normally mean lower margins and lower revenue. But in this case, the shopper is shifting to Walmart.

Walmart strategically saw all the land-based businesses like Payless and all the retailers from toys to sporting goods going out of business. They had great sales on land and not so good online. Walmart is winning both ways. Amazon, with all the trouble they’re having with Whole Foods, can’t capitalize. Walmart is running the table.

This Says it All for US Retail

This says it all for US retail. The well capitalized highly capable retailers are winning and if it’s a one man show, like Bezos running the show, you could be Alexander the Great, you could be Hannibal out of Carthage, but one general isn’t going to win a war. Recent (lower) retail sales numbers were a combination of a couple things. One is Jerome Powell scared the market, especially high to mid-end, didn’t spend as much. Also, consumers were a little bit scared toward the end of the year. Walmart, off price, low price, did very well, but full price full service struggled and that’s why the numbers were bad.

Walmart comp sales increased 4.2 percent, just like Steve Jobs and Apple with their great campaign Think Different with Muhammad Ali, Walmart is thinking different with Doug McMillon. It’s evolved from a company of family management to professional management. Walmart had 40 percent growth online.

Walmart Ads Are Really Connecting

Before, Walmart looked at advertising as an expense. But as Jerry Della Femina said, most of the Super Bowl ads were pretty pathetic. Walmart was one that stood out because it advertised Walmart online and Walmart in-store. The Walmart ads are really connecting with consumers, a United Nations of consumers.

They’re reaching everybody around the world with better prices and better service. Doug McMillon has invested in inventory and has invested in store staffing, first to raise wages with some push from the UFCW. They are hitting on all cylinders. The biggest problem now is they can’t handle all of the volume they are seeing on the weekends.

Yum Brands acknowledged the attack in a statement Wednesday, saying its IT systems were compromised.

On January 18, 2023, Yum! Brands, Inc. announced a ransomware attack that impacted certain information technology systems. Promptly upon detection of the incident, the Company initiated response protocols, including deploying containment measures such as taking certain systems offline and implementing enhanced monitoring technology. The Company also initiated an investigation, engaged the services of industry-leading cybersecurity and forensics professionals, and notified Federal law enforcement.

The company says the overall impact was relatively limited. Most important, Yum Brands says there is no evidence any customer data was stolen.

Less than 300 restaurants in the United Kingdom were closed for one day, but all stores are now operational. The Company is actively engaged in fully restoring affected systems, which is expected to be largely complete in the coming days. Although data was taken from the Company’s network and an investigation is ongoing, at this stage, there is no evidence that customer databases were stolen. While this incident caused temporary disruption, the Company is aware of no other restaurant disruptions and does not expect this event to have a material adverse impact on its business, operations or financial results.

Harley Finkelstein, COO of Shopify, discusses how COVID has dramatically sped up the timeline for commerce moving online and has also moved Shopify closer to its goal of becoming the world’s first retail operating system:

Shopify Evolving Into World’s First Retail Operating System

Most people assume that Shopify is an ecommerce provider. We have more than a million stores on Shopify. If you were to aggregate our stores in the US we’d be the second-largest online retailer in America. Of course, we’re not a retailer but we’re a platform. But we now have these great economies of scale that we’re using to level the playing field for entrepreneurs and small businesses. That being said, what really Shopify is evolving into is the world’s first retail operating system. 

What we’re trying to figure out is what do brands and entrepreneurs and retailers need, not just now but in the future? We think the future of retail is retail everywhere. A brand that’s going to be successful in 5, 10 or 15 years from now needs to sell across any platform and across any channel where they have customers. This idea of enabling Shopify merchants to very easily push their products to the Amazon Marketplace or the eBay marketplace or now the Walmart marketplace, that gives them access to a new set of consumers. The idea is that it all feeds back in one centralized back-office, the retail operating system, which is Shopify. 

Then we’ve gone ahead and asked what else can we do for these merchants? Can we do capital? We’ve now given out about a billion dollars worth of cash advances and loans to small businesses. We’re doing fulfillment and we’re doing shipping. We’re increasing the scope and the relationship that we have with the million stores on Shopify. This is allowing them to become category leaders.

COVID Speeds Up The Ecommerce Revolution

From our view, it seems like the commerce world that would have existed in the year 2030 has really been pulled into the year 2020 (as a result of the COVID crisis). We’ve seen ecommerce as a percent of total retail go from 15 percent to 25 percent in the last three months. That’s the same growth rate that we’ve seen over the last 10 years. What really has emerged here is sort of this tale of two retail worlds. On one side you have these resilient retailers that are doing great, they’re pivoting, and they’re expanding their businesses. On the other side, you have these resistant retailers who have not made it. In many ways, it’s probably the most exciting time for retail in a very long time. 

We talk a lot about these direct to consumer brands that are becoming category leaders. The Allbirds and the Gymsharks who started on Shopify when they were very small and have grown to become the incumbents in their industry. Every 25 seconds a brand new entrepreneur makes his or her (products) for sale on Shopify. We talk a lot about those new startups, those new DTC brands. But actually, what we’re also seeing on Shopify are companies like Lindt Chocolate or Heinz ketchup or Chipotle. They are signing up for Shopify and basically from like five days from contract to launch they are completely changing their businesses. 

This resiliency isn’t simply in the hands of just the smallest of brands. Big companies are also beginning to think a lot more about how to stay resilient in this time. They’re moving well beyond ecommerce or thinking about offline commerce now. They’re thinking about how do they sell across social media? How do they sell across different marketplaces? So no, I don’t think it’s too late (to enter ecommerce) but I do think they have to rethink their strategies.