Key Points
- The fast food industry is utilizing AI to overcome labor issues.
- Tech giants like Wendy's and McDonald's AI drive thru have in-house systems already.
- Presto Automation, a small-cap, offers the technology to smaller fast food players like Checkers.
- 5 stocks we like better than Presto Automation
Marc Andreessen said, "Software is eating the world," which seems doubly true with the rapid rise of artificial intelligence. AI's latest victim is the fast food drive-thru.
The fast food industry has a labor problem. It has trouble recruiting, retaining and satisfying its workers, not including rising wages and unionization. One way to make workers happier is to allow them to skip working at the drive-thru.
While giants like Wendy's have invested in-house drive-thru AI models, Presto Automation Inc. NASDAQ: PRST, an emerging AI firm, provides AI off-the-shelf to smaller players like Checkers and Carl's Jr.
The Juggernauts Are Already Doing it
The Wendy's Company NASDAQ: WEN has been capturing attention by introducing FreshAI, an AI-powered voice assistant poised to handle drive-thru orders. Leveraging Google's AI technologies, Wendy's aims to "revolutionize" the drive-thru.
How Wendy's FreshAI pilot program in Columbus, Ohio, will perform is yet to be seen. Simultaneously, McDonald's Co. NYSE: MCD has deployed AI-driven order-taking solutions at selection locations to mixed feedback. According to a Restaurant Dive study, the IBM-powered tech could perform better, reporting an order accuracy rate just north of 80%, well short of the desired 95% McDonald's targets for broader implementation.
Order accuracy is indeed a crucial factor for fast food restaurants, as industry expert Brian Barthelt recently told Ad Age, "QSR customers are not loyal. Generally speaking, they typically have a decent-sized list of QSR brands that they like, and they spread their spend around. If you give someone a bad experience in the drive-thru, you may lose them for a little while. Two bad experiences, you may lose them for a long while."
The accuracy challenge, when overcome, could lead to massive cost savings, prompting many AI startups to race towards improving it.
Presto Automation: Solving Drive-Thru Automation?
Presto Automation Inc., a relatively obscure $160 million market cap firm, has positioned itself as a potential solution. Presto claims it can deliver a 95% order accuracy rate by providing AI-powered order-taking services, a figure many restaurants aim to achieve before making the full AI transition.
Presto's system has been implemented at several brands, including Checker's, Hardee's, Carl's Jr., Jack in the Box and Del Taco. NBC 6 in Iowa featured a successful system deployment at a Checkers location, with the owner and staff giving positive feedback.
Presto's pilot program with Checkers reported over 98% order completion with minimal employee intervention, prompting Checkers to approve the technology at all corporate-owned stores.
Aside from cost savings — estimated at around $35,000 annually per store — the technology should also increase revenue by about 6% by increasing efficiency. Moreover, automating drive-thru processes can lead to a better work environment amid rising minimum wages and employee dissatisfaction, potentially reducing staff turnover.
Significant Risks Abound
While promising, put Presto's opportunity in perspective. The company cannot self-fund and relies on raising money in the capital markets to survive. Presto's recent 10-Q shows $26 million in cash reserves versus an operating cash burn of $35 million in the most recent earnings report, pointing to a concerning burn rate.
Presto's AI product, Presto Voice, has yet to contribute much revenue. The bulk of the company's earnings still come from Presto Touch, a point-of-sales system for restaurants.
Competition is a concern as well. CKE Restaurants, the owners of Carl's Jr. and Hardee's and client of Presto, recently announced that it's rolling out AI order-taking nationwide. But Presto will be just one of three AI vendors, leaving no guarantee that Presto will win the contract.
Other publicly-traded firms, like SoundHound AI Inc. NASDAQ: SOUN, are also players in the drive-thru AI field.
After converting small pilot programs into larger contracts, investors will keep a keen eye for Presto Voice revenue in the next earnings report in August.
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