Merchant Innovation

Software Eats The (Retail) Workforce

When most people worry about computers taking over the future, they are more likely than not reacting to the sort of sci-fi doomsday scenario they see in movies like “The Terminator” or “The Matrix.” For those who are unfamiliar, the plot for such a scenario involves human beings building computers that become self-aware and decide immediately to overthrow and enslave us.

In reality, the real threat from our highly mechanized and smart machine dependent-world is much more nuanced, and arguably not a threat at all, so much as the natural evolution of a marketplace that may have a profound impact on consumers – and the workforce that serves them.

The New World Of Automation Tech

There is no question but that automation has made life easier for consumers.

Why visit a bank with a teller when you can go to an ATM, and why go to an ATM (unless you need cash) if you can do everything you need to on your phone or laptop?

Why spend hours trying to find out what restaurant has room for four on a Friday night at 7 p.m. when you can spend 5 minutes on OpenTable and make the reservation?

And then once there, why spend 15 minutes trying to get a waiter’s attention when you’re ready to leave, when you can just tap the tablet on your table, pay your check and be out the door?

Why queue up crowded checkout lanes when you can scan your own groceries at a self-service kiosk?

Now, though, that seems all very quaint and old-fashioned.

Today, in McLean, Virginia, guests of the local Hilton can have their questions answered 24/7, 365 days a year by what is likely the world’s first robot concierge, Connie (named for Conrad Hilton, the patriarch of the Hilton brand), which is powered by IBM’s Watson AI.

For now.

The proposed future for Connie could involve facial recognition so as to greet certain guests by name if they happen to have Elite status in the loyalty club. And given all the international clientele Hilton has, Connie could offer translation services someday.

Funny isn’t it that Elite customers are getting the robot treatment – and for good reason. AI-enabled robots have nearly perfect memories, never get sick or take a day off, are available when the consumer wants something, don’t cop an attitude, can be taught new skills via an API rather than through offsite and expensive training sessions, and are a lot cheaper to have around.

Early reports suggest that consumers really like Connie, as they have shown when presented with automation much less sophisticated than Connie. As a recent report we did on Ziosk demonstrates, restaurant patrons tend to enjoy their experience more and even tip better when they talk to their waitstaff less, and interact with a kiosk more.

And that’s a good thing for the consumers and the enterprises that are investing in this technology. How this impacts the workforce that used to provide those services, well, maybe not so much, especially since it comes at the point in time as those same enterprises are being asked to raise the minimum wage by as much as 50 percent.

The Minimum Wage And Unintended Consequences

Currently, the federal minimum wage is pegged at a little over $7. Workers rights’ advocates have long noted that this figure falls below the level needed for a full time, American adult to adequately support themselves.

This in turn has led to calls to raise the minimum wage and, while the exact amount on the table can vary, the chorus is in agreement that the minimum wage should be a “living wage.” As for specific numbers, the low-end figure is about $10 and the high-end amount is the $15 an hour that California, New York City and Seattle — three of the more expensive cities in the U.S. — recently enshrined as their state minimum wage rate.

Some believe the rest of the nation should be following that example.

But this is where things get sticky.

With the current federal minimum wage set at $7.25, $15 is more than double the current rate. Now, granted, many states already have rates higher than that, but no state is as of yet anywhere near a universal $15. Some, like Walmart, think the argument has a forgone conclusion — and the retailer has already begun overhauling its business to meet that standard well in advance.

The problem is that by effectively doubling labor costs at the bottom of the market, a whole host of employers in retail and food service (among other places) have a problem: They will see a big hit to their bottom line.

Which leaves retailers with one of two choices. One is to raise prices. That burger that used to cost $2.50 might soon cost $3.75. Whether that’s enough to drive consumers away is a scenario that retailers will be forced to war game and decide.

Or, they can invest in automation. Robots and mobile apps that enable customers to do the stuff that human beings behind a counter used to do – 7 days a week, 24 hours a day, 365 days a year.

It’s not a crazy or new thought.

“If the cost of labor were to increase [due to a minimum wage hike], that will quicken the pace away from labor towards machines," noted John Graham, a professor of finance at Duke University.

And Graham is not alone in that thought. Michael Jones, an assistant professor of economics at University of Cincinnati, notes that basic economics will start to win out; if it costs $10 an hour to serve 100 customers with labor and $12 an hour to serve 100 customers with technology, firms will hire workers. If labor is $15 an hour, technology becomes more tempting.

"Reality is more complicated, of course," Jones said. Not every worker is as productive as others or reflects identical costs, and technology can be incorporated in some firms at a lower cost than others, he said.

"However, the general principle still holds that as labor becomes more expensive, firms will substitute technology for labor when possible,” he added.

And that’s not great news for workers — or, arguably, it’s not great news for much of anyone. It’s unlikely that even in fields where automation can replace a lot of the workforce (QSR or retail, for example) human workers aren’t just going away. Organizations still need people to do stuff – like prepare the food (at least now) but they may not need people to take the order or ring them up. Employers will be able to pay fewer people at $15 an hour.

And some businesses are already giving robot workers a provisional try. Pizza Hut Asia, in partnership with MasterCard, is partnering to bring Pepper, SoftBank's humanoid robot to restaurants by the end of 2016.

Pepper will come ready to greet customers, take orders and even complete payments either through the MasterPass Wallet or by scanning a QR code on the tablet embedded in Pepper's chest. Pepper can also offer information on demand on menu items and even make suggestions, though how seriously consumers will take the advice of something that does not eat remains to be seen.

And Pepper isn't the only pizza-bot getting a test run on foreign shores. Domino's is currently piloting a pizza delivery robot in New Zealand called Domino’s Robotic Unit (DRU).
“DRU is an autonomous delivery vehicle and is set to take the world by storm,” the company wrote in a statement on its website.

The DRU is a modified autonomous four-wheeler that comes built with two compartments: one to keep beverages cool and the other to keep pizzas (up to 10 per robot) hot. When it arrives at the customer's door, they unlock it with a custom code and take out their pizza. The robot can travel on both roads and footpaths, and it can carry out a delivery within a little over a 12-mile range before it needs a battery charge.

This robot, incidentally, is Domino's second robotics announcement. Last year, they circulated pictures of a delivery robot of quite a different design, though that was later outed as an April Fools' joke. It seems this time they have gotten a bit more serious.

You don’t really even need robots to make automation a win-win for consumers and the establishments they visit. Mobile apps that enable mobile order ahead and pickup in-store have higher basket sizes than those from people in the store and who stand in line.

So, it seems like the minimum wage hike has started a national conversation about their workforces. It just might not have the same ending that the legislators had in mind.

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NEW PYMNTS STUDY: LEVERAGING THE DIGITAL BANKING SHIFT – SEPTEMBER 2020  

The September 2020 Leveraging The Digital Banking Shift Study, PYMNTS examines consumers’ growing use of online and mobile tools to open and manage accounts as well as the factors that are paramount in building and maintaining trust in the current economic environment. The report is based on a survey of nearly 2,200 account-holding U.S. consumers.

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