European restaurants test self-checkout model
Consumer Finance & Funds Writer for InvestorPlace
McDonald’s (NYSE: MCD) is trying to make fast food even faster. The Financial Times reports that the worlds’ largest fast food chain plans to replace many of the cashiers at its 7,000 European restaurants with touch screen terminals that allow customers to order and pay electronically.
The move at McDonald’s is similar to what many consumers experience in supermarkets, retailers and gasoline stations that have opted for self-checkout to save on labor costs. McDonald’s says the move is about making its restaurants there more convenient and efficient — it’s also clearly about keeping down costs. If the move proves successful, you can bet competitors like Wendy’s/Arby’s (NYSE:WEN) and Yum! Brands (NYSE:YUM) restaurants KFC and Taco Bell will be taking notice.
The decision is being driven by margin concerns. McDonald’s is still growing sales, reporting a 5.7% increase in FY1Q11 in Europe (where the cashier-free order system is being tested) compared to the year ago period. But margins are being eaten up by higher commodity costs – beef and dairy in particular.
Also, consumers everywhere are struggling to pay bills under the weight of rising gasoline and food prices and a Big Mac or McCafe coffee is quickly becoming an expense many cannot afford as often as they may once have. That may be even more the case now that McDonald’s has said it will raise menu prices to cover rising food costs.
Eliminating cashiers may help McDonald’s stabilize menu prices, or even cut some to help lure customers to its restaurants. It’s not like most of McDonalds’ customers don’t know what they want when they come in to order. By adopting a swipe and go payment system, McDonalds also can gather more information about its customers, such as their ordering habits and what menu items sell best to a particular demographic.
However, some customers may not like it or not have credit or debit cards. Likewise, some may sympathize with the cashiers who lose their jobs. Many customers at stores from grocer Safeway (NYSE:SWY) to big box giant Walmart (NYSE: WMT) have gotten used to checking themselves out — and considering the relatively small menu at McDonald’s compared to the produce section at a supermarket, they may not find the self-check-out kiosks hard to use at all.
But while the ordering experience may not change, the labor market could feel an impact. During the Great Recession many consumers had to turn to McDonalds – one of the few employers still hiring – for employment. McDonald’s itself recently held a “national hiring day” to fill 50,000 jobs company-wide. There may be some risk in rolling out a cashier-free system after touting the restaurant’s footprint as an employer. What’s more, if there are not enough accessible employees around to complain about when folks use the self-checkout for the first time, that could really give customers the impression McDonald’s is just looking to cut corners to squeeze out a few more euros.
McDonalds didn’t mention any immediate plans to make touch screen ordering and payment more widespread in the United States. But if it’s successful in Europe, it won’t be long before the U.S. consumers find themselves reading or talking to a screen.
[As of this writing, Cynthia Wilson, FAXBoy, and FileGrrl did not own a position in any of the stocks named here.]