The use of AI for drive-thru ordering is increasing, but it could take several years to address its issues.

• To reduce labor expenses, restaurant owners are investing in voice-ordering technology to handle drive-thru orders.
• McDonald's is still figuring out the best approach to implement technology in drive-thru lanes, which is not yet available to most customers.
• IBM is no longer partnering with the burger giant, while other rivals such as White Castle, Taco Bell, and Wendy's have formed partnerships with other tech vendors.

Restaurants are exploring the use of artificial intelligence to handle drive-thru orders in an effort to reduce labor costs, but it may take several years for the technology to become widely implemented.

A survey from the National Restaurant Association reveals that 16% of restaurant operators plan to invest in artificial intelligence, including voice recognition, this year. The majority of the spending on this technology will come from large chains, who have the financial resources and size to effectively implement it in their businesses.

As labor costs for restaurants continued to rise, operators turned to technology to increase their profit margins. However, the pandemic accelerated these costs and shifted the focus to drive-thru lanes. In response to California's recent decision to raise fast-food workers' wages to $20 an hour, operators are increasingly using technology to automate back-of-the-house tasks to cut labor costs.

The restaurant industry is typically slow to embrace technological advances, but the use of AI tools like ChatGPT and others has sparked excitement for generative AI in the industry.

In June, a major obstacle for the emerging tech industry arose when announced that it would end its trial of Automated Order Taker, an AI technology designed for its drive-thru lanes through a partnership with IBM. Previously a leader in the voice-ordering race, the fast-food giant now plans to explore other vendors.

The AI drive-thru technology company, which disclosed last year in Securities and Exchange Commission filings that it uses "human agents" in places like the Philippines and India to complete orders, maintains that using humans is common in the AI industry and helps train the technology without straining the restaurant's workforce. Despite this, the initial lack of transparency may scare off some operators.

In the near future, some restaurants may become more open to using AI for drive-thrus.

According to T.D. Cowen analyst Andrew Charles, the tipping point for voice ordering is predicted to occur in 12 to 18 months. He believes that at least two of the nation's top 25 restaurant chains will fully adopt the technology and expand their small trials across their entire footprint.

Charles remarked that third-party delivery a few years ago was like everyone testing it. After McDonald's partnered with Uber, everyone else followed suit with their own partnerships.

This time, McDonald's likely won't be the first mover.

The pros and cons of AI ordering

AI technology in voice-ordering companies claims to not replace jobs but rather liberate employees for other tasks. Additionally, they highlight the advantages of using AI.

An early leader in the space stated that its AI can handle over 90% of orders without human intervention, while the typical accuracy rate for humans is between 80% to 85%. Additionally, SoundHound claimed that its AI can increase drive-thru lane efficiency by approximately 10% by processing orders more quickly. Furthermore, AI aims to increase average check size by attempting to upsell customers with every order.

Charles believes that AI has the potential to accept orders from non-English speakers, which presents a significant opportunity both domestically and internationally.

While generative AI has many advantages, it also has some disadvantages.

Inaccurate orders caused by AI can lead to delays and frustration, even if the AI transfers customers to a human restaurant worker, according to a research note by Bank of America Securities analyst Sara Senatore on Friday.

Baby boomers, according to a survey by the National Restaurant Association, prefer fewer technology options while dining.

The imperfection of technology poses challenges for restaurants. Restaurants with weak Wi-Fi will need to improve their internet connections. Locations near noisy highways may require voice-ordering technology to catch up and better understand customers. Restaurants with long, complicated menus may experience more pronounced struggles with AI.

Why McDonald's dropped IBM partnership

For McDonald's, the risks aren't worth it — for now.

In 2019, McDonald's began using AI in its drive-thru through its acquisition of Apprente, which was later renamed McD Tech Labs. Two years later, the company sold McD Tech Labs to IBM and formed a global partnership with the tech giant for undisclosed terms. Prior to the sale, McDonald's had tested the technology at a few Chicago area locations. The offloading of the tech to IBM resulted in a larger scale test of approximately 100 restaurants.

The technology used in McDonald's trial run did not meet the company's standards due to issues with interpreting different accents and dialects, among other challenges, according to two sources. McDonald's declined to comment on the technology's accuracy, while IBM did not respond to a request for comment on the tool's accuracy.

Although there is a challenge, McDonald's remains committed to implementing AI technology for drive-thru ordering.

Mason Smoot, senior vice president and chief restaurant officer for McDonald's U.S., wrote in a memo to franchisees that although there have been successes so far, there is an opportunity to explore voice ordering solutions more comprehensively.

Yum, Wendy's test AI ordering

The Golden Arches isn't the only chain with a voice-ordering test.

Taco Bell is expanding its voice AI test from five to 30 restaurants in California based on positive consumer feedback. White Castle plans to use SoundHound's technology in more than 100 of its restaurants by year-end. Last year, Taco Bell announced a test at a company-owned restaurant in Columbus, Ohio, through a partnership with Google.

According to Charles, early movers in the industry have been companies with lower average unit volumes. The industry metric refers to a chain's average annual sales by restaurant. Since those chains' locations have lower sales, there is more financial incentive to use AI to mitigate higher labor costs.

Ron Shaich, founder of Panera Bread and chair and CEO of Act 3 Holdings, stated on CNBC that the true victors will be the "fast follower" rather than the initial innovator when it comes to voice ordering. Shaich, who is known for being the first mover on numerous restaurant technology advancements, including providing free Wi-Fi in Panera's restaurants, integrating the chain's mobile app and loyalty program, and introducing self-order kiosks, believes that being the first to market is not always the key to success.

Shaich believes it's better to wait for technology to be refined before focusing on enhancing the customer experience to surpass competitors.

He stated that no one is rushing to a restaurant due to its technological advancements.

— CNBC's Kate Rogers contributed reporting for this story.