By Sam Boughedda
Bernstein analysts told investors in a note Tuesday that artificial intelligence (AI) will find its place in the restaurants ecosystem, favoring companies such as Yum! Brands (NYSE:YUM) and Chipotle Mexican Grill (NYSE:CMG).
The analysts explained that the industry has lagged behind others in tech innovation due to low margins, misalignment of incentives between franchisees and franchisors, and relatively low labor costs.
However, "today profitability pressures and reduced gap between labor cost and tech costs are inducing restaurants to look for long-term solutions to restore their profitability," the analysts wrote. "We believe AI will finally find its place in the restaurants' ecosystem."
They believe multiple use cases are arising with this increased focus. "We believe that 1) Self service kiosks and 2) Drive thru automation, and 3) AI-led order accuracy detection systems have the highest potential in the restaurant industry, as we expect them to scale faster and generate more meaningful EBIT impact," analysts added.
Bernstein expects AI to increase the competitive advantages of restaurants with digital culture, with analysts naming Yum! Brands and Chipotle as two that stand out.
"We believe that the secret sauce for digital success is creating a digital culture that permeates all levels of the organization and that is consistent over time," they said. "We have also high expectations on Domino's, but we look forward to further signs of restoring their leadership innovation."