If you’ve been keeping up with my last several posts, you might have noticed I’ve been writing a lot about automation recently.
As much as I hate to beat a dead horse, I just can’t seem to escape the topic the past few weeks. My inbox has been filled with news and research related to autonomous technology, likely in part because of California’s recent $15 minimum wage legislation.
In light of this new legislation and ongoing political pressure to raise the minimum wage across the country, I wanted to use the following space to discuss what I believe to be an obvious and related investment opportunity in automation.
Minimum Wage…
You don’t have to be a brain surgeon to understand that artificial wage floors encourage businesses to seek out cheaper non-human alternatives. If a machine can do it for less, the machine will take the job.
It’s ironic, of course, because low-skilled workers suffer the most from these laws, but that’s simply the way the economics of job-fulfillment work.
In conjunction with ongoing improvements in technological capabilities, the threat of wage inflation (organic and legislative) has inspired a number of large corporations, specifically in the restaurant business, to move towards automated transactions.
Last month, Carl’s Jr. CEO Andy Puzder revealed plans to open a futuristic “employee-free” restaurant. This week, McDonald’s introduced a self-serve coffee station in downtown Chicago.
Established chains are facing competition from young startups taking advantage of automation. A new restaurant chain called Eatsa, for instance, has almost completely automated food service, from ordering to hand-off, in California. The chain has two locations in San Francisco and Los Angeles and plans to add 10 more restaurants this year.
Andy Puzder commented on the rise of automated food services such as Eatsa in a recent Wall Street Journal contribution, saying:
It isn’t a coincidence that this concept arose in San Francisco, which for years has had one of the country’s highest minimum wages and some of the nation’s most business-burdening labor regulations. The result: Since the recession ended, median family income in San Francisco has increased to about $78,000 from $70,000, but the poverty rate increased to 13.3% from 11.5%. So some in San Francisco are making more money, but more people are living in poverty.
There’s also Momentum Machines, which has developed a burger-making robot capable of pumping out a burger every 10 seconds. The machine handles literally every part of the process, from slicing the tomatoes and pickles to grinding the meat and toasting the bun.
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Among the core technologies supporting this move towards automation in food, retail, and a number of other industries involving physical transactions are self-service stations and kiosks.
According to Allied Market Research, the global self-service technology market will exceed $31 billion by 2020. The market is expected to have an annual growth rate of 13.98%, largely driven by enterprises operating in sectors such as retail, banking, and health care.
According to Brisk Insights, the self-service technology market is expected to grow at a CAGR of 14.1% through 2022. According to P&S Market Research, revenue is expected to reach $42.3 billion by 2022, growing at a CAGR of 15.6%.
According to MarketsandMarkets, which defines the sector more broadly, the global interactive kiosks market is estimated to reach $73.35 billion in revenue by 2020, representing a healthy CAGR of 9.2% between 2015 and 2020.
Grand View Research offers perhaps the most bullish forecast, projecting that the kiosk market will grow at an annual rate of 25% from 2015 to 2022.
The deployment of these interactive kiosks has already improved sales for countless corporations thanks to improvements in efficiency, reduction in the buyer waiting time, and improved buying experience.
You can invest in these technologies in two ways. First is to buy the companies taking advantage of self-service. Second is to buy the kiosk OEMs directly.
When it comes to the public market, kiosk OEMs are few and far between, but there are a few options to choose from. NCR Corporation (NYSE: NCR) provides self-service kiosks and related operating software and is the closest thing you will find to a pure play.
Outerwall Inc. (NASDAQ: OUTR) owns and operates various automated retail kiosks. However, its Redbox DVD rental business is floundering due to the rising availability of digital content. When investing in automated retail, it seems it would be wise to invest in tangible goods.
Investors may also want to consider point-of-sale company VeriFone Systems Inc. (NYSE: PAY), which markets a number of devices for unattended transactions. While not reliant on automated retail, the firm does have some skin in the game.
Last but not least is none other than Apple Inc. (NASDAQ: AAPL). While not defined as a self-service company, Apple’s iPads can be configured for self-order and are being used by a number of companies (such as Eatsa) embracing the automated retail trend.
Until next time,
Jason Stutman
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