Rise of the Machines: Two Factors Driving Automation
Today I want to talk a little about automation. I’ve talked earlier about the future of work, and there are some obvious trends like remote work and digital transformation. But automation is a significantly growing field, especially in retail markets. Trends in the industry respond to market pressures that affect the supply of and demand for labor. When human labor is cheap, automation will be used less. When human labor is scarce or expensive, automation will be used more. Today, I want to focus on two key market pressures that are driving demand for more automation.
First, declining birth rates are signaling potential labor shortages in the future. According to the CDC, in 2020, the total fertility rate (TFR) for the U.S. dropped to 1637.5 births per 1000 women, a decline of 4% compared to 2019. While some might blame the pandemic for the decrease, the 2020 number follows a downward trend that started in the 1970s. With fertility below the replacement rate of 2100 births per 1000 women, the U.S. labor force may be starting to decline. With an aging population and fewer workers, companies will likely be forced to increase automation or increase pay to attract and retain employees.
Second, rising labor costs are already encouraging companies to experiment with more automation. Depending on which pundit you ask, you will get very different answers as to why labor costs are rising now, but whatever the reason, businesses are grappling with higher personnel costs. As an article in Forbes recently noted, “The law of supply and demand says this scarcity makes existing workers more valuable, letting them insist on higher pay and better conditions.” As a result, some companies are turning to automation. Fast-food chains are experimenting with automated fry cooks. The drive-thru is also poised to see more automation. Other experiments include cashier-less grocery stores and last-mile delivery.
Retail automation, therefore, seems poised for growth, but automation likely will not be a good fit for every job. Peanut the robot, for example, demonstrates that automation cannot effectively replace wait staff yet, but you may have noticed an increase in self-checkout lines in many stores. Kiosk ordering at restaurants has also been rising in popularity over the last few years, and as noted above, fast-food restaurants are experimenting with highly automated systems. In many cases, automation has the advantage of driving down operating costs. Robotic systems, for example, may have high capital costs, but they do not tire or want health benefits like human workers. Therefore, robotic systems can reduce long-term costs and save companies money.
All of these automation systems build on technology trends that have been growing for years: voice recognition, touchscreen interfaces, online shopping, and robotics, to name a few. Companies investing in these spaces will likely do well once retail automation really takes off. Some may worry that automation will eliminate jobs, but that likely will not become a serious problem. Throughout history, automation has eliminated some jobs while creating others. I recommend worrying less about the jobs that automation will eliminate and instead focusing on what new kinds of jobs will be enabled by the new technologies.
Louis Lehot is an emerging growth company, venture capital, and M&A lawyer at Foley & Lardner in Silicon Valley. Louis spends his time providing entrepreneurs, innovative companies, and investors with practical and commercial legal strategies and solutions at all stages of growth, from the garage to global.
Intelligent Automation Finally Arriving to a Supply Chain Near You