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- [00:01]
A
The main goal is not just to remove labor hours. The goal is to provide better service and maybe there is some labor savings on the side.
- [00:14]
B
Welcome back to another episode of Builders. As always, this show is brought to you by Frontlines IO, Silicon Valley's leading B2B podcast production studio. If you're bringing technology to market and want to learn from your peers, we have a library of more than 1200 interviews with Venture backed founders and marketers. Where they talk, all things go to market. Of course, if you want to launch your own podcast, we offer podcasts as a service to more than 80 tech startups. The idea there is very simple. You show up and host and we do everything else. Now, with all that said, let's jump into today's episode. Today we're speaking with Roy Behar, co founder and CEO of hi Auto. Roy, welcome to the show.
- [00:53]
A
Happy to be here.
- [00:55]
B
So one day were you just sitting in a drive through the line was moving slowly, so slow that you said, I have to come up with a solution here, I need to do something better. How did you end up in this world that you're in?
- [01:05]
A
I wish. It took us two years to get to this idea in this direction. We actually started with Voice AI for the automotive space and then came Covid and we understood that the market that we originally targeted is not going to happen so quickly. It's going to take us years to get into the car. And the TAM of this business is much lower than we initially thought. And we started looking for other ideas while still working on our original automotive direction. We came up with this brilliant idea in March of 2020 that was we understood that people will never want to touch kiosks at restaurants and other places again. And we wanted to create a solution that allows people to speak to the kiosk instead of touching the kiosk. And In August of 2020, we found ourselves in a situation where we tested this prototype in Burger King in Europe and also with another brand. And the feedback was that people do not want to speak to kiosks at the same time. We got to this final conclusion on the automotive space. But what Burger King told us, they said, listen, the kiosks, that's a bad idea. But the drive thru, if people can actually speak to an automated solution at the drive through, that solves a big problem because there you are. Replacing actual work of a person while just adding voice to a kiosk is not. And this led us to go to our investors and tell them that our initial two ideas are not that great. But Actually, we should pivot to the drive thru. And for some reason that I don't really understand, they believed in what we said and they allowed us to pivot the company.
- [03:11]
B
Well, it makes sense, right? It sounds like one is having a direct impact on the bottom line. One was, I don't know if this is accurate, but it sounds like it was nice to have. It was nice to have capability on top of what the kiosks could already do.
- [03:22]
A
Exactly. One was adding another interface to the interface that replaced labor and the other was actually saving labor content. And if you think about it, it came during a very critical time, which was Covid. And if you remember 2020, 2021 with the stimulus checks, people didn't have a lot of motivation to go to work because they got paid anyway. So it was very hard to find employees for these restaurants. And then on the other end, business was rocking because all the dinings were closed. So people came to the drive thru. So business went up 20, 30% but you didn't know if you'll be able to open the next day because you didn't know if you have employees. So getting this additional automated workforce was very valuable.
- [04:15]
B
And is that staffing crisis? I remember everyone talking about that, I think not just for fast foods, but for restaurants, for retail, everything like for fast food. Does that staffing crisis still exist or. I don't say crisis. Maybe shortage would be a better word there.
- [04:30]
A
It exists, but it evolved over the last few years. So during COVID it was about being able to find employees. But there is another problem in this industry which is very frequent turnover of employees. So for restaurants, turnover is between 100% and 300%. Specifically with smaller restaurants, they the turnover is really high. So think about a general manager of a restaurant, let's say has 40 people on their poster and recruit over the course of a year, over 100 people for that restaurant. So most of what they do is recruiting people. So turnover is a huge problem. It's also hurts consistency because you keep having these employees that are new. And then this problem which also became very serious problem is the rise in minimum wage specifically for restaurants. So if you look at California, it's now $20 and it's going up. And this is also marking to the rest of the country where we are going. Therefore, labor is really, when these restaurants are thinking about the future, they're thinking of a future where they have more loyal employees, they're staying longer, but less employees. And the rest is done by automation.
- [05:58]
B
What's interesting there is that the Start. I was thinking saving on labor costs that you were just talking about the attendants who are overseeing the drive thru. But it sounds like it's probably even more or equal, if not more for the time spent recruiting and interviewing and hiring all of these people. So there's two different ends of that cost savings, right? Just from a labor perspective.
- [06:20]
A
Absolutely. There are the direct benefits in terms of labor saving and sometimes it's not about labor saving. You're saving labor content. So if you look at just the actual action of speaking to the customer and taking the order, that's a few hours a day and that's labor content. And that person doesn't have to do that job anymore. But they are still doing other things. They are, you know, putting fries, they are filling a drink, they are taking the cash. But now they have some less work to do and they can take time and do some other thing. For example, they can expedite the order so that they can get the order faster to the guest, which makes the line run faster, which increases sales. So it depends on the restaurant. And sometimes you get both benefits so you get some labor savings. So a few hours a day that you can shave, plus during the rest of the day you actually have your original schedule. Plus you have the voice AI agent which gives you another extra employee so that you can provide a better service for your customers.
- [07:38]
B
If you are speaking with a fast food, sorry, I think they don't identify as fast food anymore. Is it fast casual? What does the industry call itself?
- [07:46]
A
Yeah, it's quick service restaurants.
- [07:48]
B
Quick service restaurants. Oh yeah. Qsr I think. Right. So if you're talking with one, and maybe you don't have to tell us the name, but think back on the last year or two a deal you were working on. You thought it was looking good and then they said no. Like why would anyone say no to this? All the benefits that you've just described. I don't run a QSR business, but I have to assume it seems like a no brainer. Like why did that organization say no to this technology?
- [08:10]
A
Unfortunately they don't say no. It takes time to get the final yes. But the way that I think everyone looks at it is that within five years from now, automated order taking at the drive through is going to be pretty much everywhere. The question is today, when you look at the current technology, the current deployment, the current cost, is that better than my current employees? By how much is the ROI positive? And that's the question that they are asking themselves. And does it fit with low volume, with High volume with places that are in urban areas in the country. And those are the questions that are top of mind for these decision makers. And they look at it as a career ending decision. So deciding to roll out across all your system or allowing the system to adopt this technology and if it ends up being unsuccessful, or, you know, for example, you rely on this technology and suddenly it crashes for a few days and you don't have order takers and you lose a lot of sales. All of these are risks that they need to take into account when they make this decision.
- [09:32]
B
This show is brought to you by Frontlines Media, a podcast production studio that helps B2B founders launch, manage and grow their own podcast. Now, if you're a founder, you may be thinking, I don't have time to host a podcast. I've got a company to build one. Well, that's exactly what we built our service to do. You show up and host and we handle literally everything else. To set up a call to discuss launching your own podcast, visit Frontlines I.O. podcast. Now back to today's episode. It's a different business, but I had a company on a while back called Metropolis in the US and they're a parking technology company. Very big, like, you know, $5 billion company. And the founder there was talking about when they started trying to sell this, you know, effectively automated technology to parking operators. They met with, like, I think was the CIO of Brookfield, like, I think one of the biggest, you know, mall operators in the country. And the CIO was like, yes, this is amazing. And then they were like, wow, like, this is set, like, this is going to be a good, good business. And then it went, you know, down a level. And then it kept getting more and more local. And, like, as it got more and more local, they started to have more and more friction. And as exactly what you just said, the local folks were saying, if this goes wrong, I get fired. Like, my ass is on the line here. If I say yes, if I say yes to this other company that's been around for 40 years, or it's not even around like that, we've been using them for 40 years. Like, I'm not going to get fired from that decision. But if I try this new technology, and yeah, the benefits sound cool, but, like, I'll get fired if this fails. And they weren't able to get down because of the area, go down all the way and get integrated because of that exact reason.
- [10:56]
A
Right? And I think it's very similar here. I think that what's happening is that we are getting more and more sophisticated in terms of measuring the ROI in more specific ways. It's also very hard to measure because there is a lot of noise in terms of the sales of stores, difference between the demographics, the DMAs of the stores, different limited time offers that are coming, different operators, and there are so many variables that it's very hard to know if your sales were affected by the voice AI and increased by 1% or by 2% or what was exactly the impact. But we are getting much better in how to measure it, both labor side and on the sales side. And we're starting to get to the other benefits as well.
- [11:50]
B
How much do you have to think about just the political climate with these types of things? Or maybe that's a better question for your, your customers. Do they have to worry about that? Like I would imagine in like, you know, in some San Francisco we have all of these groups, they have a name, I can't remember what it's called, but like they're running around and putting cones on top of Waymos. And if you put a cone on a waymo, it disables it. And you know, it's becoming this almost political conversation now for automation. And there's a kind of rising wave that's against automation. So for your end customers, like is that something that they have to factor in them embracing this technology and potential media fallout and other risks that can pop up?
- [12:30]
A
It's certainly something that is a concern large brands. But the truth of the matter is that this industry is a very low margin business that has been suffering from the post Covid inflation and the rising food costs as well as the rising labor costs. And at the end of the day those are SMBs. If you look at restaurant operators, some smaller, some bigger, but you know, you may operate one restaurant or 20 restaurants and if you had, I don't know, 15% margin and 30% of your cost was labor, another 30% was food and one went up 30% and the other one went up 30%. You can think what's the impact? You are losing money. And for a little while they tried to raise prices, but they got to a point where the consumer is unable keep up. So we got to that point where they have to find ways to stay in business and stay profitable so that they can continue and provide jobs for the human employees and provide good service for the customers that would continue to come to the restaurant. So I don't think that there is really a choice. You must do it and it's going to happen. The question is how fast.
- [14:08]
B
When I see things like the California policies that came out with the wage increase. And not trying to be political here in any way, but I was thinking back to a recent situation we had where we have a vendor that we've used for many, many years. It's highly manual, the work they do, but it's very, very low cost. And at one point I was like, okay, let me go see if I can just hire someone to automate all of that work. And they came back and I was like, guys, like, it'll take me like five years to have this be like profitable. Like, I'm way better off just staying with the low cost labor that we have, basically. And then the vendor, we're doing negotiations, they came back and they like tripled their price that we were paying them. And then all of a sudden I went back to the automation. I'm like, this makes way more sense now. And it like forced me into the hands of automation. And it seems like that's kind of what's going to happen with this technology. It seems like that's the scenario, right? If you raise the wages like that all of a sudden for your customers, it probably makes this type of technology more compelling. And that's probably a positive for you, right? When you see these types of wage increases and these discussions.
- [15:11]
A
Definitely, I think you're right. I think that the fact that the labor crisis across both turnover and the rising wages is causing restaurants to think what can they do to be more efficient and continue and provide good service to their customers? And then they turn to technology to come up with answers. And it's interesting that these two things are happening at the same time, that there are these technological advancements that allow for automation, because otherwise it's not clear what would happen to the QSR business. By the way, order taking is not the only area, you know, you look at automation in the kitchen that is also taking place across different parts. So yeah, that's the direction.
- [16:02]
B
And what's the sentiment of the industry? Is there any segment of the industry that thinks that it can just kind of withstand this stuff or at this point is it more inevitable that everyone understands, like this is coming, like your kitchen is going to be automated, like everything is going to be automated. It seems like it's just a matter of, is it in one year, five years, ten years, and the mindset for them is it, yeah, let's be the first movers, or are there some that don't believe that automation is fully going to come into the restaurant and into the operation.
- [16:30]
A
I think the robotics piece is moving pretty slowly. It's because restaurants are very much designed to do a very specific things and they design their kitchen very carefully and they need to make changes to the menu and changes to the products. And so when they bring automation, it's specifically for filling the drinks automatically or, you know, putting the fries automatically. It's very specific and it saves specific areas. I think that the question is, when will you have the humanoids operate the restaurant? I don't know if that's something that people foresee happening over the next few years. Okay. I think it's going to take longer. But in general, I think the feeling is that restaurants would like to keep the personal touch. Okay. It's important for people that come to the restaurant to see a person, you know, if it's at the window or when they get into the dining. They do want to have this personal touch and have this feeling of a person. I think that's something that is going to be hard to replace.
- [17:47]
B
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- [18:54]
A
I think Starbucks is an amazing example of a company that has understood they actually need to go back to this personal touch. So like stop printing the stickers and writing on the cup with a pen, then your name and trying to do things that would make you feel like you are getting your coffee from human. Even though they press on the button and the coffee is being prepared and it's essentially completely automated, the coffee making, they provide you the feeling that you actually got it from a manual coffee shop. So I think there is a good question whether people would want to feel like their food is being prepared by a human in a very, you know, homelike environment. You want to eat home food. And I think that it's a good question of what will happen in the future. I think just to put things in perspective in terms of like where we are today and what Hiato is doing. A lot of the work and most of the work we are doing is not about removing the labor. It's about getting the additional value in terms of consistency, in terms of customer service, in terms of upselling well, and then taking maybe some labor out in order to pay for the system. But the main goal is not just to remove labor hour. The goal is to provide better service and maybe there is some labor savings on the side.
- [20:25]
B
I see. And when I look at the website going across the bar there, you have not every fast food restaurant that I can think of, but most fast food restaurants that I can think of. What was that journey like? What was the very first big chain that said yes to you?
- [20:41]
A
So we worked with Checkers and Rallies as our first brand. They were very much visionaries and during COVID looked at how they can be able to operate well and provide good service when there is such a significant shortage of employees. And remember that at that time you didn't know that we are going to get out of it. And so for them it was a big bet. And they have evolved with this bet over time. Over the last few months, we're doing a lot of optimization and taking it to the next level. So for them it was about labor and showing that it actually can work consistently with follow up brands. You know, it has evolved as far as what people were looking for as we got more advanced.
- [21:28]
B
How have you seen your messaging and positioning evolve then? It sounds like that's the COVID era, which I'm very, very happy that's over. How has it evolved? What have been the major iterations on the messaging, on the positioning?
- [21:41]
A
Initially it was about accuracy, about completion rate, and today it's about the roi. It's about the stability, the ability to work at scale. The ability to support franchisees well, to support the customizations, to support the essence of the business. To have a true vertical solution that works across a very fragmented industry.
- [22:12]
B
In the audience, we have founders who are building a lot of different types of technology. But let's just speak to those that are building technology for restaurants based on everything that you've learned so far in this journey, what go to market advice would you have to restaurant technology builders.
- [22:27]
A
Restaurant technology is a very tough business because the margins of the customers, the restaurants are very limited. So you have to focus on big problems and you really have to understand what it takes to make it work. I think that Hiato was very lucky in terms of our timing and in terms of some of the bets we made early on that paid off later in terms of the quality that we need to invest in. That it's going to take time and that LLM by itself is not going to or AI at the time wouldn't be able to solve quickly this problem and you would need a lot of support around it. So I think you have to really think through because you don't have margin for error in this space. I also add one more thing. I think that this space is going to be consolidated in many ways over the next few years. We believe that the AI, similar to what's going to happen in other domains, is going to blare the line between different products and companies will want to have as much as possible a consolidated product that can do multiple things, that can be connected and can be very agile. So I think that as you think about this space, I would say you have to be very successful in it. And I don't think it's going to be a horizontal company that is dealing with multiple verticals. I don't know if the restaurant industry makes sense to be a restaurant technology company in order to be successful in this space.
- [24:19]
B
Amazing. Good advice and that's we're going to end things. Thank you so much for taking the time. Been a lot of fun. I look forward to the day that I go through a drive through and I speak with one of your machines. So thanks so much for taking the time.
- [24:30]
A
You can go right now by the way and visit some Burger Kings in your area.
- [24:35]
B
I just need an authorization letter from my wife to let me eat fast food. She's a health freak.
- [24:41]
A
Some good options, but good. Thank you for having me.
- [24:45]
B
Thanks. It's a lot of fun. Well, that's all for today's episode of Builders brought to you by the Frontlines. If you want more amazing content like this. Visit Frontlines IO, where you'll find the library of more than 1500 interviews with founders, marketers, and other GTM leaders, where we unpack the tactical lessons from their journey. And of course, as always, if you do want to launch your own podcast, we'd love to have a conversation with you. Visit Frontlines IO Podcast as a service. Mention that you listen, mention you love the show, and we'll give you a 10% discount. Thanks for listening. We'll catch you on the next episode.