Decades before McDonald's, there was White Castle. Historians credit the hamburger chain with creating the modern fast-food industry as we know it.
The legend goes that White Castle founder Walter "Walt" Anderson started making hamburgers in the early to mid-1910s after he grew frustrated with how long it took to cook meatballs. So one day, Anderson smashed a meatball with a spatula, and, boom, he had a hamburger patty that he could cook much faster. If that's true, Anderson's embrace of hamburgers was really part of a quest for greater productivity — to cook and sell more meat sandwiches in less time.
That origin story may or may not be bogus, but after founding White Castle in 1921, Anderson and his co-founder, Billy Ingram, pioneered many of the hallmarks of the fast-food industry, including helping to make hamburgers a national staple, standardizing practices across their chain restaurants and bringing an assembly-line mindset to food production. White Castle took many pains to be productive, like making its burgers square to maximize the number of burgers that could fit on a grill, and limiting its menu to only a few items, which streamlined the process of preparing, cooking and serving food. (For more on the pioneering history of White Castle, listen to this Planet Money collaboration with 99% Invisible).
So, yeah, from the very beginning, fast-food restaurants were designed to be the epitome of productivity. Nearly everything about them was geared toward serving customers as quickly and efficiently as possible.
However, according to a new study, fast-food and other restaurants stopped seeing productivity gains between 1992 and 2019. While the productivity of the rest of the economy "steadily grew," it remained "flat" for restaurants, the authors write. Fast-food chains and other restaurants struggled to find innovative ways to serve customers at a faster clip.
The study doesn't dig into why restaurants saw a slowdown in productivity growth. Maybe after so many years of innovations, fast-food restaurants hit a ceiling and had trouble finding more efficiencies. They apparently failed to take advantage of big technological changes, like the mass adoption of the internet and smartphones, to serve customers faster. Or maybe fast-food chains did streamline their business processes with the help of new technologies, but at the same time, maybe there were productivity-sucking counterforces. For example, maybe consumers started wanting a greater variety of food and fast-food companies diversified their menus, making food preparation more complicated and slower. Whatever the reason, this study finds, fast-food and other restaurants stopped seeing significant productivity growth for nearly 30 years.
But according to this new study, that dramatically changed during the COVID-19 pandemic. Fast-food and other restaurants saw "a startling surge" in productivity — and they've remained more productive since.
What caused this "curious surge" in productivity? That's today in the Planet Money newsletter.
What's behind the productivity surge
The name of the study is "The Curious Surge of Productivity in U.S. Restaurants," and it's by economists Austan Goolsbee, Chad Syverson, Rebecca Goldgof and Joe Tatarka.
When the pandemic hit in 2020, the economists found, the restaurant industry saw a brief but steep drop in productivity. There were tons of disruptions to business during the era of lockdowns and social distancing, and that hurt the ability of restaurants to serve customers.
Pretty soon after, however, something remarkable started happening: Restaurants awoke from their decades-long productivity slumber and started innovating to serve customers faster.
The economists found that after 2020, the restaurant industry saw a surge in productivity "to a level some 15% higher than the pre-COVID steady state that had prevailed for decades. This surge has persisted even as overall economic conditions seemed to return to normal." Put another way, the average restaurant saw 15% more sales per employee.
Why did this happen? The economists run through various explanations for the productivity surge and then knock down most of them.
Is this possibly just a weird, COVID-related fluke in the data? Nope. They found a persistent change across multiple datasets.
Is this possibly because many restaurants died during the pandemic, and this helped give a boost to the restaurants that survived? In particular, did surviving restaurants find cost savings and efficiencies — in econospeak, "economies of scale" — because they now had less competition and a potentially larger pool of customers? No, the economists found. The data doesn't support that hypothesis.
To find the answer to why restaurants got more productive, the economists turned to "microdata" from smartphones. This data offers systematic information on things like how much time and money customers spend at restaurants. This data, they say, is more comprehensive for fast-food (aka "limited service") restaurants, so they focused on that sector of the market. Their data covers visits to "over 100,000 restaurants across the U.S." from January 2019 to December 2022, representing about $24 billion in sales.
So why did fast-food restaurants get more productive? The economists found a big clue in the data: The average length of time customers spent at restaurants fell, and the percentage of customers spending less than 10 minutes at restaurants skyrocketed. And who spends less than 10 minutes at a restaurant? Takeout and delivery customers! Since the pandemic, customers have wanted takeout and delivery much more than before. And, the economists say, this change in consumer behavior enabled restaurants to rejigger their business and labor processes in innovative ways.
"Restaurants figured out how to serve more customers faster, especially the type that aren't going to be there long," says Chad Syverson, an economist at the University of Chicago's Booth School of Business, who co-authored this study. "They saw an especially big increase in the number of customers whose orders they could fulfill and get out the door in less than 10 minutes."
While the economists' data doesn't say exactly what businesses did to accommodate customers faster, Syverson points to various anecdotal examples. For instance, restaurants began using smartphone apps to interface with customers much more during the pandemic. And they began doing things like building takeout-order shelves, so customers could preorder meals online and then they — or delivery people — could just come in and quickly grab that food off the shelf. Another example: Some fast-food restaurants doubled their drive-through lanes and assigned more workers to take drive-through orders.
The economists found that restaurants that were able to pivot to takeout and delivery service — where customer "dwell time" was greatly shortened — saw the biggest surges in productivity.
And, mind you, takeout and delivery, by definition, mean that customers aren't sitting and eating in the restaurant, and this potentially also means that restaurant workers had to spend less time cleaning up tables, floors and bathrooms. And for especially popular restaurants, a higher number of customers willing to eat off premises also helped remove the constraints of limited physical space within their buildings, allowing them to serve a larger consumer base.
Plus, many businesses struggled to recruit workers in a tight labor market during this period, and this perhaps gave extra incentive to businesses to figure out more productive ways to deploy technology and workers. "Necessity is the mother of invention, as they say," Syverson says.
What does this mean for fast-food workers and consumers?
Econ 101 suggests that when workers get more productive and thus create more value, employers will pay them more.
However, decades of research, including by Massachusetts Institute of Technology economists Daron Acemoglu and Simon Johnson, suggests that this is not an automatic process. Sometimes workers may need to organize, strike or elect politicians who pass policies like a higher minimum wage to compel employers to share the fruits of higher productivity with their workers.
"We know wages in the restaurant industry overall saw pretty fast growth — well above average — coming out of the pandemic," Syverson says. "So the aggregate patterns line up. We don't have restaurant-level wage data, so I can't say for sure if the wage-productivity relationship holds across restaurants. But my speculations are built on the long-run pattern (seen in many, many markets) that wages and productivity tend to move together. I certainly wouldn't think of this productivity surge as bad news for restaurant workers."
OK, so that's restaurant workers. Maybe good news. What about consumers?
Research from Acemoglu and another collaborator, Pascual Restrepo, suggests that sometimes companies use machines to essentially off-load work to customers themselves. So, for example, self-checkout kiosks at grocery stores mean that customers, instead of paid workers, scan their groceries. That may help stores' bottom line, but it also may sometimes be a pain in the butt for customers. Acemoglu and Restrepo call these "so-so technologies" because they kill jobs without necessarily boosting productivity much or making the consumer experience better.
Likewise, restaurants' adoption of QR codes and other self-ordering technologies may be faster and cheaper from a company perspective, but sometimes they can be annoying from a consumer perspective, especially if you really do want to sit down and be taken care of. Instead of having a paid employee take your order, you have to open your smartphone and potentially download an app, type in your credit card number, billing address and email, and then make the order yourself without getting to pick the brain of a paid employee about the menu. In fast-food settings, that may matter less. In fact, self-ordering may be more convenient, especially after you preload your apps with your payment information. But in sit-down and fancier food settings, the humanless process of ordering food can sometimes be irksome and even more time-consuming for customers.
Syverson says he believes the majority of sit-down restaurants have figured out that most customers dislike QR codes and other annoying ordering methods adopted during the pandemic.
"I think the QR codes in particular are a nice example of something that might have in principle created efficiencies (and maybe did a little), but not in a way enough customers appreciated," Syverson says. "As a result, it's my impression they've been largely rolled back, especially at full-service restaurants."
But many of the other changes that fast-food and other restaurants adopted during the pandemic are still with us. Think smartphone app ordering, quick-pickup takeout shelves, more delivery options and expanded drive-through lanes.
Syverson says the higher productivity that these new technologies and business processes have produced is generally good news for consumers. When businesses can make and sell more in less time, the cost of whatever they're making generally goes down. Our recent bout with inflation may mask those benefits. But the bulk of the evidence, Syverson says, shows that productivity gains are often passed on to consumers through lower prices.
For this reason and more, economists generally love productivity growth. They view it like this magic sauce that gets poured over the economy, allowing us all to get more out of less.
"Productivity growth is super important," Syverson says. "It's the only way we get sustained increases in our economic well-being, and it's associated with good stuff for business, workers, customers and entire economies."
And there may be reason to hope that fast-food restaurants will see another wave of productivity growth in the coming years. Many are experimenting with using AI and robots to speed up ordering, food preparation and other facets of their business to enhance productivity. Fast food could get even faster.
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