More companies are turning to a robotic workforce … coronavirus shaving 10 years off the transition … playing offense and defense with the Technochasm

 

The robot turns the corner and rolls down the grocery store aisle filled with salsa and taco shells …

Halfway down, it encounters a masked customer. A red sign on the robot makes the introduction …

Hi, I’m Tally! I check shelf inventory!

The customer appears unphased. He walks around the robot, leaving Tally to continue taking stock of the taco shells, jars, of salsa, hot sauce …

This isn’t a glimpse of the future. It’s Schnucks grocery store in St. Louis.

***For months here in the Digest, we’ve been talking about the “Technochasm”

 

In short, this is Eric Fry’s term to describe the sharp, and growing, wealth divide in our world that’s being driven by technology.

This “haves-versus-have-nots” divide applies to personal incomes, business profits, and even stock performance.

In this latest example of the divisive impact of the Technochasm, we’re seeing the coronavirus accelerate the phenomenon of workers being replaced by machines.

In May, we reported how clothing retailer Gap was speeding up its rollout of warehouse robots for assembling online orders so it can reduce human contact.

By the fall, it will more than triple the number of item-picking robots it uses in its warehouses. Each machine handles work typically performed by four people.

From Reuters:

The news illustrates how the pandemic may speed up automation in the retail industry.

Companies including Gap and Amazon.com Inc have long used such systems for a range of tasks, like moving items across warehouse floors.

Various new technologies are capable of supplanting some cashier, box packing and item picking roles that employ millions of U.S. workers, and the pandemic is giving vendors a chance to make their case.

***Last week, we learned Tyson Foods is the latest company to turn toward an increasingly automated workforce

 

Deboning livestock and slicing up chickens is labor-intensive work. It’s also been especially conducive to spreading the coronavirus.

You likely remember two months ago, when reduced production forced grocery retailers to put limits on how much meat and chicken shoppers could purchase.

The production slowdown came from the COVID-19 infections of more than 17,300 meat and poultry processing workers in 29 different states.

From The Wall Street Journal (WSJ):

Meatpackers in response spent hundreds of millions of dollars on safety equipment such as personal protective gear, thermal scanners and workplace partitions, and they boosted workers’ pay to encourage them to stay on the job.

They also are searching for a longer-term solution. That quest is playing out in a former truck-maintenance shop near the Springdale, Ark., headquarters of meatpacking giant Tyson Foods Inc.

There, company engineers and scientists are pushing into robotics, a development the industry has been slow to embrace and has struggled to adopt.

The WSJ goes on to report that Tyson engineers are developing an automated deboning system capable of handling some of the roughly 39 million chickens processed each week in Tyson plants.

Back to the WSJ:

The work at Tyson’s Manufacturing Automation Center, which opened in August 2019, is speeding the shift from human meat cutters to robotic butchers.

Over the past three years, Tyson has invested about $500 million in technology and automation.

Chief Executive Noel White said those efforts likely would increase in the aftermath of the pandemic.

***The acceleration toward an automated workforce

 

While companies like Tyson expanding the automated component of their workforce isn’t that surprising, what does raise an eyebrow is how the pandemic is accelerating such a transition.

A McKinsey Global Institute study, as reported by Bloomberg Quint, notes “COVID-19 could accelerate some of the displacement once projected to take 10 years.”

The study focused on the impact of the coronavirus on the European labor force, though we wouldn’t expect its finding to be wildly different for U.S. workers.

From Bloomberg Quint:

When European economies start to recover from the coronavirus, more jobs may be filled by robots. Automation could possibly displace 53 million positions on the continent by 2030 … the equivalent of about 20% of the workforce …

Bloomberg goes on to note that the McKinsey study suggests almost 70% of jobs in the wholesale and retail sector are susceptible. Meanwhile, in accommodation and food services, a full 94% of jobs could be lost to automation.

 

Back in the fall, we highlighted a Brookings Institution study that found that a quarter of U.S. jobs will be severely disrupted as artificial intelligence continues to proliferate.

The report claimed that roughly 36 million American jobs with “high exposure” to automation could soon be performed by machines.

 

***What does all this mean for you and me as investors?

 

For that, let’s turn to Eric Fry, the man who’s been at the forefront of tracking the Technochasm (and positioning his subscribers to benefit).

From Eric:

As a group, low-tech professions and industries are not as adaptable to economic shocks. Additionally, they cannot establish and fortify their competitive advantages as quickly or efficiently as their high-tech counterparts.

A low-tech company operating in the midst of rapid technologic innovation is like a human being swimming in the open ocean.

No matter how well that human might be able to muscle through the giant swells, a cruise ship can do it better … and faster … and more securely — while also serving up chardonnay and sushi …

But integrating new technology is hard work, especially if you’re a big, fat, happy U.S. corporation that has enjoyed decades of success. Often, the stewards of such corporations fail to recognize the competitive perils they face … and, therefore, fail to adapt quickly enough to save themselves.

Many great success stories later become infamous failure stories because they failed to innovate. As a result, they shuffled off into irrelevance and bankruptcy.

 

In Eric’s update, he goes on to provide a long list of companies that succumbed to this fate. Think Compaq, Polaroid, Blockbuster, Kodak, Hertz …

Given this “corporate Darwinism,” so to speak, appropriate portfolio positioning relative to the coronavirus takes on two dimensions: offense and defense.

As to “offense,” it means giving your portfolio exposure to elite tech stocks — something Eric has been urging for months, and doing in his model portfolios.

For “defense,” it means you need to perform a ruthless cross-examination of all the stocks in your portfolio. How nimble are they in responding to our new “new normal” world? To what degree are they adapting to accelerating pace of technological changes?

After all, though technology creates wondrous new industries, it destroys archaic old ones … that might have been at the forefront of innovation at one point.

Eric has put together a free research video that dives into the Technochasm in great detail. To watch, just click here.

Bottom-line: COVID-19 is widening the Technochasm. And even as our economy recovers, a growing corporate reliance on tech-based automation means it will do so at the expense of some American workers … and some stocks.

Here’s Eric with the final word:

We are seeing firsthand just how essential technological prowess has become for most companies.

The Technochasm is gaining strength, and as it sweeps through the global economy, it will continue to reward technologically savvy companies.

And it will visit destruction on those that are slow to adapt.

Have a good evening,

Jeff Remsburg