THE LABOR CRISIS IN THE SERVICE SECTOR – WHEN WILL IT RECEDE?

Everyone knows by now that there is a labor crisis in restaurants and retail and hospitality and other sectors of the service economy. Readers of this website, mostly involved in the restaurant industry, don’t have to be convinced how difficult staffing is these days. The difficulty is a result of a number of factors and nobody really knows the contribution of each element. There has been (1) a fear of catching Covid (2) the need to stay home with the kids because schools haven’t been fully opened (3) unemployment benefits providing sufficient income and (4) general disenchantment with the restaurant industry.

You don’t need us to help you weigh the first three of the four factors mentioned above, and time will solve those problems between now and September when (1) Covid will have run its course (2) the schools will have reopened and (3) unemployment benefits and supplements will have largely run out.

It is the fourth possibility that we believe is far more of a factor than has been widely accepted, especially in the restaurant industry, which is the most demanding sector within generalized hospitality. The last year or so, when restaurant crew, and managers too, were forced to “take some time off” has provided the opportunity to assess the long term attractiveness of the restaurant industry. A survey done recently by our friend, Steve Crichlow, the astute publisher and owner of Compass Restaurant Consulting and Research, indicated that 35% of the “past” restaurant employees are “disenchanted” with the restaurant industry and not planning to return. It is easy to understand why: the demands are intense, the hours can be long for management (often more than the stated schedule indicates), the pay scale is not compelling, and the scheduling does not mesh well with family obligations. You can imagine the pressure on store managers, especially at a publicly held or private equity owned restaurant chain, where every P&L line item is scrutinized for performance. You are expected to deliver consistently positive comps, at the same time produce consistently improving food and labor costs. No matter how well you perform, you are expected to do a little better next year. It’s easy to see why so many “past” restaurant employees now say they have “had enough”. Sometimes a person is too close to the trees to see the forest, too involved with day to day concerns to think about long term strategy. The past year may well have allowed for a reassessment in more cases than we have previously believed.

THE BOTTOM LINE

Nobody knows to what extent the survey referred to above will prove to be a true indication of the state of labor available to the restaurant industry. I can tell you that, here in Manhattan, when I stopped at Just Salad, a chain here in Manhattan consistently well run by my experience, at 6:30 last night it was understaffed. This morning, at “my” well normally smoothly running Starbucks, the situation was similar. The shortage is real, and the possibility exists that September ’21 will not provide relief. If I had to bet on how much labor costs, and then menu prices, are going to rise this year and beyond, I will take “the over”.

Roger Lipton