THE LABOR CRISIS BECOMES INCREASINGLY CLEAR

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THE LABOR CRISIS BECOMES INCREASINGLY CLEAR

We wrote a little over a month ago about the labor crisis in the restaurant industry. We based our conclusions upon anecdotal information and the result of a survey done by Stephen Crichlow’s Compass Restaurant Consulting  group, which indicated that 35 % of the “past restaurant employees” are “disenchanted”. We’ve provided the June 9th at the bottom of today’s upate.

A Dow Jones article this morning quantified the above (largely qualitative) thesis further. Among other things, it said “the new job-market dynamics have left employers scrambling to find enough workers while helping many longtime cooks, servers, hotel staff and other hospitality workers to break into new lines of work, often with more predictable schedules and better pay and benefits.”

Specifically, according to the US Labor Department, the share of U.S. restaurant and hotel workers leaving their jobs hit a two-decade high in May at 5.7%. Furthermore, while the latest jobs report shows restaurants and bars adding 194,000 jobs in June, employment at such establishments remains down by 1.3 million jobs since the pandemic began. By contrast, employment has bounced back beyond pre-pandemic levels in many other sectors. Compared with February, 2020, there are now 100,000 more warehousing and storage jobs, 39,000 more jobs in management and technical consulting, 25,000 more jobs in insurance and finance. An even more dramatic indication is that Jobcase, a digital job board and social network for hourly workers, indicated that searches for restaurant and food service jobs in April were 35% lower than in 2019. Lastly, in terms of quantitative feedback, a LinkedIn analysis of hospitality oriented people who updated their profile a year ago: 79% indicated that they had moved to a new industry, well above a more typical rate of 58%.

There were lots of other anecdotal reports in today’s article, but much of it we described a month ago, in the article provided below.

There is no reason to think that the factors discussed above and below are going to abate anytime soon.

Roger Lipton

As Published on June 9,  2021

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