Tag Archives: labor crisis



Supplemental unemployment benefits of $300 per week,  tax-free, ended as of September 6th. While it can be argued that this was only one of the ingredients that created a severe labor shortage for restaurants and retail establishments, it was clearly a major factor. Hospitality oriented, consumer facing, businesses all over the country have been looking forward to the first week in September when these benefits will expire.

A cynic might say that you can count on bureaucrat to snatch defeat from the jaws of victory. Within less than one week after supplemental  unemployment benefits ended President Biden has announced a mandated plan whereby all workers within a business that employs 100 people or more must be vaccinated before they enter the facility.  While there are many operators that will not be affected because they are under the 100 employee starting point, there are obviously a great number of multi-unit operators that are affected by the vaccination mandate.

Our conversations with operators indicate that the labor crisis has abated to a noticeable degree before and since September 6th, but the situation is still substantially tougher than before the Covid crisis.  Both management candidates and crew have apparently socked away a financial cushion and, as we have described earlier, lots of ex-employees don’t want to return to this very demanding industry.

The new vaccine mandate has complicated the situation further. Some operators, have told us that the lack of available crew, in just the last week, is worse than ever. Young people either are not vaccinated or don’t want to get vaccinated and it’s not very pleasant to wear a mask for  hours while working in a kitchen heated by fryers and grills. Walking around Manhattan yesterday, we found Chipotle, McDonald’s and Shake Shack with dining rooms closed, only offering off-premise alternatives. The explanation provided was that this limitation was due to an absence of staff.

We suspect that the vaccination mandate will be adjusted at some point soon because just yesterday the President and his staff were getting “feedback” from major retail companies. Changes could be implemented and this “episode” in the midst of an ongoing pandemic can be considered a “teaching moment“ and/or a lesson in unintended consequences. At best, however, current and potential employees will no doubt be confused by the rapidly changing requirements and therefore delay their return to work.

THE BOTTOM LINE: The labor crisis is far from over, and future required wages will be materially higher than pre-Covid. There will continue to be adjustments to service between dine-in and off-premise. Companies have found that they don’t need their dining rooms as much as they thought. With staff  hard to come by, there is  no rush to open dining rooms fully, if at all. Offshoots of Covid-19 are still in play, which will be seriously affect consumer spending. At best, predictability of operating results will be challenged, and will not normalize until well into 2022.

Roger Lipton



The labor crisis is more than obvious.  The contributing factors are open to debate. Is it the fear of Covid (from working indoors and/or being in close contact with customers and other employees), the need to stay home with the kids who are not back in school full time, or the lack of urgency (thanks to government assistance) to earn the dollars that will balance the family budget.

Here’s a data point for you. Call it “anecdotal”, not statistically relevant, but FWIW: On the conference call of an Indiana based restaurant chain, the CEO reported:

“…the labor shortage is real, but the causes grossly misrepresented….”

“…the hourly workforce in restaurants is and always has been in large part transitory and part time. A significant percentage of these part time folks work for extra household income, extra spending money, for income while they’re attending college or for any other reasons.  However, when you flood the economy with stimulus checks, monthly unemployment bonuses, extra food assistance debit cards, IRS refunds and the elimination of rent eviction, a lot of incentive to work part time for extra cash is eliminated.”

Here’s the data point:

Indiana had opted out of the additional government unemployment bonus payments, which resulted in an immediate resurgence of applications at our restaurants, but this was quickly squashed when the court challenges reversed that decision.”

The following conclusion is the hope for the industry.

“With the federal program set to expire in September, we’re hoping that the labor market revives some after Labor Day”.

Call it anecdotal, just one CEO’s opinion. You can recoup the higher wage rates, as you must, with higher menu prices, but you can’t get that far without a kitchen and service crew. Sounds like relief from that standpoint is not far away.

Roger Lipton




There will be more business done in 2021 than in 2020, as pandemic related restrictions ease. There will be some similar challenges, such as maintaining financial liquidity, ongoing negotiation with landlords for sites old and new, allocating limited labor between dine-in and off-premise demands, and others. In addition, in the midst of this state of flux, there is an emerging enormous uncertainty relative to the availability of labor. It has never been this difficult to properly staff a retail facility. The reasons for this crisis can be debated, but a crisis it is.

I was traveling in South Carolina last week, and dined at several well known full service chains. Two of them had restricted dining room seating, which we were told was the result of an inability to find servers. The third chain seated us, but the service was very slow and we were told it was due to the shortage of kitchen staff. The McDonald’s had a “help wanted” sign in the window, the dining room was closed, and each of the double drive thru lanes had about ten cars waiting. We’ve read about a number of chains that have chosen not to open their dining rooms for the time being, because the incremental sales in the dining rooms do not justify the extra labor. They are keeping it simple with just the drive thru lanes in operation.

This is not the first that you have heard relative the labor shortage, including the report of a McDonald’s in Tampa that offered $50 last week to anyone who would come in for an interview.

However, we suggest that the worst is yet to come in terms of industry “disclosure”, and even the awareness of the longer term problem. What we call the unmasking will not really take place for six months to a year, because the very strong YTY sales comparisons, reduction of losses and/or a return to profitability provides relief of sort. YTY operational results, however, will be distorted, including changes in terms of dine-in and off-premise contributions to sales and profits. Management will be hard pressed to predict what normalization will look like, and it will be at least equally hard for analysts. It is elementary that comparisons between 2021 and 2020 sales and margins are of little use. 2019 is the “base year”, for better or worse, and 2021 results vs. 2019 provide a better indication of how far back a company has come.

Just as it will be close to a year from now that operations will have normalized, it will be a while before the labor situation normalizes, hopefully for the better.


In terms of what to expect, we have to give some consideration to the cause of the labor shortage. Last year, as the pandemic storm was most intense, it is clear that some workers were legitimately concerned with the possibility of infection. Unemployment benefits and stimulus checks no doubt made the decision to stay home that much easier.  At the moment, however, with 100 million Americans fully vaccinated, and restrictions easing, restaurant operators we have spoken to feel that some workers are using the Covid as an excuse, saying they “have been exposed” and are therefore quarantining themselves.

It has been suggested that people don’t seem to want to work in restaurants as much as they used to. The hospitality industry involves long hours, often at inconvenient times, and the compensation is not necessarily higher than elsewhere. Other jobs may be considered more “stable” and have fewer health risks in today’s environment.  We’ve read that candidates are just “taking their time”, sorting through the possibilities, trying to locate the right opportunity. We discount none of the just stated factors, and the reduction of immigration under the Trump administration may be playing a role as well.

Taking the above rationale into consideration, we believe that the most recent intensification of the labor crisis, at a time when the pandemic is easing and people seem anxious to get back to their previous routines, coincides almost precisely with the extension of unemployment benefits and the most recent stimulus checks. Studies have been done that show that workers receiving unemployment checks get very active looking for new work during the two weeks just before their benefits run out. In essence: “If you pay people to stay home, they will stay home.” The Federal Reserve Bank of Kansas City, with insight into manufacturing firms across Denver, Oklahoma City, and Omaha, said recently: “Stimulus and increased unemployment money are wrecking the labor pool. Lower level employees are quitting to make just as much not working”. Anecdotally, here in NYC, a restaurant owner told me last night that he can’t find kitchen help. A family with four or five children has received thousands of stimulus dollars, so the financial pressure is removed for the time being.

There is overall hope, as suggested below, but the outlook for relief on the labor front is not promising. The Biden administration is bent on providing financial “support” to US citizens in many forms. Economists debate the future course of the US economy. Some bullish observers believe that the economic rebound in 2021 is just a beginning.  Other strategists suggest that the “high” coming out of the pandemic will run its course over the next six months or so. They expect the economic recovery will be short lived and the debt burden, the underutilized manufacturing capacity, and aging demographics will undercut longer term economic growth. We believe that either way, the labor situation in particular will be troubled. A strong economy will provide a lot of alternatives for potential restaurant workers. A weak economy will require further government stimulus, which we fully expect as 2022 is a very important congressional election year. In short: “Help continues to be on the way !!” Our expectation, therefore, is that the labor crisis will not abate any time soon.


Even for the companies with the best employee “culture”, it is very difficult to deliver the bodies to the right positions at meal periods. The premier fast casual operator, who “wrote the book” in terms of employee culture, is Starbucks and a staffing shortage closed the Starbucks near my office twice in the last couple of weeks. An individual store operator can roll in the family at peak hours and the price is right, but a multi-unit corporate operator doesn’t have that luxury.

It is easy to suggest that a restaurant company develop a corporate culture that will maximum staff loyalty, in turn generating customer satisfaction and positive operating results. However, you either have it or you don’t at this point, and it is likely too late if you don’t. In addition to tripling down on your employee culture, you should consider a pay level that provides “golden handcuffs” to a well trained, reliable employee. Compare that retention rate to the cost to find, hire, train and retain a new employee to replace the experienced associate who has moved on. As the unmasking takes place over the next year, the gap between the haves and have nots will widen and become more apparent.

Simplification of operations can be a big help, and many companies are doing this. Menus should be streamlined, and service styles (i.e. drive-thru, pickup, dine-in, delivery) analyzed and adjusted to maximize sales and profitability. Unit expansion should be as close to home as possible, whether company or franchised. Labor and other services can be moved around the system far more efficiently within a limited geography. A franchised store must be monitored as well as a corporate unit, and the franchisor’s resources can be more easily applied.


People have to eat, so good operators are going to figure a way to satisfy customers. It may or may not look exactly like it does today but necessity is the mother of invention. I wasn’t the first to say that 😊 An important new feature of the restaurant industry is that a great number of competitors’ locations will have closed, making it a little easier on the survivors.

On my same trip last week to South Carolina, I had breakfast at a franchised location of a fifty unit chain, all in the southeast, that closes at 2pm. I will write more about this chain sometime soon, but it wasn’t “sexy”. Perhaps 2,500 square feet, functional décor, a basic menu. All they had was a very friendly staff, a clean store, attentive service, well prepared food at a fair price. They are doing comfortably over $1M per store with relatively low cost of  goods, comping positively by 10% over 2019, system units growing by 15% per year.

It can be done.

Roger Lipton