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Labor Challenges and the Impact They’re Having on the Road to Recovery

Labor Challenges and the Impact They’re Having on the Road to RecoveryIn 2020, the foodservice industry experienced its sharpest sales decline in history, due in part to the COVID-19 pandemic.

Signs indicate sales are on the rise within the sector. However, ongoing labor shortages may be preventing some operators from reaching their pre-pandemic volume level.

Turnover rates have reached 144% at limited-service establishments and 106% at full-service restaurants—which are operating with six fewer employees in the back of the house and roughly three less front-of-house workers than in 2019.

Noncommercial operators are facing similar issues. More than 80% of healthcare foodservice providers, for instance, say staffing shortages and employee illness posed challenges during the pandemic.

For operators who are struggling to find new employees—or rehire workers they laid off when dining restrictions drastically reduced their labor needs—maintaining operations can be difficult, says Donna Quinn, business development manager at Mondelēz International.

“Many of the operators I’ve spoken to say that the difference in pay to what [former employees] get in unemployment isn’t compelling enough to make them come back,” Quinn says. “Staff shortages at the operator level are usually managed by offering a reduced, less operationally complex menu, and by not seating to allowed capacities, so as not to overwhelm the kitchen or waitstaff—that usually means less revenue, lower profits and more issues with cash flow.”

Employee Expansion Efforts

Over the past year, commercial and noncommercial operators have taken a number of steps to address industry labor shortages.

Some have altered their workday, according to Jeff Liegel, CEO of Culver’s franchise restaurant group S&L Cos., which has partnered with owner-operators at 61 Culver’s locations that employ 3,400 workers in Florida, Michigan, Indiana and Wisconsin.

“A lot of competitors are running shortened hours, and still have no dining room,” Liegel says. “We felt it was important to extend our hours and be there for our guests. [Sales] dropped 40% at first when COVID hit; our ability to turn that around was primarily because we invested in our team.”

Despite the initial decline, S&L decided not to lay anyone off at the onset of the pandemic and instead gave employees a 10% pay bump for 13 weeks to help out with family and other expenses. Sales grew by year’s end and are up 20% in 2021.

Although S&L had a fairly robust workforce in place when business began to pick up, hiring additional employees to accommodate the rise proved challenging, Liegel says. Earlier this year, the company instituted a $15-an-hour base pay level, which is considerably higher than minimum wage in the states it operates in.

“Our industry has always struggled with hiring and retention,” Liegel says. “[It] seemed like the right thing to do; as owners, giving up a few percent of the bottom line to help out the team is worth it.”

S&L wasn’t the only industry member to dole out more pay in response to the tight job market. In the second quarter of 2021, the hourly wage for limited-service establishment jobs showed a 10% year-over-year increase.3

Labor-strapped operators have also invested in technology that helps automate the ordering process, such as cashless payments, which 16% of consumers tried for the first time during the pandemic.

Others incorporated grab-and-go items that can be prepared ahead of time or reduced their menu size. While a number held on to limited-time offers and other periodic menu additions, approximately half of casual and family dining eateries had fewer overall items available by the end of 2020.

To help offset higher employment costs, some operators increased menu prices. Penn Station East Coast Subs President Craig Dunaway says the 300-plus sandwich chain’s locations are currently operating with three to four fewer employees than usual on average, about a 20% labor shortage.

Company leadership, which typically suggests a price increase once a year, recommended a second increase in May, following a 3% adjustment in November 2020.

“Restaurants have to pay overtime; the crew is having to work harder; it’s created this perfect storm of wage inflation,” Dunaway says. “Because they’re short staffed, everybody is trying to come up with as many incentives as they can.”

On Board and Enthused

Certain perks that operators have introduced include a benefit for both new and existing employees. A new hire at one of S&L’s Culver’s locations, for example, and the team member who referred the person can each receive a $250 bonus. S&L has also given employees who committed to working a full-time schedule for the last five months a $100 monthly bonus.

Similarly, noncommercial operators are utilizing employee referral and other programs to entice and hold on to workers, says Jodi Yemola, business development manager at Mondelēz International, who works with noncommercial clients.

“I’m hearing everything from ‘Help us fill these voids, and we’re going to reward you’ to ‘Come to work for us and we’re going to give you an extra incentive,’” Yemola says. “They’re sweetening the pot for folks they already have [and] making it a little bit more appealing to be an employee.”

Hiring bonuses can be an effective form of encouragement. In an August survey, workers rated them one of the most attractive restaurant job incentives.3

“I’ve heard of operators offering short-term bonus incentives, paid after a couple months, in an attempt to get people to [accept a position] and stay,” Quinn says. “That’s something we’ve not really seen before within hourly restaurant jobs.”

Recent research indicates the foodservice sector faces a number of ongoing recruitment and retention challenges—including the lure of higher pay in other industries and hourly restaurant workers’ desire for a consistent schedule and income.3

Providing an engaging, enjoyable work environment can often help operators hire and hold on to valued employees.

“We’ve spent a lot of time talking to franchisees about the culture they’re creating,” Dunaway says. “There isn’t any substitute for regular communication; you have to have routine meetings with your crew. It’s more critical than ever to make sure employees know how valued they are and not treat them like an hourly commodity; because if they embrace your business, they’ll work harder—and will help attract other employees.”

Even if the September expiration of the expanded unemployment benefits the federal government introduced in 20208 results in an influx of workers on the job market, the foodservice industry’s labor challenges may not completely go away anytime soon. The industry has faced recruitment and retention issues for years; while eliminating them may not be possible, operators can take steps to successfully attract and keep employees on board—by offering desirable hiring incentives, setting a competitive wage, and making sure they’re effectively recognizing and rewarding employee loyalty on a regular basis.

Get inspiration for boosting your business with our latest Inspiration Guide.

1 Market Segments Overview (U.S. Department of Agriculture Economic Research Service, July 2021)
2 Advance Monthly Sales for Retail and Food Services, July 2021 (U.S. Census Bureau, Aug. 17, 2021)
3 The Post-Pandemic Restaurant Employee: Who Wants to Work and Why (Black Box Intelligence and Snagajob, August 2021)
4 The State of Healthcare Foodservice: Full 2021 Survey Results (FoodService Director, June 15, 2021)
5 State Minimum Wage Laws (U.S. Department of Labor, Aug. 1, 2021)
6 COVID-19: Finding Our Way (Datassential June 26, 2020)
7 2021 State of the Restaurant Industry Report (National Restaurant Association, December 2020)

Topics: Technology, Noncommercial, Promotions, Family Restaurant, Business & Industry, Healthcare, Commercial, Casual Dining Restaurant, Grab-and-Go, Labor, Foodservice Industry, Menu, Customer Experience, Menu Strategy, Retail, Sales & Profitability, Recruitment & Retention, COVID-19, Coronavirus, Off-Premises, Limited Time Offers (LTOs), Prepackaged, Digital/Online Ordering, Touchless, On-Premises, Foodservice, Workplace, Contactless Payments

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