Ready for the restaurant industry's next crisis?

This one could be worse than the pandemic, warns RB's Reality Check.

The pandemic should be the crisis of a lifetime for today’s restaurateurs.  Yet that threat is being eclipsed by a more potent and pressing danger. At best, it will change the business forever. At worst, it’ll mortally wound it.

The industry has never before expended this much more attention on attracting employees than it has on drawing customers. Of course, those two things are as interdependent as a car’s brake and gas pedal. Veteran financial analyst Mark Kalinowski recently estimated that McDonald’s is foregoing 3 to 4 points of sales because of  capacity restrictions necessitated by a shortage of workers. That’s a decline of about $65 million just in company-run stores.

The scale may be different, but the same pain is being felt by scores of operators. About 40% of Popeyes’ dining rooms were closed during the second quarter because they couldn’t be staffed.  

Along with supply problems, labor shortages forced 20% of BJ’s Restaurants’ units to operate with abbreviated menus, and the typical unit closed 78 minutes earlier during the most recent quarter than it did in 2019.

“Overall, we lost approximately 25,000 operating hours across the system in the third quarter versus the same period in 2019, or approximately 10% of our hours concentrated in the late night daypart,” said CFO Tom Houdek.

Places are trimming their hours, shutting some nights and limping through with skeleton staffs on the days they are open. Any economist would say that foregoing available sales is a bad business practice. So would any plumber, dentist or landscaper.

Yet the industry is sleepwalking through what may prove to be its greatest crisis. Sure, places are offering all sorts of sign-on bonuses and head-turning perks. And those are helping. But the efforts don’t address what research and common sense are outlining in neon as a core problem.

Nearly 7% of the hospitality industry’s workforce quit in August, according to government figures. That’s about 900,000 workers who decided they’d had enough of their restaurant or hotel job.

Other research shows that more than half—58%—plan to walk off their current jobs by the end of the year.

The turnover rate for hourly quick-service employees is already 19 points above what it was in the coronavirus-free days of 2019, according to Black Box Intelligence. And that figure of two years ago wasn’t exactly in single digits. The current-day departure rate is particularly high for workers in their first 90 days of a new job.

The industry’s past labor woes have largely been functions of demographics—the Baby Boom generation aging out of the hourly workforce—or perceptions of the restaurant business as a dead-end career. Now the core problem is that workers can’t stand the way they’re treated in a restaurant job.

That indictment of the industry comes through at Motley Crue volume in new qualitative research from Big Red Rooster, a part of the multinational real estate company JLL. Interviews with restaurant and hotel employees underscored that the workers disdained their jobs because they were treated without the respect and appreciation that a barnyard dog might enjoy.

“Treat us like we see things, we know things,” said one participant. “Treat us as if we are knowledgeable. Not like we are children. Not like we are robots.”

The pandemic and the friction it’s fostered between staff and unmasked guests has deepened that feeling, judging from the research. “When customers are awful to us, we don't have a way to defend ourselves,” said a second participant. “Usually, management does not stick up for us and instead fawns over the customers. There’s nothing wrong with taking care of them, but you don’t need to make us look incompetent while you do.”

“Lack of employee recognition has led to employees feeling like they aren't appropriately treated or respected, not only as workers but as human beings,” said Emily Albright Miller, SVP of strategy for Big Red Rooster, in analyzing the findings.

The research found that pay and scheduling flexibility are the most important aspects of a hospitality job. But it also hammers home that actions as fundamental as providing basic personal safety and a comfortable breakroom could go a long way in keeping employees on the payroll.

Chains are spending hundreds of thousands to recruit and retain employees. Big Red Rooster found that simply stocking breakrooms with phone chargers and snacks could go a long way in increasing a job’s stickiness.

The report poses the partial solution of designing restaurants and their operations for employees as much as guests. “The future design of stores must be more holistic and factor in the experiential needs of employees, not just customers, to be successful going forward,” it states.

If that sounds radical, consider this additional finding from Big Red Rooster: Employees of a restaurant are the key determinants of the impression customers will carry home about the brand. If the staff is stressed, disgruntled or feeling beaten down, how good is that experience going to be?

The only thing worse would be having no staff at all.

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