Two things have become clear during this earnings season: There is indeed a shortage of labor in the U.S. and big chains are better equipped to handle it.
Every restaurant company has mentioned it prominently in their earnings presentations and even if they didn’t analysts have made sure to ask about it frequently.
Executives all agreed that labor was a problem, though they noted it was broader than just them or the industry. And some chains were hurt more than others. But they also seemed confident in their ability to overcome such issues.
Consider Yum Brands, the giant owner of KFC, Taco Bell, Pizza Hut and Habit Burger. David Gibbs, CEO of the Louisville, Ky.-based company, said that the labor shortage “tends to be more of an issue in the U.S.,” and is “not just an issue in the restaurant industry.”
But then, he said, “I like our position when it comes to attracting the best talent in the industry and staffing our stores. We’ve talked about this for years, but Yum has been built on a people-first culture. We invest in the people in our restaurants.”
Public company executives are supposed to exude confidence in their strategies and in their companies. Earnings calls like these are displays of that confidence and executives hope to come out of it with a higher stock price than they had going in.
No executive in their right mind would say something like, “We struggle to get good workers because we’re a fast-food chain and people don’t like working for us.”
And it’s worth noting that today’s labor issues remain a better problem to have than yesterday’s sales-destroying pandemic.
At the same time, the comments reinforce a prevailing thought in the industry, that the current labor shortage gives the biggest chains a large advantage.
They can pay for benefits independents and small chains cannot, such as tuition assistance or childcare. And they can better withstand a lower margin year or two as they work these higher wages through the system.
This is adding to the considerable disadvantage in which small independents operate. Big chains can afford more takeout and delivery and, as the McDonald’s comments last week demonstrated, are able to force better deals from delivery providers.
Starbucks announced plans last week to raise the pay of its more experienced workers starting in January, which will get its average pay to nearly $17 an hour by the summer. It will hurt margins in the short run, with operating margin expected to fall to a below-average 17% next year.
It could be worse, but the company is working on things like technology and design to improve efficiency and offset those costs. “From day one of the pandemic, Starbucks leaders around the world were determined to use the company’s size and scale to navigate whatever challenges lie ahead with steadfast commitment to our people, our mission and our values,” CEO Kevin Johnson said.
At McDonald’s, strong sales have improved franchisees’ cash flow. CEO Chris Kempczinski said their operators' cash flow is at record levels and that they have “never been better positioned to weather the labor and inflation pressures while still investing in growth.”
“What I feel good about the U.S. is we’ve got our foundational elements in place for this business to outperform quite well for an extended period of time,” he added.
That said, it’s not as if these big chains are not paying a real price for these challenges. The labor shortage ate into Popeyes Louisiana Kitchen’s traffic. Its same-store sales declined 4.5% last quarter, for instance.
The company has created working teams with its franchisees to develop solutions to the problem. “There are some really good operators that have done amazing work already, creating job fairs and pipelines of folks coming into the restaurants and staffing up,” José Cil, CEO of Popeyes parent company Restaurant Brands International, said.
Similarly, labor issues contributed to the first decline in same-store sales at Domino’s Pizza U.S. in 10 years. And the company’s chief executive, Ritch Allison, expects staffing to “remain a significant challenge in the near term.”
Yet the company said it is working with franchisees on training, operational improvements and applicant tracking to improve the situation.
Domino’s stock since it released its fourth quarter earnings has risen about 5%.