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With unemployment low, restaurants struggle to fill jobs

More operators are cutting hours or delaying new openings as they struggle to find workers.
mcdonald's sign
Photograph by Jonathan Maze

Terry Shugart once had most of his 10 McDonald’s locations in South Carolina and Georgia open 24 hours to cater to the area’s night owls. These days, only a couple of his restaurants are open all night.

He simply can’t find enough people to keep them open.

“I’d hire 120 people right now if I could find them,” Shugart said in an interview. “That’s the struggle. Available talent. When you get down to 3.5% unemployment, you just can’t find talent.”

For the nation’s restaurant operators, a dwindling labor pool hasn’t just increased wages and costs, it has also made it tougher to find employees, period. That has led some operators to close their restaurants during times when they can’t find enough available staff. It’s also causing more headaches for restaurants trying to open new units.

“Really, the challenge right now is the availability of labor,” said Bruce Dean, CEO of family-dining chain Black Bear Diner, in an interview for an upcoming episode of the Restaurant Business podcast “A Deeper Dive.” “That’s become a real issue.”

He said the company has been trying to open a pair of locations in Kansas City, and has struggled to find enough employees to fill one of them. The 135-unit chain is having a similar problem trying to open a location in Sugarland, Texas.

“I’ve never had that problem before,” he said.

To be sure, the labor problem tends to be worse in some markets than others. And the labor shortage hasn’t kept companies from staffing up to prepare for sales-building strategies. Popeyes Louisiana Kitchen operators, for instance, were able to hire hundreds of workers to prepare for the return of its chicken sandwich.

And Todd Penegor, CEO of Wendy’s, said he doesn’t expect his company and its franchisees to have trouble finding the 20,000 employees it plans to hire in the coming months as it prepares for breakfast.

“It sounds like a big number,” Penegor said at the Restaurant Finance & Development Conference in Las Vegas this week. “But it’s really just three or four per restaurant. And it’s a daypart people want to work in.”

Still, by all accounts, this remains one of the worst labor shortages in the industry’s history. There were 821,000 job openings in restaurants and hotels in September, or about 5.4% of all jobs in those respective industries. That’s lower than it was a year ago, when 6.5% of all jobs were unfilled, but it remains one of the highest rates of unfilled jobs among all industries, according to federal data.

Restaurants have consistently expanded for the past decade, fueled by low interest rates and considerable interest from both small entrepreneurs and large-scale investment firms. The industry has been adding jobs at a higher-than-average rate over that period, and last month accounted for 1 out of every 3 new jobs in the economy.

According to People Report, from restaurant consulting and information firm TDn2K, turnover for hourly, nonmanagement employees in the restaurant business remains “historically high,” and a large number of restaurants are understaffed. That’s especially true for back-of-house positions.

One of the industry’s problems is the loss of teenage employees. Fewer teens are opting to hold down jobs: Only 34.2% of 16- to 19-year-olds are in the labor force, according to federal data, which is up only slightly over the past year.

That has hurt what has traditionally been an important source of employees for fast-food chains and other restaurants. Low-skilled employees have jumped to companies they perceive to be better or that provide better pay.

“We’re the first to lose a lot of employees,” Shugart said. “A plant will go out and hire 20 people. Some came from Walmart. Then Walmart gets 20 people from me. And I’m out beating the street. It’s just a struggle.”

Guillermo Perales, a franchisee who operates more than 1,000 restaurants in several Southern states, including Texas and Florida, said that labor is a bigger problem in some markets than others.

“Some markets are tough,” Perales said. “We have some markets we’re paying $13 or $14 an hour. We have some we’re paying $10 an hour.”

Even paying higher rates doesn’t always work. Shugart says he pays $3 more an hour than he did a couple of years ago, and still can’t find employees.  

The higher costs are hurting operator profits. Kevin Burke, managing partner with investment bank Trinity Capital, said some operators in high-wage jurisdictions, where minimum wages are rising annually, could lose all of their profits in the next three years.

The higher prices could be leading to another problem: lower traffic. Several chains, including McDonald’s, Del Taco and The Habit Burger Grill, have raised prices and emphasized premium items—and watched transactions decline in recent quarters.

Still, operators say the lack of workers is the bigger issue. And Dean of Black Bear Diner isn’t the only operator struggling to staff new stores. “Availability of labor is the No. 1 problem” for Dunkin’ franchisees, Dunkin’ Brands CFO Kate Jaspon said at the Restaurant Finance conference. “If [franchisees] can’t staff their existing restaurants, it’s very difficult to ask them to open new restaurants.”

But companies continue to open new restaurants, as October’s jobs numbers indicated. And the lack of labor has led many chains to look into technology and other strategies to help operators. Companies such as Starbucks and Dunkin’ are adding new espresso machines designed to improve efficiencies.

McDonald’s is looking at artificial intelligence to take orders in the drive-thru. Dunkin’ cut down on the number of menu items to improve ease of operation. Wendy’s is looking at things like automated dishwashers and automated inventory and scheduling to ease its operators’ labor issues.

Yet, at the end of the day, executives say the most important strategy to easing the labor problem is to not lose the workers in the first place. It has to start with a great general manager, Penegor said. “If we can drive retention, we can manage labor challenges.”

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