Will this be a merry holiday for restaurants?

Heavy hiring by retailers is a good sign, but it could also stress an already tight labor pool, says RB’s The Bottom Line.
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The Bottom Line

A strong holiday shopping season could be a nice gift for restaurants in the form of better sales. But an even tighter labor market could prove to be a giant lump of coal.

Retailers are hiring at strong rates entering the upcoming holiday shopping season. That means they expect strong sales, and that often means better sales at restaurants. But the increase in hiring is bad because it’s hard enough to find good restaurant workers as it is.

Earlier this month, Target signaled the expected strong season when it said it plans to hire 120,000 people for the holidays.

Put another way, that’s about the same number of jobs that the entire restaurant industry has created over the past six months. It’s also 20% higher than the number of jobs Target added last year during the holidays.

They’re not the only one. Gap plans to hire 65,000 people for the holidays. Kohl’s will hire 90,000. UPS will hire 100,000. Amazon will hire 120,000. Many others are hiring, too, and hiring demands are more intense going into the season.

For the restaurant industry, the added demands will put even more stress on an already difficult labor market. Unemployment is below 4%. There are new competitors for workers such as ride-hailing and delivery services. And the industry is still growing and adding locations. All of which makes this arguably the most difficult hiring environment for restaurants in decades—as we discussed in the most recent edition of RB's podcast, "A Deeper Dive."

Just to add fuel to the fire, Darden Restaurants CEO Gene Lee on Thursday cited a “war on talent” for the higher wages his company’s chains have to pay.

According to federal data, there were 909,000 job openings in the restaurant and hotel industries in July, or 6.1% of all jobs. Hotels and restaurants have more jobs that are unfilled at the moment than any other industry. By comparison, 4.5% of jobs in the retail trade sector were still open in July.

Retailers and restaurants often compete for the same employees, so by increasing their hiring, retailers could theoretically drain an already shallow pool of potential recruits. That could push up wages and, perhaps more importantly, make it harder to fill shifts.

Then again, retailers hiring more is a good sign that the coming holiday season will be filled with demand for goods.

If traditional retailers such as Target are upping their hiring game, it means they believe more people will be out shopping this season. Indeed, retail sales have been strong this year, and many retail executives are bullish on the upcoming season.

To be sure, the holiday season isn’t the crucial period for restaurants that it is for retailers. But many restaurant chains grew up around shopping areas and malls, and the traffic they generate during the months can be important. More shoppers means more potential diners.

All that said, the strong improvement in retail hasn’t necessarily translated into strong traffic for restaurant chains thus far in 2018. And the restaurant industry has some tougher comparisons in the coming months that will test many chains’ ability to continue growing sales and traffic.

Indeed, retail and restaurant CEOs have some starkly different views on the state of the consumer. As CNBC recently noted, Wendy’s CEO Todd Penegor called the state of the consumer “challenging,” while Target CEO Brian Cornell said there is a “strong consumer environment.”

While many companies could see better sales in a stronger retail environment, others might not. And they will be stuck with higher labor costs to boot.

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