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Operations

In 2021, a surprise recovery is met with a more surprising labor shortage

The year’s biggest story was an unprecedented lack of workers that left operators closing services, reducing hours and dramatically increasing pay.
Photo illustration by RB Staff

The year’s biggest story should have been its recovery. Sales surged in March and continued increasing as states reopened dining rooms. Many restaurants kept the outdoor or drive-thru or digital sales they’d gained over the previous year.

By July total industry sales were up over 2019, and not by a small amount—by 10%, according to federal data. So, not only had restaurants recovered, they regained the sales they would have gotten had their been no pandemic at all.

And yet, it wasn’t. By November, comments like this from Inspire Brands CEO Paul Brown became commonplace: “I thought 2020 would be the toughest year,” he said at the Restaurant Finance and Development Conference. “But 2021 is giving it a run for the money.”

It’s difficult to say that a year with strongly recovered sales and, for much of it, improved profit margins would represent a “tough year” when compared with a devastating pandemic. But it illustrates just how much restaurants struggled to find workers in 2021.

The restaurant industry’s labor challenge was the runway winner for the year’s biggest story. Workforce challenges were pervasive, influencing every single decision executives made this year. And they promise to change the industry’s very nature.

Efforts to attract workers drove labor rates so much in 2021 that $15 an hour is no longer a dream but a baseline wage restaurants must offer if they’re going to get workers.

The response to the labor shortage led companies to offer such varying incentives as Bitcoin bonuses and emergency childcare, tuition reimbursement, early pay and even a chance to win a free car. Companies did everything to get workers, setting up kiosks in malls, holding massive hiring events, paying out recruitment bonuses and even giving people money just to apply.

Even with all these efforts, operators found themselves unable to remain open for stretches of time or they closed entire services. Chains open 24 hours, such as Denny’s and IHOP, had to close overnight in some locations because of a lack of staff. The burger chain Jack in the Box lost 3 percent of its sales because some of its restaurants were required to close early, a particular problem for a chain that built a lot of its business on late-night consumers.

Even chains otherwise known for their consistent performance struggled in the face of the labor challenge. Domino’s, the world’s largest pizza chain, recorded its first same-store sales decline in the U.S. in a decade, a decline it largely blamed on the labor shortage reducing service quality.

The labor shortage also played a role in some other stories that proved pivotal for the industry this year.

Much of that move is due to technology. With wage rates up 14% over the past year, and cost for much of this technology coming down, it makes more financial sense for operators to spend the money to add those capabilities.

Many operators faced historic supply chain challenges that increased their costs and made it harder to find product. Restaurants found themselves short of equipment, takeout packaging, ketchup packets, pie tins, chopsticks, crackers, alcohol and just about everything else at one time or another. Many couldn’t get enough chicken or other proteins at various times during the year. Even big chains such as Starbucks struggled with the problem.

And when they could, costs for these products soared, adding another layer of costs to an industry already facing major labor cost increases.

Once again, the challenge is related to labor. Many of the vendors the industry works with had their own labor shortages. Distributors couldn’t get drivers to make enough deliveries. Processing plants couldn’t ramp up production strong enough to meet demand. All of it led to periodic shortages and cost increases.

With their costs increasing due to these labor and supply chain challenges, restaurants increased their prices at historic rates. The industry raised prices 5.8% in November, the highest annual rate in 39 years. Limited-service restaurants raised prices 7.9% that month.

To offset some of these cost increases, restaurants turned to technology in force, helping to make it arguably the industry’s biggest, long-term trend.

Once an industry considered something of a luddite, restaurants have become increasingly attuned to the need and demand for technology inside their businesses. Companies have put a massive effort on digital and online orders. They’ve added loyalty programs by the dozens. They’re experimenting with artificial intelligence that can take your order or do scheduling or count inventory. Robot drink makers and fry makers and wing makers and pizza makers have become a thing restaurant show curiosities. And don’t forget robot waiters.

The labor challenges and the demand for technology has also helped to drive much of the consolidation trend influencing the industry. Most of the mergers and acquisitions in 2021 were strategic deals as companies look to grow larger to better compete in an industry with fewer workers, more technology and higher costs. Restaurant Brands International is buying Firehouse Subs for $1.1 billion, while Jack in the Box agreed to buy Del Taco and Fat Brands bought everything not nailed to the ground.

The industry itself was at a loss to explain its lack of workers. At first, operators held out hope for an end to stimulus payments given to the unemployed. Yet as those payments ran out, they remained short of workers. As school started and more children returned to in-class learning, they still couldn’t get people to come in and work.

Knowing that they had their pick of employers, workers switched jobs and did so, once again, at historically high rates. Some 6.6% of hospitality workers quit their jobs in September, according to federal data.

But they also drove the most notable unionization effort in recent industry history, culminating in the historic vote by employees of a Buffalo, N.Y. Starbucks to organize—a major victory for labor activists that have long sought to gain a toehold inside one of the largest restaurant chains in the U.S.

In 2021, the pendulum swung wildly toward workers. That pendulum is, for now, expected to remain on that side of the ledger. Those operating challenges, in other words, will remain long after this year is over. And the industry, it appears, will not be the same.

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