This is the fourth story in Restaurant Business' weeklong series marking the fifth anniversary of the pandemic on the restaurant industry.
St. Patrick’s Day is traditionally the biggest day of the year for the Tulsa, Oklahoma-based McNellie’s Group, a multi-concept operation named for its core Irish pubs.
But for founder and CEO Elliot Nelson, St. Patrick’s Day 2020 was one of his worst days ever.
That was the day he was forced to furlough about 1,000 employees after state officials ordered the shutdown of restaurant indoor dining rooms to stem the spread of COVID-19. Many were people who had worked for McNellie’s for years, and Nelson took pride in that.
“It felt like somebody ripped out our soul a little bit,” he said.
It was a scenario that played out in countless different ways in restaurant companies, big and small, across the country. Over a matter of weeks, tens of thousands of people who worked in restaurants were effectively unemployed.
For some, it was temporary. But many left the industry for good.
That event—and the tumultuous four years of recovery that followed—fundamentally changed the labor landscape for both workers and employers.
Now, five years later, restaurant operators say their ability to recruit and retain worker is mostly back to normal again. But that new normal now includes much higher labor costs, along with a recognition that employees have fundamentally different expectations about work.
“Our average cost per labor hour is about 25% higher than it was before the pandemic, so it has gotten way more expensive,” said Nelson, whose group operates 25 restaurants across 17 concepts. “And it takes more people to do the same jobs. We’re using more labor to achieve the same amount of revenue.”
In addition, he added, “People’s relationship with work has changed. People just aren’t as apt to go in and really hustle to get a promotion. They don’t want to work more. They don’t want more hours.”
Coming out the other side
What happened after dining rooms were closed down in 2020 varied by state. Restaurant operators across the country pivoted to takeout and delivery where they could. As dine-in bans lifted, employers plunged into the chaotic world of economic disaster relief funding to get team members back on the job as consumers slowly began returning to restaurants.
There were the months of limited-capacity dining with barriers between tables, social distancing and extra cleaning. There were debates about mask mandates, then, later, vaccine mandates. Every case of the sniffles required testing.
“It was very scary for people to come back to work,” said Fatima Popal, chief financial officer of the Washington, D.C.-based Popal Group, a family-run operation with four concepts there, including Lutèce, Lapis, Pascual and Lapop. “You’re in a situation where no one knew what was happening. No one knew how bad it was.”
Added to the pandemic fears was the death of George Floyd at the hands of police officers in Minneapolis, sparking a racial justice movement.
President Trump, in his first term, for example, staged a campaign event in Tulsa in June 2020 on the anniversary of a racial massacre there, prompting businesses to board up their windows in fear of clashes on the streets, Nelson said.
“That was almost harder on our employees than the shutdown,” he added. “It was emotionally charged and very difficult. The emotional toll … was another punch in the gut, and I saw more people say, man, I just can’t do this.”
The Great Resignation
Even as restaurants were able to open more fully in 2021 and 2022, the period dubbed The Great Resignation swept the country and an estimated 50 million workers made moves to perceived greener pastures, posting their “Quit Toks” on TikTok. Restaurant chains were forced to close restaurants or limit hours because they could not adequately staff their units.
One of the highest “quit rates” of over 5.5% was seen in leisure and hospitality in 2021, according to the U.S. Chamber of Commerce. That quit rate dropped to 3.6% by the end of 2024, though it’s still higher than other industries.
In 2021 and 2022, the number of job openings in restaurants and accommodations soared to record high of 1.5 million, according to the Bureau of Labor Statistics' (BLS) Job Openings and Labor Turnover Survey, or JOLTS.
But by late 2024, it was around the 2019 average of 87,000.
Data from the National Restaurant Association’s recent State of the Industry report indicates the labor landscape has vastly improved.
In 2021, 78% of operators said they didn’t have enough workers to meet customer demand. By the end of 2024, 32% of operators said that.
Labor is still top of mind. The report said 77% of operators say recruiting and retaining employees are still significant challenges. But unfilled job openings are down to pre-pandemic levels and turnover is at its lowest point in a decade.
The association has projected restaurant sales will top $1.5 trillion this year, and the industry workforce is projected to grow by 200,000 jobs to 15.9 million. By 2035, staffing is projected to reach 17.4 million.
At McNellie's Group, labor costs have increased 25%. | Photo courtesy of McNellie's Group.
Higher wages
Getting those workers back has, of course, required wage increases. And that has been perhaps the pandemic’s most lasting impact on the labor landscape.
The past five years have brought battles to increase the minimum wage, primarily at the state level, and ongoing attempts to eliminate the tip credit where it is allowed. This year, minimum wage rates will jump up in 23 states, with increases ranging from 25 cents to $2.15.
In California, for example, state lawmakers created a fast-food wage of $20 per hour, which went into effect in April. The legislation also created a Fast Food Council with the authority to raise that wage rate each year up to 3.5% to keep up with inflation.
Washington, D.C. is in the process of phasing out its subminimum wage. In Michigan, meanwhile, attempts to kill the tip credit were thwarted, though the state’s minimum wage will increase to $15 per hour by 2027, with the subminimum wage increasing to make up 50% of the non-tipped rate.
But even where there are no mandated wage increases, restaurant operators have been forced to raise wages to compete. By 2024, a number of large restaurant chains had filed bankruptcy, citing higher labor costs, including Red Lobster, Buca di Beppo, BurgerFi, Rubio’s, World of Beer, Tijuana Flats and more.
Struggling both with the need to increase wages and address a perceived inequity between the front and back of the house, many restaurant operators turned to service charges—to either replace or supplement tips. The tactic has shown mixed results.
In D.C., where they are more common, Popal said her restaurants use a 20% service charge, shared between front- and back-of-the-house. As a result, she said, “They all work better as a team.”
The back of the house at Lutèce in Washington, D.C. |Photo courtesy of Kelsey Shoemaker.
In Philadelphia, however, Ellen Yin, founder of the multi-concept High Street Hospitality Group there, said there’s a mistrust about service charges by consumers, so they are not popular there.
Long an advocate for equitable pay in the industry, Yin said she had hoped the pandemic would give operators a chance to address that problem.
“During the pandemic, we said ‘let’s not let it happen again.’ We need to make sure team members are adequately paid,” she said. “But I don’t think we made as much progress in that as we hoped.”
Many restaurant operators are experimenting with new models, but it’s hard to do that against a backdrop of a competitive labor market and shifting consumer sentiment.
“We’re all still trying to figure it out,” she said.
Overall, for operators, labor costs grew 31% between 2020 and 2024, according to National Restaurant Association data. That, in addition to a 29% increase in food costs, resulted in a significant jump in menu prices.
On average, restaurant menu prices increased more than 27% between February 2020 and June 2024, according to the BLS.
Last year, however, inflation-weary consumers began pushing back. Slowing consumer traffic forced many operators to rethink their pricing power and focus instead on value.
Better benefits
The competitive labor market has also brought workers across the industry vastly improved employee benefits since the pandemic.
Previously, a perk for restaurant workers might have been a free lunch or a drink at the bar after shift, at best. Now sick leave, vacation and paid parental leave are increasingly becoming mandated by state and local laws. And employers are adding the gamut of additional benefits to attract workers who might consider the restaurant industry for a lifelong career, including healthcare coverage, tuition reimbursement, 401K plans, mental health support services, Spotify subscriptions, financial literacy and more.
Ellen Yin was named Outstanding Restaurateur by the James Beard Foundation in 2023.
“We have a full complement of professional benefits, but even with those, it’s difficult to find the right people, the right cultural fit,” said Yin, whose group includes the restaurants Fork, a.kitchen + bar and High Street Restaurant & Bakery. “It costs a lot to bring people in. It behooves us to pick the right people and onboard them properly.”
Employment growth varies by sector. Full-service operators said the toughest jobs to fill are chef/cooks (78%) and kitchen support staff (61%) Limited-service operators said they have trouble finding managers (61%), and customer-facing workers (55%).
At Popal’s multi-concept group, she said, “If we’re looking for a GM, it’s not like before, where we’d put out an ad and get so many who were qualified. Now we get maybe 15 and only two are qualified, and often they are out of state.”
Rapidly expanding chains—like the 3,700-unit Chipotle, which is pushing to reach 7,000 units across North America—have built in strategies for growing leadership from within.
Chipotle, which this year hopes to hire 20,000 new workers for the “Burrito Season” running from March through May, said it promoted 23,000 team members in 2024, and 85% of all restaurant management role promotions were internal. Five out of 11 regional vice presidents at Chipotle started their careers as crew members and worked their way up.
The fast-casual chain is marketing the fact that crew members can advance to “restaurateur” in as little as three and a half years, with the potential for earning six figures.
Tech support
As restaurants struggled to bring back workers during the pandemic recovery years, many predicted the rise of robots and automation to replace humans.
So far, that hasn’t proven to be the case.
Restaurant companies are increasingly embracing some self-service technologies, like kiosks, artificially intelligent voice ordering in drive-thrus and pay-at-the-table tablets, for example.
But more operators are investing in technology designed to make the lives of team members easier, boost efficiency or enable better training.
The National Restaurant Association said about half of operators surveyed last year said tech and automation will ease their labor challenges, but most (74%) said it will augment, not replace humans. Only 13% said their investment in tech resulted in the permanent elimination of any jobs over the past two or three years.
Still, across the industry, operators are designing smaller restaurants, built for efficiency, that require less in the way of staffing.
Nelson at McNellie’s, for example, recently opened an Italian concept called Malfi that is just over 2,600-square feet. The menu can be executed by three people in the kitchen, rather than four or five, as he might have done previously.
“As we went through how the back of the house would function, we made some cuts to the menu to take off items that were too labor intensive or difficult to execute, or that needed a fourth person on the line,” he said.
There’s no question the math has changed in the traditional equation for making a restaurant profitable.
Nelson is optimistic that he’ll be able to return to the metrics that once worked—though, he said, “We just have to do it in different ways.”
Yin, on the other hand, doesn’t see things getting easier.
“I don’t care what anybody says, the economics of operating a business continues to be so challenging,” she said.