Despite Sales Increases, Issues Still Remain
The pandemic has destroyed most industries, but the impact on bars and restaurants has been even more harmful. In 2020, sales at eating and drinking establishments were down approximately 19 percent from 2019. 2021 sales are better, with the consumer spending boom offering some relief. Spending at full-service restaurants is up 18 percent from 2020. Limited-service restaurants are up 24 percent. Bars and taverns are up 11 percent.
This increase in sales, however, isn’t enough to offset three major challenges facing the restaurant industry — labor shortages, supply chain availability and cost increases.
Recruiting and Retaining Employees is the Top Challenge
The National Restaurant Association’s 2021 State of the Restaurant Industry Mid-Year Update had some troubling news. In January, 8 percent of restaurant operators said recruiting and retaining employees was their biggest challenge. By July, that number was 75 percent — the highest number in almost 20 years of tracking the issue. Turnover rates have always been high for bars and restaurants, but they’re now higher than ever. The turnover rate for limited-service restaurants was 144 percent in June 2021. For full-service restaurants, that number rose to 106 percent.
Restauranteurs now compete for employees in an economy with unprecedented job openings. The overall economy had 10.1 million job openings in June. The hospitality industry had 1.4 million openings, roughly 14 percent of that total.
What’s Driving the Industry’s Labor Shortage?
A report by Black Box Intelligence, based on a survey of more than 4,700 current and former hourly workers, offers answers. More than two-thirds of restaurant workers cited customer abuse and disrespect as a problem. They also named sexual harassment as a major issue. Fifteen percent of the workers surveyed reported sexual harassment from managers or co-workers, and an additional 15 percent said customers had sexually harassed them.
Even though restaurants have increased hourly wages, staff members still turn in their notice, leaving for various reasons. The Black Box Intelligence survey found that almost one-third of the workers surveyed left for higher wages. Other factors included dissatisfaction with available opportunities for advancement, long hours and problems with childcare.
Workers also expressed concerns about their physical and mental health. The COVID-19 variants are more contagious than the original COVID-19 virus and present the risk of more severe illness. This ongoing threat, coupled with the strain of enforcing mask policies, adds to worker stress and anxiety. Given the polarized political environment and the question of vaccine mandates working its way through the courts, we can’t expect a resolution soon.
Supply Chain Availability Adds Complications
In addition to staffing shortages, restaurants also face sourcing issues. The pandemic has led to shortages of meat, poultry, fish, eggs, pasta and produce. Distributors may be out of soft drinks, take-out containers, aluminum foil, plastic wrap, condiments, wines and out-of-market beers. As Amy David Sorkin writes in her October 4 essay in The New Yorker, “The Supply Mystery,” labor issues are the root cause of the nation’s supply chain problems.
Over 770,000 people have died from COVID-19 in the U.S. This cut deep into the available workforce for labor-intensive industries, such as agricultural production, meatpacking and food delivery. It also reduces the number of people willing to go back to work. As the year draws to a close, the ports of Los Angeles and Long Beach have more than 70 container ships sitting offshore, but they don’t have enough dockworkers to unload cargo or truck drivers to move it out of the ports.
Just-in-time operations rely on keeping inventories low to contain costs. Before the pandemic, this model worked, reducing workers’ need to stock and destock goods in storage. Today, this model no longer applies. Our ports and trucking operations need more people, and they’re not available. They’re staying away for the same reasons as hospitality workers — illness or the fear of it, burnout and childcare challenges.
Supply Chain Challenges Will Extend into 2022
Industry observers expect supply chain challenges to persist well into 2022. Still, there are encouraging signs. Retailers and shippers are planning to ramp up 24/7 operations at the ports. The International Longshore and Warehouse Union, representing thousands of port workers, has committed to working extra shifts. This will help reduce the number of cargo ships idling at our ports, as well as the glut of empty containers ready to go back to Asia.
What can restaurant owners do now? While you have your go-to suppliers, at this point it’s a good idea to have some back-up, with suppliers eager to prove themselves and become your preferred resource. You can also streamline your vendor management. Look for distributors who carry a wider range of products in their inventory, and when every vendor comes up empty, you can always send kitchen staff on supermarket runs. You’ll end up absorbing the extra cost, but you’re investing in patron relationships.
Cost Increases and the Effect on Gross Margins
Bar and restaurant owners monitor shifts in their margin percentages daily, so the rising cost of fuel has been substantial. The Organization of Petroleum Exporting Countries, along with Russia and its allied, declined to increase production in November. Crude oil prices should continue to rise, with consumers bearing the added cost at the pump.
Restauranteurs rely on daily deliveries, so they pay for higher transportation costs. This increase comes on top of rising food costs. The mid-November Farmer’s Report from US Foods was a mixed bag on price trends. Overall, food costs are rising, although the rate has slowed. If you’re going to protect your gross margins, you’ll need a plan.
On the Line offers three ways to control food costs:
- Calculate food costs at the recipe level — Use your inventory system to match recipe ingredients with specific products in your inventory and their vendors. This helps you evaluate vendors, determine portion control and reduce waste.
- Track theoretical versus planned usage — Your inventory software should help you track changes in vendor costs. This is you’re theoretical usage. If you’re ordering the right quantities and portioning well, it will match what you’re actually selling.
- Engineer your menu — Integrate your inventory tracking with your point of sale, which offsets rising food prices by helping you sell more of your most profitable dishes. Adjust your menu items on a seasonal basis, which helps you optimize pricing based on menu groups and items.
As David Marberger, Conagra Brands’ CFO noted in his third-quarter earnings call, “History shows us that price adjustments are likely to be accepted in the market when industry-wide and broad-based input cost inflation occurs.” Loyal patrons will recognize that when everybody’s costs are going up, theirs will too.
How to Plan for Success in 2022
Year-end is the time to evaluate your operations, look at the areas that need improvement and tighten up. Build your culture and strengthen relationships — between you and your employees, the business and suppliers, and the restaurant and your patrons.
Accept the fact that your staff now has more leverage on wages. As Black Box Intelligence stated in their survey, “States with the highest minimum wage have the lowest turnover rate.” Be the business that keeps its employees because turnover is expensive. Long-time staffers make training more efficient and can help recruit new, high-quality employees.
Communication is more important than ever. Talk to your employees on a regular basis, making sure their work fits into their personal lives and helps support their families. Offering more flexible hours and acknowledging the difficulty of finding childcare will count for staff with families.
Your costs are going up, so your prices will have to rise too. Look for new ways to add value and make sure the patron experience encourages repeat business. Above all, keep a tight grip on the books. Reducing waste and inefficiency goes a long way when you have a payroll to meet and costs to cover.
To make sure your operations are running at peak efficiency, talk to your Windham Brannon advisor or contact Maggie Wise, Windham Brannon’s Restaurants Practice Leader.
