Restaurant companies are feeling optimistic about labor

The February jobs report provided a glimpse of how well – or not, depending on your perspective – the restaurant industry is recovering its workforce that was decimated three years ago by the onset of a global pandemic.

On paper, the Bureau of Labor Statistics’ numbers, indeed, show that progress has been made. Also, based on new data from hiring software company Harver, progress has been made. Harver tracked a 22.1% increase in quick-service restaurant candidate volume in Q4 2022 versus Q4 2021. This is compared to an 11.3% decrease in candidates in Q4 2021 versus Q4 2020.

Who is applying for those jobs? In the quick-service segment, Harver measured a staggering 123.7% increase in candidate volume from those aged 30-plus in Q4 2022 versus Q4 2021. QSRs also received a 69.4% uptick in candidates 20-to-29 year-over-year. Contrarily, Harver’s data shows a 3% decrease in candidate volume for those aged 19 and under. Harver opines that widespread layoffs in other industries such as tech and retail could be driving the applicant flow into restaurants.

While these data sets provide a strong case for progress, we also have plenty of anecdotes from the latest round of earnings calls suggesting the industry may have turned a corner on labor. On Starbucks Q1 earnings call in February, for instance, Chief Reinvention Officer Frank Britt said, “The sector does face challenges relative to capacity and talent and record low unemployment. However, we continue to see and experience strong and consistent overall applicant flow to support our store hiring within the typical seasonality.” He added that Starbucks is now running in a pre-COVID level relative to the stores being open.

Chipotle executives noted the system was 90% fully staffed during its last reported quarter and the company is currently in the midst hiring spree targeting 15,000 workers. Yum Brands CEO David Gibbs also said his company is seeing an increase in applications and stores returning to their pre-COVID operating hours, adding, “we’re able to staff the stores now appropriately.”

And, this positive trend has extended to casual dining concepts as well. Staffing at Texas Roadhouse has “gotten much stronger and is getting to the levels we need,” CEO Jerry Morgan said. Texas Roadhouse is back above the pandemic levels and turnover rates are decreasing.

“We know the quality of people hired and retention is going to increase our productivity,” President Gina Tobin added. “Tenure matters and connections to our people to create that culture and reduce that turnover amount will continue to be worked on.”  

BJ’s Restaurants also acknowledged an improvement in retention during its latest quarter, and CEO Greg Levin said company’s staffing is at its best level over the past two years. This ramp up has helped the company reduce overtime and training hours, which as a percentage of sales were 20 basis points better than Q4 of 2021 and within 20 basis points from pre-pandemic levels in Q4 2019.

Though optimism permeated throughout the quarter, plenty of opportunities remain. McDonald’s CEO Chris Kempczinski, for instance, noted that late-night continues to be an opportunity because of changes made around operating hours “due to the staffing environment.”

Meanwhile, Shake Shack has had a disparity of staffing levels in different markets and is leaning heavily into kiosks to help fulfill some of those gaps.

“On people, it’s certainly gotten better over the last few months, but it’s still hard. We wish we were staffed everywhere. We’re not,” CEO Randy Garutti said. “There are some restaurants that feel great all the time. And there are some that it's still really hard to optimize our teams and feel fully staffed. But we feel certainly a heck of a lot better than we did 12 months ago when it was probably at most challenging environment right now. We're feeling better than we were three months ago, but we still have work to do.”

That work is important to not only meet demand but also other customer satisfaction expectations. For instance, Noodles and Company CEO Dave Boennighausen told investors last week that his company’s restaurants were fully staffed at levels “at or better than pre-COVID levels.” He added that over the past four months general manager turnover rates have been more than 30% better than the same timeframe a year ago.

“Improved staffing has yielded meaningful improvement in guest metrics such as friendliness, taste of food, and overall net promoter scores, while average cook times thus far in 2023 are nearly 45 seconds better than what they were just a few months ago,” he said.

Denny’s CEO Kelli Valade said “we can now see the stability of what [being fully staffed] does for guest sentiment scores … We see the traffic and the sales come back when they do that.” Denny’s corporate stores are back to 100% and the company is working to get franchised locations back as well.

Many executives believe labor will continue to stabilize through this year, and Cheesecake Factory CFO Matt Clark said this type of stabilization in the restaurant industry tends to happen when economies slow down, as many are forecasting.

That said, smaller operators may not be as optimistic, particularly as labor inflation remains high. According to the recently released National Restaurant Association State of the Industry Report, 86% of restaurant operators say total labor costs were higher in 2022 than they were in 2019. Indeed, labor outlays were up 18.3% in that timeframe, so a restaurant with annual sales of $900,00 paid $297,000 on labor in 2019 and $351,351 in 2022.

In part because of this, 89% of restaurant operators say recruitment and retention are “significant challenges.” Further, 62% of operators say they can’t support demand with their current staffing levels, while 67% say their restaurant is more than 10% below necessary staffing levels. A little over a quarter are currently more than 20% below needed levels. Nearly 90% of operators say they’re likely to hire more employees during the next six to 12 months, though 35% believe that recruitment and retention is going to be even harder this year.

Still, the National Restaurant Association projects an increase of 500,000 jobs in the industry this year. The industry is also projected to add an average of 150,000 per year with total staffing levels reaching 16.5 million by 2030, from the 15.5 million projected at the end of this year. This is compared to the 12.2 million workers at the end of 2020 from Covid-induced layoffs and furloughs.

Contact Alicia Kelso at [email protected]