The Looming Crisis in Labor

The Looming Crisis in Labor

The unemployment rate is at a 40-year low, but that’s not the worst of it for restaurants and the pizza industry. The prime source of lower-skilled workers, persons < 25 years old, is dwindling. In part, this is due to teenagers not needing or wanting low paying jobs as a source of spending money, compared to growing benefits provided to those who do not work. Higher skill positions are also in short supply, mainly due to rigors of restaurant work and competition from other industries.

From the perspective of the operator, finding, training, and keeping restaurant managers and staff is close to job #1, and should be considered part of marketing. After all, who becomes the face of the restaurant to the customer? Over and over we hear drumbeats stressing the importance of consistency of food quality, but not as much about service. The restaurant workforce is changing, and so too must restaurants planning for future success.

Demographics are working against the restaurant industry. Restaurants are facing a lot of cost pressures, which requires rising prices despite concerns over customer counts and mounting competition from grocers and convenience stores. Labor costs as a percent of sales have continued to rise and are a significant factor in driving these statistics. Food away from home, prices have risen 3.9% this year compared to grocery store prices steady to lower. Since 2015, restaurant prices have risen 11% compared to grocery prices falling 0.5%. Is it rising costs and prices, or changing consumer lifestyles and preferences that are primary?

A recent article by Gallup extolled the importance of managers, stating that they play a crucial role in every restaurant; hiring, training, and determining the labor.  They can create “a consistent consumer experience… and they are key to driving a strong EBITDA. The same article also noted some differences in today’s workforce, noting that workers today want more than a paycheck; they want a job with purpose where they understand their role and believe it is important. Team members want coaches, not authoritarian bosses, and they look for development opportunities and growth.

Given the importance of the manager and team members to the success of a restaurant, many operators are embracing technology to reduce the need for labor. Technology has particularly benefited the fast casual and pizza industry in online ordering, delivery, and certain in-restaurant functions. The popularity of home delivery has benefited mainly chains with scale, which has clearly been at the expense of independent pizzerias. Two important downsides of online ordering have been substituting speed for quality and removing personal interaction which favored the independent. Another downside of popular 3rd party delivery apps is the expense hit to the restaurant. But perhaps the most important but less talked about negative to 3rd party delivery is the loss of control over food quality. Once the food leaves the pizzeria or trattoria, how much time is taken for delivery, and conditions of transport? If the pizza is delivered in poor condition, will the consumer blame the delivery or the restaurant?

Suppliers to the pizza industry are going to have to “up” their game. Restaurants will have to cope with both labor shortages and a less-skilled labor force. Further, the higher costs of labor are going to put a premium on ingredients which take less time to prepare while delivering a superior finished product. Trends creating demand for partially prepared, pre-shredded, par-baked or precooked, and frozen finished will accelerate. Distributors too have a role in introducing operators to the options and opportunities that abound. Food safety and regulatory responses will also drive some of these changes. Equipment common to restaurants like dough mixers and slicers may become obsolete as safety hazards increase and the quality of pre-prepared alternatives are introduced.

The next few years can be especially exciting for the pizza industry, but also heightened uncertainty. Our independent pizza industry is at a cross-roads to respond to changing consumer demand for food away from home. Over the next decade as technology is further adapted, how will independent pizzerias be able to embrace change while advancing competitive advantages of superior food quality and service? Your Delco Foods Sales Representative is committed to your success as we together enter the 2020 decade!

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