The real numbers behind rising labor costs

Rising labor costs have been a continual source of concern and a perennial headline-maker in recent years. Adding to the concern is the political uncertainty surrounding changing labor laws and related economic and job policies, which often differ from state to state and city to city. We wanted to go beyond the headlines and political commentary to understand what decision-makers in the food industry are really thinking when it comes to labor costs, so Datassential asked 500 operators for their thoughts on addressing labor costs as part of our annual PULSE Topical Report, which dives into operators’ thoughts on the hot button issues and topics that matter the most in today’s foodservice environment. This survey includes opinions from operators across every segment, from restaurants to on-site (on-site includes segments like hotels, schools and hospitals) to retail (convenience stores and supermarkets).

The majority of operators are certainly worried about rising labor costs – three out of four operators said they are concerned about labor costs, and one-third of operators are very concerned. Operators aren’t just worried about rising labor costs – well over half (62%) said they had already seen an increase in labor costs in the past year and 64% said they expect an increase in 2017.

But operators also had differing concerns related to labor costs depending on the channel. Minimum wage laws tend to receive the most press in relation to rising labor costs – there are numerous stories of restaurants tacking on surcharges to pay for minimum wages. Thrillist Editor Kevin Alexander, in his article “There’s a Massive Restaurant Industry Bubble, and It’s About to Burst,” noted that acclaimed Pok Pok chef Andy Ricker shut down his restaurant Sen Yai partly due to the “rising minimum wage.”

While minimum wage was the top labor cost concern overall for operators, there was a 20% difference in the number of restaurant operators concerned with minimum wage legislation (52% were concerned) compared to on-site operators (32%) who are most concerned with attracting a skilled labor force. Retail operators are particularly concerned with high turnover/employee retention and they are worried about decreases in customer traffic.

It seems like no labor discussion is complete without mentioning technology. Will robots take over many of the jobs in the food industry? In some cases it’s already happening – customers can pay and order through a phone app or at a kiosk at many of the major chains today. California’s Eatsa is an automated restaurant where customers pick up prepared meals from small cubbies (a kitchen staff still prepares the meals) while, in Silicon Valley, Zume Pizza uses robots to prepare pizzas and will use them to deliver the pizzas in the future. “Just imagine Domino’s without the labor component,” co-founder Alex Garden told Bloomberg. “You can start to see how incredibly profitable that can be.”

Yet when we asked operators which labor-saving technologies they were most interested in, the top choices were inventory-tracking apps, improved POS systems, and hands-free payment systems, while technology geared towards food preparation or replacing staff was considered less appealing. In fact, over half of all operators said that their patrons preferred to interact with a real person, and 60% of restaurant operators said the same thing.

The key takeaway is that there is no single factor that is driving up labor costs today, which means there is no one-size-fits-all-solution. It differs from channel to channel and operator to operator. This is just a small sample of the insights we uncovered in the report, which looks at labor cost goals, current initiatives to address labor costs, purchasing shifts and cost-cutting plans.

Mike Kostyo is the senior publications manager of Datassential, a supplier of trends, analysis and concept testing for the food industry. For more information about the PULSE Topical Keynote Report mentioned in the article, contact Brian Darr at brian@datassential.com.

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