What Top Restaurants are Doing to Win The Labor War

How are leading brands attracting and retaining staff in an increasingly competitive environment?

August 2018 Gary M. Stern

When The Cheesecake Factory announced its second-quarter earnings in August, its stock dipped 14 percent the next day. That happened despite the fact that its same-store sales rose 1.4 percent and revenue jumped 4 percent. Yet one of the major factors in The Cheesecake Factory’s declining stock price—as is the case for many restaurant chains these days—was rising costs, punctuated by spiking labor fees.

Several factors are converging to cause these labor hikes including: many cities like New York, by December 2019, and Los Angeles in 2020 (for companies with 20 or more employees), are raising minimum wage to $15 an hour; a declining national unemployment rate of under 4 percent, making recruiting staff more difficult; stiff competition in the gig economy from major players such as Amazon, Uber, and Lyft, who are attracting scores of workers who otherwise may have gravitated to restaurants.

When labor costs rise and finding new employees is more difficult than ever, something has to give. Restaurant chains are stepping up recruiting, trying to offer more career opportunities, but many are finding it hard to innovate and attract top talent, let alone retain those workers.

When nationwide eateries are grappling with identifying new staff, while contending with thinning margins, they face a tough conundrum. Will they cut staff? Consider introducing more tablets, kiosks or other technology-forward models to reduce wait staff? Or raise prices to maintain margins and offset rising costs?

Ray Camillo, CEO of Blue Orbit Restaurant Consulting, an Atlanta-based firm, attributes the heated competition for hiring staff to several factors, including a “shrinking workforce and supply and demand.” While many restaurants offered $12 an hour several years ago, those hourly fees haven’t kept pace with rising salaries in other industries, making it difficult to attract new hires.

Many eateries are zeroing in on reducing food costs and becoming more efficient, says Chris Wunder, senior director of recruitment at Leap Hospitality, a Liberty, Missouri-based restaurant management consulting firm. Some have tried paying managers more, giving them more responsibility, and working long hours, which can help save operating costs in the long run.

Nick's Pizza & Pub

Nick’s Pizza & Pub offers a $100 referral fee to current employees who recommend someone that is hired.

Take Nick Sarillo, owner of three Nick’s Pizza & Pub restaurants in Chicago, which employ 260 staff in total. When he opened Nick’s 23 years, he made employee retention a cornerstone of his eateries. Indeed he runs intensive training session and posts his values on its website. For years, he maintained an 80 percent retention rate, and based on the restaurant’s strong reputation, he could rely on a stack of resumes when a staffer left.

But those applications are thinning out, and his retention rate has dipped to 70 percent. Last week, an experienced manager informed him that he had been offered a 35 percent increase in salary, which he couldn’t decline.

When Sarillo met recently with his leadership team, they brainstormed innovative solutions. The restaurants have always had a sign posted outside that said: “We’re Always Hiring Great Team Members.” Now it’s printing a note and handing it out with each check at the end of each mail to reinforce that theme.

In addition, he’s offering a $100 referral fee to current employees who recommend someone that is hired, and for the first time he’s attending a job fair.

Ultimately, retaining staff is about “taking care of employees, putting them first, and customers second,” Sarillo says.

Nonetheless, negative stories about toiling at many eateries abound. In fact, many restaurant managers aren’t helping their cause, says consultant Camillo. When wait staff and kitchen staff “find every day stressful and chaotic, every day is a new drama or conflict du jour, and they don’t know exactly what it takes to do a good job,” the restaurant is going to face a hard time hiring, and, most of all, retaining staff.

Providing a “living wage,” so wait staff aren’t living in the throes of poverty is one way to attract new staff, Camillo says.

Being a waiter is difficult and tough and involves delivering constantly superior customer service. Many wait staff have to relinquish holidays, work irregular schedules, and deal with demanding customers.

Texas Roadhouse

Texas Roadhouse servers average three tables, rather than the industry average of five or six.

Despite many cities raising their minimum wage, it hasn’t led to cutbacks in staff at Texas Roadhouse, a chain of 560 eateries, says Travis Doster, its Louisville, Kentucky-based spokesperson. Rather, the chain stepped up hiring as a way to differentiate itself from competitors. "We’re a high-labor, high-touch concept by design. Our servers average three tables, rather than the industry average of five or six,” he says.

Though margins have been cut by rising labor fees, Texas Roadhouse’s CEO Kent Taylor likes to say, “Sales cure all. If you’re getting people through the door, that’s a restaurant’s job.”

But Texas Roadhouse’s president Scott Colosi, in a July conference call, said that he wouldn’t be surprised that due to higher labor costs “we took prices up a little bit,” especially in those markets where minimum wage is on the rise.

Despite the occasional price increase, Doster says, “Were a value concept. It’s easy to raise prices, difficult to lower them. If we have high traffic, employees are happy, busy and making money.” And while he says there’s no silver bullet, that formula reduces turnover and cuts down on the need to recruit new staff.

Texas Roadhouse trains new hires in groups of three to four people, sets clear expectations, and tries to “focus on being a family,” Doster says. “If you set expectations, fewer people will try you for a week and then leave. We focus on being more than a job, but a team.”

Texas Roadhouse

Texas Roadhouse cultivates a team culture within its restaurants, even holding line-dancing contests.

It’s also one of the few restaurant chains closed for lunch Monday to Friday. “If we’re open from 4 p.m. to 10 p.m. we focus on one great shift,” Doster says. Its mission is to “celebrate, motivate and recognize staff.” Managers get a piece of the profits through Texas Roadhouse’s managing partner program, meat cutters vie for the best meat cutter award in a contest with a $25,000 prize, and team events are also held.

Many restaurant chains post job opportunities on websites such as Indeed, Snagajob, and Craigslist, which works effectively for them, Camillo says. But hiring online can be a trap, Wunder from Leap Hospitality says. Many candidates click on sites, apply to 10–15 jobs in seconds, and don’t think whether they want the job. Most often, they waste a manager’s time.

One consultant was asked what chains are doing to innovate in recruiting new staff. He thought for a minute and admitted that nothing came to mind.

Managers of restaurant chains in smaller cities outside New York, Los Angeles, and Chicago must rely more on creating strong networks, meeting people, creating relationships, and selling recruits on opportunities to build a career at their restaurant, Wunder says.

Camillo adds the best way to deal with staff is to retain them. “If you become the employer of choice for your community, you don’t have to worry about employee issues or hiring, and you spend less money on turnover and hiring,” he says.