It’s hard to find two people who agree on the state of the restaurant industry. That’s not so much a matter of politics as it’s just a reality of split conditions. As the economy has improved in recent years, so has consumer sentiment. In turn, restaurant spending is up, checks are rising, and swaths of brands are enjoying positive sales growth after years of flat to negative runs.
However, when you dissect why this is happening, the picture isn’t so cut and dry. The improvement has come largely through a tightening labor market that has greatly reduced unemployment and pushed for higher wage growth. At 3.8 percent unemployment, it’s the toughest labor market in five decades. You would have to look back to December 1969 to find a comparable figure. And it’s been steady. The rate has tracked 4 percent or lower since March 2018.
In this bursting dynamic, restaurants face the reality that they can’t just cut an entry-level paycheck and expect to fully staff restaurants anymore. To attract employees and retain high performers, the value proposition must be compelling. If not, restaurants will lose quality employees to brands with more attractive workplaces. That includes other industries, fellow restaurants, and the pull of the gig economy, where employees, young generations especially, value flexible hours and multiple opportunities over the stability and security of full-time positions.
Industry insights platform TDn2K tackled this issue in a new report geared specifically at the restaurant general manager. More than any role perhaps, the GM is front-and-center in today’s staffing crisis. Beyond the operator-down challenge of keeping good leaders, these staff members feel the direct impact of every crack in your brand’s staffing armor. Not fully staffed? The GM will absorb that stress, and likely start dipping their toe in calmer waters. “Nowadays, they also need to worry about something as elemental as having enough people on the floor.” TDn2K said. “To do this, GMs are often the ones that step into other roles.”
Complicated operations and tech that doesn’t work (or no tech whatsoever)? GMs will be forced to spend too much time on administrative tasks and menial obligations, and not enough on leadership. And so the challenges begin.
More on the turnover problem
Since the end of the Great Recession, unemployment rates have inched downward. Restaurant turnover rates are persistently rising thanks to the tightening labor market. Today, they sit at historically high levels. Average turnover rates across all industry segments for hourly, non-management employees are close to 120 percent annually, according to TDn2K data.
While that’s troubling enough, turnover rates for restaurant management positions are closing in on 40 percent annually. And although non-management turnover rates remain high and are getting higher (increase in turnover over the last seven years has been nearly 20 percentage points as of the first quarter of 2019), management retention is most worrisome, TDn2K said. Since 2012—that same time span—turnover rates for management employees in restaurants jumped more than 10 percentage points, per TDn2K’s People Report. This spreads industry wide, but it’s especially prevalent in quick service. Half or more of the positions available for counter-service brands, including fast casual, will be occupied by a new, untenured manager within the next 12 months.
Why is this such a big issue? For starters, one of the A1 reasons the restaurant industry struggled during its downturn was because of market saturation.
As Dave Bennett, CEO of Mirus Restaurant Solutions, told FSR, the restaurant industry expanded a decade or so ago when it went through a boom of sorts. Then competition flooded in from all sides—grocers, C-stores, new concepts, third-party delivery—and redefined the consumer relationship with sit-down chains. Bennett says the fresh reality, as reflected by continually dropping traffic figures, could lead to a 15 percent reduction in restaurant locations over the next few years, which effectively would wipe out 100,000 sites. “We’re in a zero sum game,” Bennett said. “For every restaurant that opens, we close one.”
In addition to meeting surging off-premises demand, restaurants are separating from the pack with great customer service, whatever that might be to their particular guest base. In the case of full-service brands, it usually means delivering hospitality superior to what a diner expects when they court convenience or price in quick service. Although most retail companies look at value as being strictly price driven, restaurants tend to view it differently.
Nearly 20 percent of restaurant companies said they are continuously understaffed for GMs.
As Potbelly CEO Alan Johnson recently put it, “I like the definition of value being the price you pay for the experience that you get.”
This is why the war for talent has never been fiercer.
GMs constantly grapple with trying to run restaurants that are not fully staffed at the hourly crew level, TDn2K said, while also contending with one or more of their supporting managers missing. So you can see where restaurants are getting burned from both sides of the rope: You need better service to stand out given added competition, but you’re having a harder time (and it’s more expensive) to staff restaurants and deliver those goals.
The 2019 Recruiting and Turnover Survey conducted by TDn2K revealed that, on average, at any given time, about one in every three limited-service restaurant locations are not fully staffed. For full-serves, it’s one in every four. That’s a significant figure. Just imagine if you had 1,000 locations. On a random Saturday, upward of 250 locations could be ill equipped to meet peak demand.
It’s proof that understaffing isn’t just destructive to employee morale and engagement, it also affects the bottom line. Stressed out employees aren’t exactly great at delivering customer experiences.
The added workload could cause workers to rush and miss valuable sales opportunities, such as selling second drinks or desserts. If a restaurant’s employees are on the clock, their patrons probably are, too.
This problem, though, extends beyond hourly, non-management positions. To further illustrate the GM pressure, TDn2K noted that 52 percent of chain restaurant companies report they are constantly understaffed for management positions under the GM. This means that for an alarming half of the brands, at least one of their GMs is always coping with a lack of an immediate support system.
The rest: They might not be suffering from perpetual management understaffing, but they are surely suffering through several management vacancies throughout the year, TDn2K said.
The end result—nearly 20 percent of restaurant companies said they are continuously understaffed for GMs.
The cost of replacing a single restaurant GM, according to TDn2K, is about $14,000. There are hard costs related to separation, replacement, and hiring. Costs also apply to the manager leaving as well as the new employee. But all of this is just the tip of the financial iceberg.
TDn2K research indicates the gap between top-performing restaurants and the rest is widening. This goes back to the earlier note about there being too many restaurants and what that looks like in the trenches. Bankruptcies are rising as some concepts get buried by industry headwinds. It might be related to the fact they have too many locations. Perhaps they failed to adapt quickly enough. Maybe consumer preference changed for their segment. Labor got too expensive due to wage concerns. There could be real-estate issues. The list goes on. According to market research firm The NPD Group, there were 660,755 total U.S. restaurants in spring 2018, a 1 percent decrease in the unit count over the previous year.
Per TDn2K, brands that consistently outperformed their peers had same-store sales growth 4.4 percentage points higher than the rest over the last two years. While the lagging restaurants experienced declining sales, year-over-year, the leading chains achieved an impressive 3.3 percent growth in comps.
Looking at the data, TDn2K said, top performers also exceled at employee retention, especially of their management employees. In the latest study, TDn2K found that those same thriving restaurants had management turnover rates 10 percentage points lower than their industry segment peers, on average. Retention rates at the non-management level were also better.
To put it simply, having tenured, engaged managers who can count on experienced, engaged hourly crews is a recipe for growing sales and traffic.
How it measures out:
The top-performing brands
- Comp sales: 3.3 percent
- Management turnover versus segment: negative 4 percent
- Comp sales: Negative 1.1 percent
- Management turnover versus segment: 6 percent
- Comp sales: Plus 4.4 percent
- Management turnover versus segment: Negative 10 percent.
Hard to argue with those numbers.
What to do about it
TDn2K’s study tapped three main reasons for why GMs quit.
- Higher compensation
- Poor work-life balance
- Immediate promotion
Let’s jump into the first note. Typically, the No. 1 pressure—gig economy or not—when a labor market tightens is money. Employees feel they can leave and earn more. It’s not like it was in 2008 when workers clutched positions like life vests. In the case of restaurant GMs, the need for increased pay is imperative, TDn2K said.
“This urgency stems from the fact that GM pay in the industry has not been keeping up with inflation,” the company noted.
TDn2K has studied GM pay at 10-year intervals for the last few years. The conclusion hasn’t changed much. Restaurant GMs are receiving less compensation today than they earned 10 years ago, once pay is adjusted for inflation. Taking that latter point into consideration, base salary for GMs in limited-service brands was 6 percent lower on average in 2018 than in 2008. For GMs in full-service concepts, it was a whopping 11 percent lower than a decade ago.
Meanwhile, data shows mandated pressures on hourly employee labor costs. Minimum wage increases and the Affordable Care Act, for example, require financial resources be allocated to that segment of the population. Labor costs associated with managers, however, have moved at a slower pace.
But, yes, it’s not all about pay
You hear this reality all the time. And if you haven’t experienced it first-hand, ask somebody about a recent interview they conducted. Questions about benefits, hours, time off, and other quality-of-life concerns continue to gain prominence among younger employees.
Restaurant GMs who quit their jobs in 2018 made it abundantly clear that money was important. TDn2K research showed that those top-performers highlighted earlier frequently pay their GMs a premium above peers. But companies aiming to improve management retention would be wise to look at multiple options, not just dollars, to reduce turnover.
The main reason: there are simply constraints to the financial resources available. While all of these labor issues are changing, restaurants’ battles with profit margin are not.
And with the industry experiencing only small growth in same-store sales after years of declining comps, the budgets available for pay adjustments are, understandably, limited in many cases, TDn2K said.
According to the Q1 edition of GM Connect, 35 percent of restaurant GMs can be classified as “engaged.” Per Gallup, more than 60 percent of managers across all industries consider themselves engaged.
So it’s crucial to highlight some other factors. Not only are these quality-of-life benefits in demand, they tend to be more cost effective.
Generally, restaurants have always struggled with work-life balance and employee engagement at the GM level. Long hours. Weekends. It’s an accepted part of the gig. But if the components behind engagement, and lack of balance between an employee’s personal and work commitments go unaddressed, pay increases will likely fall short in inspiring retention.
There’s opportunity in this setback.
Based on data from GM Connect, a product created by Gallup in partnership with TDn2K, only 11 percent of GMs surveyed said their job allows them to spend enough quality time with family and friends. Given roughly nine out of every 10 managers are unsatisfied with their work-life balance, it makes sense turnover is skyrocketing.
TDn2K suggests investing in tools that give managers better schedule predictability. This will reduce back-office busywork and improve balance outside the restaurant. Furthermore, tools that allow GMs to gain efficiencies in day-to-day tasks contribute to their ability to step away from the restaurant when needed. It also keeps them more engaged.
GM Connect said restaurants, on average, are failing in giving GMs these kinds of options. Less than a third of GMs “strongly agreed” they have the materials and equipment to do their job right.
“This is a big area of opportunity for the industry to improve manager engagement, operational efficiencies, enhanced guest experience and better sales and traffic as a result,” TDn2K said.
The issue with engagement
Here’s another Catch-22 concern: It’s clear GMs are the heart of any restaurant’s success, especially chains. But in the last decade, the role has become increasingly difficult. Contributing to the problem are added pressures from inconsistent sales growth and declining guest counts, the challenged hiring market, labor-cost pressures, increasingly complex regulations and legislation, and the heightened scrutiny of real-time public reviews through social media. Managers have to deal with all of this. Yet as noted before, their salaries have not kept pace with inflation and the growing job description.
“It should be no surprise based on this assessment that employee engagement for GMs in the restaurant industry is relatively low,” TDn2K said.
According to the Q1 edition of GM Connect, 35 percent of restaurant GMs can be classified as “engaged.” Put it side-by-side with the rest of the workplace and it reveals a problematic result. Per Gallup, more than 60 percent of managers across all industries consider themselves engaged.
Any efforts to improve GM retention and accelerate business results must start by evaluating gaps in engagement, TDn2K said. But how can restaurants improve these scores?
It comes back to putting GMs in the best position to succeed. If they have the tools to manage teams and react in real time, GMs can more efficiently help restaurants, and stay ahead of their tasks. They will be more productive, loyal, happier, and, in turn, more likely to stick around.
GMs are a restaurant’s best resource to deliver great guest experience as well. Not only can they do this through leadership and a trickle-down effect, they’re also the front-line solution to identifying and anticipating problems before they become crippling issues. They can keep a restaurant culturally aligned to its brand promise and make sure customers are getting the kind of attention that turns one-time guests into repeat visitors, TDn2K said.
Reduce the administrative burden. Use technology to simplify and improve reporting and analytics.
Take the guesswork out of scheduling. Just that move alone will help GMs achieve a better work-life balance and use the time they’re on the floor more effectively.
As golden as being fully staffed can be, being overstaffed is a problem, too. It creates an unnecessary cost and can lead to an unengaged, bored staff. Brands run the risk of upsetting employees who have their shift cut last minute when a GM realizes they don’t need the help.
Smart-scheduling solutions can make a major difference. An item-based forecast (or demand forecast), predicts what items are likely to sell, and when.
“This approach is critical because it takes into account not only non-revenue-generating activities like prep work, but also matches the amount of staffing required for the anticipated activities,” TDn2K said.
Done correctly, a restaurant will have the right people on the floor at the right time to deliver the optimal guest experience.
An example TDn2K provided: It takes more servers more time to run 50 $2 soft drinks to 50 different tables than it does for one to sell a single $100 bottle of wine. With an item-based forecast, GMs will know what is forecasted to sell down to the product level so they can set the schedule accordingly.
The demand forecast should also take into account a raft of important information, including historical data like the same day last year, recent trends, weather forecast, and notable days like public holidays or local events, TDn2K said.
Collaborative scheduling is another important tool. This allows employees to suggest times they’re not able to work or request shift swaps or drops (helps the gig mindset). Managers can also post open shifts so employees looking for extra hours can pick them up without costing the restaurant late adjustments. It can all be approved through an app that automatically updates the schedule, and save GMs from posting new, printed versions that might get missed. It also creates an audit trail of how the schedule changed.
These tools don’t need to be completely GM focused, TDn2K added. Implementing tech that helps employees become more engaged will make the life of a GM easier.
Reduce paper and add automation where possible. This lets GMs lead teams and focus on creating positive guest experiences.
“When restaurants rely on a selection of standalone systems to achieve a variety of tasks, the burden falls on GMs. A simple ask can turn into a wild goose chase.” — TDn2K.
For some GMs, systems are still manual. Or they might be clunky and require a specific computer in the back office to get work done. Put that power into their hands in the form of mobile innovation. Pick a purchase-to-pay and inventory system that lets mangers work on the go via a mobile app, TDn2K said. This way they can get work done across devices without being tethered to the back office.
“When restaurants rely on a selection of standalone systems to achieve a variety of tasks, the burden falls on GMs. A simple ask can turn into a wild goose chase,” TDn2K said.
In that case, information is storied in multiple places and data must be re-keyed in all of them. Again, more administrative tasks.
Different, disparate systems lead GMs to visit multiple sites and applications to simply get work done. “When log-in details are forgotten and must be reset, valuable time is wasted, and frustration arises. With a single sign-on solution, GMs and employees alike can log in to access all the applications they need from a single platform, including integrated applications,” TDn2K said.
Invest in a fully integrated system. It will cut down on the busy work and empower GMs to make better-informed decisions and improve a restaurant’s data reporting.
With multiple systems, it’s rare for GMs to get an accurate, up-to-date, and holistic view of what’s going on in the restaurant. The worst-case scenario, although a common one, is for a GM to be reactive instead of proactive.
“The result? Your restaurant misses out on key opportunities to get ahead of trends or make positive changes in real time,” TDn2K said.
Install a fully integrated system and GMs can assess data quickly (so can the owner). It can be correlated automatically and operators can easily track progress against KPIs and make better decisions, quicker. Think workforce data, purchasing, POS, sentiment data from review sites, and presence data.
GMs are one of the most vital unlocks to winning today’s crowded restaurant game. But don’t leave them stranded. Turnover is a necessary evil in any industry but it doesn’t need to be one restaurants court actively. They can implement the right tools and workplace benefits to help employees succeed. Workers who feel compensated, have a positive work-life balance, and believe in the company, are more likely to stick around than run for the nearest exit. And, at the end of the day, engaged, effective employees will always be the surest path to lasting success.