The Wall Street Journal says we still have a big shortage of restaurant workers:
Americans are becoming fed up with lousy service while eating out. Many restaurants face a continued drought of experienced workers and are still working to get new hires up to speed. At the same time, customers are giving restaurants less leeway than earlier in the pandemic recovery, chefs and restaurant operators say, as customers remain peeved about rising prices and pandemic-era surcharges that linger on bills.
....Wages for hourly restaurant and bar workers have shot up in the past year, rising 5.2% in April from last year, according to the Labor Department. The steep rise in costs for cooks and servers has prompted many restaurants to rethink their labor models, as sales aren’t covering the expenses in many cases, operators said.
Ahem. I wouldn't say that 5.2% qualifies as "shot up." Adjusted for inflation that comes to 1.1% over the past year—or about 20 cents per hour. Here's what restaurant pay looks like over the past few years:
Adjusted for inflation, restaurant pay has been flat for nearly two years. That hardly represents a massive effort at attracting new workers. Nevertheless, it turns out we really are still shortstaffed in our restaurants—by a little bit:
Compared to the final month before the pandemic, we're short about 160,000 restaurant workers, mainly because of shortfalls in full-service restaurants. Limited service restaurants have already recovered and now employ more workers than they did before the pandemic. Overall, restaurants continue to have problems because they refuse to raise their pay, but even at that their problems remain pretty small.
On average, at what margin will a restaurant operate? https://smallbusiness.chron.com/average-profit-margin-restaurant-13477.html suggests a "full-service" restaurant operates at something like a 6% net profit margin. And that labor is anywhere from 25% to 35% of a restaurant's costs: https://www.restaurant365.com/blog/how-to-calculate-labor-cost-percentage/#:~:text=Most%20restaurants%20aim%20for%20labor,labor%20and%20faster%20customer%20transactions
So perhaps the real question is by how much more are restaurant patrons willing to see prices go up to increase pay?
Um, this didn't make a lot of sense:
A 'similar decline' for six percent takes you down to 5.4%, so no, you're still making a profit. So your source seems just a teensy bit, um, dodgy.
I'd be happy to see better sources.
Pro Tip: "But we'll make up with this in volume!" is not a winning argument. Seriously? Are you really this programmed?
I’ve suggested margins for restaurants are thin, and labor is a non-trivial fraction of a restaurant’s costs. And provided references. You’ve questioned those references and the assertions. So go ahead and cite something showing restaurants have fatter margins or that labor is a trivial fraction of costs.
It's not my job to provide sources for your argument. And I repeat: Are you really this programmed? Can you at least admit that going from 6 to 5.4 percencent _profit_ is not the catastrophe your source is making it out to be? Look, I'm not unsympathetic to the basic argument. But I'd be the very thing I despise in other people if I let such a dodgy source go unchallenged.
Fine. I didn’t vet that source well. But even if a ten percent hit to the profit margin of a restaurant isn’t a big deal this year, how about the second, third, or fourth time?
The restaurant’s profit is I believe, the owner’s “pay.”
So, ultimately, the prices charged are going to have to rise.
1) It's not enough to have operational profits. You have to have enough operational profits to justify sinking money into something. You need to have enough of a margin to for your business to be a better place to invest than the next best opportunity. Most small businesses have debt they need to service. The margins need to be higher than the interest rate that they are paying.
2) I'm not reading through the links, but I have no idea why they would compare a 10% decline in net margin for a business that has 20% margins to one where the margins are 6%. It's a nonsensical comparison for anything resembling this context. If we're talking about an increase in labor costs, the decline in net margins for those two businesses has nothing whatsoever to do with what their net margins were. If labor costs go up 10%, that's going to hit the lower margin operation harder than it does the high margin one, because they have less cushion to absorb it.
The problem is not variation in net margin, it is variation in volume or gross income. Volume in the restaurant business can fluctuate wildly for several reasons, especially for start-ups.
Prices have gone up--and business has picked up.
And yes, any mention of restaurants or grocery stores will trigger this 😉
Low margin business count on high through put/turnover/etc. For $50,000 investment, you'll end up with $53,000 (6%). Reinvest that $50K, rinse and repeat. IF you can do that every week for 50 weeks a year, you'll net $150,000 starting with the initial #50,000. If you pay staff more, you might end up at 5% margin, or $2500 a week, at leave you with $125,000 at the end of the year.
Of course if there is lower through put, you can lay off some staff, but you'll still be stuck with fix costs. Construction lowers foot traffic, so margin drops to, say, 3%, your net will be $75K a year if they weekly cycle stays the same. But maybe the cycle goes to 2 weeks, so now the net per year is $37.5K--at which point you may not be making enough to pay your house's mortgage. And it would be worse if you need that net to pay off a personal loan that you took to start the business.
The chart shows wages are up about 6.2% since the start of the pandemic, presumably in an attempt to attract workers. That translates to a price increase of 1.5% to 2%, depending on where in the 25% to 35% range a restaurant falls. My guess is that another 6% increase in wages wouldn't drive away too many customers.
Unless, of course, your suppliers are also increasing wages by 6%, and passing those costs on to your restaurant.
I don't think I'm at all an unrerpresentative slice of the market, but maybe I am. How many of the rest of you would stop going to a restaruant if they raised their price for a meal by five dollars, say going from $80 to $85? I certaintly wouldn't. IOW, just how elastic is the demand for 'full service' restaraunts? Since I'm in the Midwest, I'll use the Cooper's Hawk chain as a specific example (just to make sure it meets the 500 employee requirement.)
Again, it depends on the labor-cost fraction of the supplier’s prices. Almost certain to be lower than a restaurant’s, because the supplier is handling in bulk.
Averaging failed new restaurants with profitable old ones is also a mistake.
It amazes me that with all the complaints about worker shortages many restaurants still require the multiple-trips-to-the-table approach to paying the bill. “Anything else?” ‘Just the check”. ‘I’ll go get it” Returns after 5-10 minutes. “Here you go”. Leaves and returns after 5-10 minutes, taking the credit card/cash to the register. Returns 5-10 minutes later with credit card/change.
I was served in Paris several times and the staff had hand held readers...
¯\_(ツ)_/¯
That was standard practice in France when I was there 16 years ago. I’ve seen it in the US maybe twice since then.
Same in Canada - at least in Ontario.
That is an all-too-common scenario, alas. In my own personal experience, of course.
The vast majority of restaurants here in Beijing have shifted to OCR-enabled ordering. You sit down, you scan the code, the menu pops up, and you use your phone to order. So, not only do you not have to wait for a server to pay the bill, you don't have to wait for a server to order food, either.
This improves service all around: wait staff haven't been eliminated in most cases, but, by having to spend less time on average per table, they can (an do) focus on shuttling between the kitchen and your table. (I find Chinese diners—or consumers in general—are at least as impatient as Americans.)
I apologize for anyone I might have triggered by saying something nice about CCPland!
I'm shocked, shocked that a Murdoch-owned rag would slant a news story to make it inaccurate. I'm guessing the conclusion of the story was that it's all the Marxist, socialist liberals fault.
It's not just the WSJ that is biased against workers - essentially all the MSM are biased in favor of employers - workers and even unions don't buy advertising. All major papers have a Business section, but do any have a Labor section? Economists have varied biases, but for a long time most of them have placed a quasi-religious faith in the powers of the Fed, although the Fed does not have a record of preventing either inflation or recessions. The Fed, being headed by bankers, is biased against labor.
Also, the MSM is enamoured by the stock market, which, as legitimate economists keep telling us, is NOT "the economy." But hey! It's a number they can report on! Simple, incontrovertible ... who cares if it's useful?
Yes, I would dearly like to see a "Labor" section in news coverage. Not just unionized labor (a very small beat), but also the unrepresented workforce. To read the MSM, the Amazon and Starbucks strikes have come out of nowhere.
Do the hourly wages include tips?
Wages are not costs, though if the staff is mainly part-time, small employers don't have to have health coverage for them.
restaurants in Europe operate with far fewer staff and they pay their employees. The lack of innovation plus the constant whining by the restaurant owners in the US is bizarre. Modern Plantation Owners?
There's a weird motivation/culture behind restaurant ownership in America than, i think, there is in Europe. People think owning a restaurant is some rock star lifestyle move. Its shitty, grueling work that you shouldn't do unless you love it.
Even immigrant-owned restaurants in America have a different vibe. It's a family income - not a way to write off your Audi while hitting on waitresses.
Servers are paid out of the generosity of strangers. So what exactly is the hiring pitch?
Owners in the US have it pretty good thanks to the tipped wage. Very low fixed cost for servers. Those workers assume most of your risk for the beginning of the week when customer volume varies the most.