October 30, 2023



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New Changes in the Food Service Labor Market Bringing 3 Major Impacts to Restaurants

In September, the U.S. food service labor market experienced a significant moment since the pandemic, with the unemployment rate in the industry finally returning to pre-pandemic levels. In the previous edition of "North American Restaurant Data," we mentioned that the restaurant industry added 60,700 jobs in September, nearly 30,000 higher than the peak in February 2020. In the third quarter of 2023, the industry added 100,400 employment positions, 2.7 times the second quarter!

Today, "North American Restaurant Data" delves into the gradually recovering U.S. restaurant industry and analyzes the disruptive impacts on restaurant owners!

01. Rising Labor Costs

Due to the unprecedented impact of the pandemic three years ago, the restaurant industry suffered significant damage. Under the ongoing influence of inflation, the cost of living continues to rise, leading to a substantial increase in the salaries of restaurant industry employees.

In some areas, a "labor shortage" has even emerged, forcing restaurant owners to significantly raise wages to attract and retain employees.

In recent years, the recovery of the restaurant industry has been like a series of dominoes pushed by an invisible hand, triggering a chain reaction.

To maintain their existing profits, restaurant owners have had to increase menu prices. Under the pressure of rising labor costs, they also had to raise the proportion of tips.

Just as these restaurant owners were beginning to see the light, the "gods" they serve—these diners—started to become unhappy. With the cost of living continually rising, why should they foot the bill to maintain the profits of restaurant owners?

Surprisingly, the calls of these "gods" were heard by the government. In a short period, many state governments took action.

California decided to raise the minimum hourly wage for fast-food workers to $20 starting next April!

Chicago also gradually eliminated the tipping deduction system within the city, expecting a 67% increase in wages for tipped employees within the next 5 years.

The wage issue in the restaurant industry, which is also under discussion, is intensifying in many states.

It can be foreseen that this trend will continue, and the labor costs of restaurant owners will rise sharply, squeezing profit margins to a certain extent. Have you noticed that this ball is kicked back and forth, ultimately returning to the hands of restaurant owners?

02. Increased Employee Turnover

Restaurant owners, don't worry too much. The future direction of the restaurant industry cannot be determined by a single factor alone.

We often say that the wages of future tipped employees may all shift onto the shoulders of restaurant owners. Will the owners silently bear this heavy burden? The answer is obviously: No.

Numerous entrepreneurs from the restaurant association will surely step forward and voice their opinions. The restaurant industry is the backbone of the service industry, and the government's "visible hand" will undoubtedly make a series of corresponding policy adjustments to support the prosperity of the restaurant industry.

The restaurant industry does not currently need to worry about an overall increase in employee wages, as current data analysis indicates that the unemployment rate is stable, and overall wage growth is continuing to slow down.

The phenomenon of the restaurant industry's "labor shortage" is gradually easing, and overall wages in the United States are not under pressure to rise but are slowing down.

This chart shows the latest trend in U.S. wages:

However, what needs to be noted is that labor mobility in the restaurant industry has always been a major concern.

In the first half of 2023, the average weekly working hours for restaurant employees were lower than the same period last year, which may indicate a decrease in the market power of employees, and restaurant owners may increasingly rely on part-time workers.

On the other hand, many people are losing stable jobs and have to choose to work part-time.

According to the current overall unemployment rate report, nominally, employment data is positive, but upon further observation, we will find that part-time workers have increased by 151,000, while full-time workers have decreased by 22,000.

This indicates that Americans are losing stable full-time jobs and starting to take on part-time jobs, and some are engaging in second and third jobs to make ends meet.

What restaurant owners need to be aware of is the influx of a large number of part-time workers into the labor market. Wage levels are unlikely to increase significantly, but there is also a need to prevent excessive reliance on part-time workers and frequent turnover of experienced staff.

03. Changes in Restaurant Consumers

In August of this year, the National Restaurant Association's survey data found that 46% of adults stated that they did not go to restaurants as often as they would like. This is comparable to the reports from surveyed consumers last year.

At the same time, 36% of adults stated that they did not order takeout or delivery from restaurants as often as they would like. In short, the demand that has been suppressed in recent years still exists, but consumers are now hesitating due to costs.

Low-income families show a higher demand for dining out. According to the association's data, 54% of consumers in families with incomes below $50,000 express a desire to go to restaurants more frequently.

However, more than a third of adults living in families with incomes exceeding $100,000 also stated that they did not dine out as often as they would like.

The highest leader of the Restaurant Association said, "Any unmet demand from high-income families is a positive signal for restaurants because this group represents the majority of spending in the industry."

According to data from the Bureau of Labor Statistics, families with incomes of $200,000 or more account for 24% of total spending on dining out, while families with incomes between $100,000 and $199,999 account for 33%.

In summary, the group with family incomes exceeding $100,000 occupies nearly 40% of the spending share in restaurant expenses.

Seeing this data, restaurant owners should be able to breathe a sigh of relief. Despite consumers having concerns about costs, they still have a strong demand for dining out.