According to the Independent Budget Office, New York has the weakest hospitality recovery of any place in the country other than San Francisco.
Pre-pandemic, the industry had around 475,000 jobs. Now it has around 400,000. Greg David blames this on a decline in demand caused by a lack of tourists (particularly from China), as well as rising crime deterring suburban diners.
Earlier in the year, David Leonhardt mentioned that, in liberal communities, people were going out to eat much less than in conservative communities. Although it saved lives, shutdowns and mandates severely suppressed demand for dining out.
Going by Open Table’s State of the Industry data, reservations in New York aren’t anywhere close to 2019 levels. This is particularly disconcerting because a lot of restaurants have actually increased seating space with outdoor dining since then.
There are restaurant groups like The Mermaid Inn, La Pecora Bianca and Serafina enjoying success and expanding rapidly. There’s also a theme of trendy restaurants being tapped to anchor real estate in places like Rockefeller Center, the Seaport and Hudson Yards.
Chic restaurants have become powerful tools for developers, enabling them to justify higher rents. But even with strong financial backing or generous lease terms, opening a restaurant in Manhattan remains incredibly difficult.
Something that must have a huge impact on demand is the amount of people working from home. As of May, only 8% of Manhattan office workers were back full time. This is supposed to increase with many companies wanting their employees back in the office this Fall, but it’s unclear by how much.
I still see plenty of ladies who lunch at Sant Ambroeus, it continues to be difficult to get a table at Fanelli Cafe, and Lucien is as popular as ever.
But when I talk to the owner of Casa Taqueria on Gold Street he tells me lunch business has completely dried up. The orders he does get are all to-go. He thinks the business environment is much more accommodating in Florida (a common theme among New York restaurateurs these days).
Meanwhile, workers are quitting in record numbers. Last November, about 7% of the entire hospitality industry quit in one month.
What the industry is experiencing is a job market feedback loop. When a restaurant is understaffed, the job becomes harder, making the people still there more likely to quit.
Along with the labor shortage, comes rising labor costs. According to Paul Krugman, wages of hospitality workers rose 18 percent in 2021. Jeff Katz confirms this when he says his kitchen labor costs are up 20%,
maybe more. But even with higher wages, restaurants can’t find workers.
A few weeks ago, Danny Abrams posted this plea for workers on Linkedin:
There’s an idea that, when workers demand higher wages, and the cost of everything else is also increasing, businesses need to find ways to bring costs down. One thing they can do is invest in labor-saving technologies. But my experience working at a food-tech company for the past 11 months has shown me that New York restaurants are incredibly reluctant to adapt or innovate.
But even more than most businesses, restaurants are dealing with inflation. I was at an NYSRA meeting a couple months ago and one owner said margins for restaurants have diminished even with increased prices.
When it comes to inflation, restaurants can eat some of that difference, but eventually, there’s no choice: you’ve got to raise prices. But raising prices brings its own risk — at a certain point, you lose people.
The New York Times recently highlighted a restaurant in Charlotte called Good Food on Montford in “Why the Cost of Dining Out Has Soared.”
One incredible takeaway is how much the cost of posting ads on Indeed has increased since 2019 (1770% for Good Food 🤯)
It used to be you found hourly workers on Craigslist — now it’s Indeed. Good Food pays $2,000 a month just for Indeed ads now.
The job growth there has been in hospitality is offset by growth in the delivery sector, which continues to steal talent from the industry. Hotels, in particular, have lost 20% of their labor pool to industries like delivery.
The fact is the hospitality industry has always attracted “non-traditional labor pools”, and these groups are looking for more flexible work.
At the beginning of the pandemic, Moskowitz Gruhmdahl said restaurants are the closest thing the U.S. has to a social safety net. It used to be if you were formerly incarcerated, a retired person looking to supplement their savings, someone with a disability, or a young person with little work experience, you had few options.
This might be changing.
Not only are these groups seeing more opportunities in traditional employment sectors, but they seem to be gravitating towards work where they can be their own boss. Uber recently reported an all-time high of 5 million drivers. DoorDash seems to have a comparable amount of drivers.
The pandemic has led more and more people to reevaluate what they want from work — and from life — which is creating a large pool of workers who are foregoing a more traditional path, and what they want is flexibility.
A recent McKinsey survey confirms that what many workers want more than money and job advancement is flexibility. Respondents differed in how they rated compensation, workplace environment, and meaningful work, but they almost all valued workplace flexibility.
The hospitality industry is inherently inflexible, and recent attempts at accommodating workers have been met with mixed results. For example, the 4 day work week seems doable at Dig, but not at Shake Shack.
Workers are clearly signaling to businesses what they want from work, but most restaurants aren’t listening.
This is where “labor tech” comes in. Leading players in the space include PeopleReady, Instawork, Snagajob and Qwick.
Jamie Baxter, CEO of Qwick, describes his company as, “the gig economy for food and beverage — an on-demand, labor marketplace.” In other words, Uber for the service industry.
Similarly, Instawork connects hourly workers looking for flexible work with businesses that need workers. 90% of workers who use Instawork say flexibility is the single most important reason they’re using the app.
The perfect use case for such an app in restaurants is dishwashers. The average lifetime of a dishwasher at a restaurant is about three to four months. When you consider the cost of recruiting, interviewing and training — followed by the cost of turnover — you’ve hit the cost of an on-demand worker and then some.
Pretty much every restaurant has the same issues. Employees who are available are working too many hours while picking up shifts for people who don’t show up. Every day, people are calling out sick. Managers schedule appropriately, then all of a sudden someone decides they’re over it.
The mechanism by which most restaurants deal with call outs is by automatically over-staffing whenever possible— the assumption being that someone will call out. Then, if everyone shows up, you can just send someone home. Not only is this frustrating for workers, it’s a legally dubious workaround for “on-call shifts.”
The truth is that restaurants have never had a functional way of incorporating vacations and sick days into schedules, which became particularly problematic during the pandemic.
Two large drivers of employees wanting flexible work are inflation and child-care issues. During its Q2 earnings results, Uber said 70% of new drivers in the U.S. pointed to inflation as a reason for joining the platform.
For many people, the demands of life are increasingly affecting decision making. Not only is childcare getting more expensive, and taking care of a child while juggling a full-time job is almost impossible, but there’s also a shortage of caregivers.
“Picking up shifts offers something that traditional permanent employment still generally doesn’t: the ability to work when and as much as you want, demand permitting, which is often essential to balance life obligations like school or child care.” — Lydia DePillis
With on-demand workers, a manager posts how many people they need at what time and those people show up, and the restaurant doesn’t have to worry about it.
In many ways, restaurant gig work beats out making deliveries. With ride hailing services, drivers are using their own car and adding mileage while the cost of gas is fluctuating. Not to mention all the time you spend idling around. When you net all that out, you’re making much less than what Uber says you are ($37 an hour).
With restaurant gig work, people tend to make $3-$4 above what they normally would hourly. You only work when you want to work, only at places you want to work at, and get paid as soon as a half hour after you clock out.
The fact that you’re getting paid so quickly is a large part of the appeal. The use cases extend to pretty much any business with a food and beverage operation: stadiums, hospitals, nursing homes, hotels, bakeries and venues, to name a view.
Still, gig work may not work for every restaurant or every role in a restaurant. In New York in particular, servers at a high end place who get large tips may not want to switch to an hourly role.
Restaurants in New York have struggled to get rid of tipping — with many going back to tipping after trying to go without it — further proof of how difficult it is to change this industry.
One reason why servers like tips so much is because they’re an example of “randomized rewards.” Studies show that randomized rewards motivate people more than steady, regular rewards. I find that servers are motivated by the idea they can make hundreds of dollars in one night, even if they make much less other nights.
Uber, Lyft and Instacart play into this with the gamification of their apps and adjusting pay opaquely whenever they want.
When talking about delivery apps, Lulu Miller of Radiolab says:
“The rules of the app keep changing, and as soon as you think you’ve figured it out, they change again. And then you spend a bazillion more hours trying to figure it out, trying to figure out how to play the game, trying to make as much money as you possibly can, and then, oh look, they change again. And it seems like for most of these gig workers, that is the job, day in, day out.”
Instead of having a complicated algorithm deciding how much you get paid, apps like Qwick and Instawork are far more transparent.
What’s appealing to restaurants about gig workers is, unlike QR code payments or using automation, gig work apps fit into existing processes.
Sumir Meghani, CEO of Instawork, points out that the mechanisms to find hourly workers are broken. Most restaurants are still relying on signs on windows, word of mouth and expensive job boards. The lack of a mobile-first interface makes these tools outdated.
Slowing labor-force growth means businesses will have to rethink their hiring — in terms of who they consider an acceptable candidate and how those candidates are found.
The median age of a restaurant worker in the U.S. is under 29 years old, with 16–24 year olds making up 40% of the industry. But young adults also make up one of the largest drop offs in labor force participation since the pandemic began.
Next year, the working-age population is expected to grow by just 400,000. It will decrease to 300,000 in 2024, then 200,000 in 2025.
According to a very recent NRA survey, 84% of restaurant operators say they’ll likely hire additional workers in the next 6 months if there are qualified applicants available. That word “qualified’’ is one you hear managers and chefs emphasizing.
Part of the value proposition of these apps is the supply (workers) is greater than demand (businesses). This means the apps can give the best workers more shifts, and businesses are getting the best hourly workers.
So these apps are actually dealing with a labor surplus — something you don’t hear much these days.