Home News Labor Shortage And Increasing Wages Put Pressure On Restaurant Industry

Labor Shortage And Increasing Wages Put Pressure On Restaurant Industry

The outlook for the restaurant industry is mixed in 2019, according to the California Restaurant Association (CRA). While the industry has been booming when it comes to new openings over the past few years, it is unclear whether that trend will continue – and whether turnover could ultimately turn that boom into a wash.

“A large number of restaurants have opened over the last few years as California moved further away from a recession and into better economic times,” Sharokina Shams, vice president of public affairs for the CRA, told the Business Journal. “Our question is, in 2019, what will become of that trend?” She added, “And in being honest, I have to tell you it is hard to imagine that it will continue.”

The restaurant industry is facing some challenges that are prohibitive to growth, according to Shams. “There is, first of all, a shortage of labor,” Shams noted. California’s unemployment rate was 4.1% in November, the latest data available from the Employment Development Department. Leisure and hospitality, which includes food and drinking establishment, posted the highest number of job gains in November – 12,400 jobs. With demand high for employees and a tight unemployment rate, wages are increasing – making it difficult for restaurants both to find employees and to maintain profit margins.

Restaurants remain a major jobs sector in California, accounting for 10% of state employment in 2018, according to the National Restaurant Association.

“In many parts of the states, and particularly in busy metro areas where wages tend to be higher than they are in the rest of California or in rural parts of the state . . . more and more we are hearing our members talk about using a limited service model rather than a full-service model,” Shams said. Limited service restaurants either employ a fast-casual format, where the diner places an order at a counter, or involves the use of technology such as a tablet located at tables for customers to place orders and ask for service when needed.

Shams said that limited service models are being considered both by owners of existing restaurants operating with a full-service model, and for new restaurants. “The restaurant [owner] who is just about to open says, ‘Hey wait a minute – not only are labor costs high right now, but also people are just having trouble finding employees in the first place. So, from the day I open my doors I am better off being a limited service restaurant rather than a full-service restaurant,’” Shams explained.

Although many new restaurants have opened in the state over the past few years, there has also been an increase in restaurants closing, Shams noted. Whether or not the two trends cancel each other out depends on the city in question, she said.

Frank Buono
Owner, Buono’s Authentic Pizzeria
Most Long Beach restaurants experienced a modest increase in customer traffic and sales in 2018 compared to the previous year. We are cautiously optimistic for the same in 2019.

Challenges most frequently mentioned by operators are recruiting and retaining employees during this period of low unemployment and the accelerated increases in minimum wage. These factors are causing employees to demand higher than average pay raises, sending operational costs higher. This is having a significant impact on our already slim profit margins. Looking forward, we are confident we can adapt to these challenges.

We are excited about the ongoing Downtown developments that will create a dramatic increase in the number of new residents and businesses. This, along with numerous other creative and exciting developments throughout the City of Long Beach, give us reason to be optimistic for a bright and more prosperous near future.

Michael Dene
Owner & Founder, Michael’s Restaurant Group
As a restaurant owner with multiple locations in Long Beach, 2019 is going to be a real challenge. We are facing increased labor costs, higher operating costs including benefits, higher food costs, and increased energy costs, etc. We must be ready to offer our guests great service, amazing food and a pleasant environment. The landscape of competitive restaurants is growing in all of Long Beach making it more difficult to operate profitably. However, the outlook for the economy is favorable for next year. Hopefully that will help fuel increased desire on the public’s part to dine out. What might be helpful for us is that we offer different venues in food and dining experience. Fine dining, fast casual, all farm to table dining make a better experience for our guests.

Corrie Matthews
General Manager, EJ’s Pub
My expectations for Long Beach’s restaurant industry in 2019 is growth. Not just growth in volume, but restaurants working harder to grow with our ever-changing industry. We have seen significant changes in the last few years as the “old school” full service restaurants have closed their doors and made room for more chef owned and fast casual locations. It is an eat or be eaten industry. An industry bombarded by consumer demands, higher employment costs, sales tax, insurance and food costs, there is no room for mistakes. Our consumers are loyal as brand perception is at the top of the “survival list” for restaurant owners. Our customer’s expectations are simple? All they want is an experience with high speed wi-fi, a website that tells them everything before they enter the doors, quality ingredients that are responsibly sourced, a knowledgeable, caring and efficient staff, all at a fraction of price. Most full-service restaurants will find it difficult to maintain these demands, therefore we will see more fast casual concepts and pop-ups. Disposable income is a limited resource that we are all striving to cash in on.  Know your audience, keep adapting, don’t get lost in the shuffle and 2019 will be another success.

Vincent Passanisi
President, Marisa Foods
It seems the restaurant scene in Long Beach is showing some life, and I think we’ll see a short-term renaissance. Lots of choices old and new. New cuisines, new concepts, and some surprisingly good values for decent fare. Nothing is better for consumers than competition, and there are a lot of restaurants competing for patrons. Although individual eating establishments may come and go, the industry as a whole is pretty resilient and will continue to thrive and present new offerings as restaurateurs see profit potential for their projects. In Long Beach specifically, the market seems to be growing and the next five years will be great for people wanting to eat out.

The biggest challenge to restaurants right now is a regulatory environment that increasingly subjects all businesses to petty and onerous rules that do nothing but increase the costs of doing business. Restaurants have a notoriously well-known failure rate – most of them not making it five years, and an average net income in the industry of well below 5%. Antiquated labor laws, increasing insurance costs, skyrocketing minimum wage rates, and petty rules invented by our nanny-state legislators will eventually force operators to dramatically increase prices and reduce service. Those challenges combined with oversaturation most likely will dampen the fun as the market will eventually contract, and prices for eating out will be exorbitant. But in the meantime – bon appétit!

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