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Restaurant employment trends strengthen

People Report Workforce Index hits highest level in two years

All segments of the restaurant industry expect strong job growth in the second quarter of this year, which is beginning to put pressure on wages, according to recent People Report forecasts.

“The labor market is definitely moving,” said Joni Thomas Doolin, founder and chief executive of People Report, a Dallas-based firm that tracks human resources data for a wide number of restaurant operators.

“Essentially the employer’s market is over,” she said. “We have said this for months: If you didn’t currently employ your ‘A Game’ players in this market, you are in trouble. If your retention didn’t improve in this market, then you have problems.”

The most recent People Report Workforce Index, which looks ahead to the second quarter’s end in June, foresees increasing challenges for restaurant recruiters. The overall index reading of 64.1 for the second quarter 2011 increased 3.4 points from the previous quarter and showed an 11-point hike from the same period last year. It is the highest result in two years. The index uses 50 as a baseline.

These strong employment measures hint at increased wages and more challenging recruiting on the horizon.

“Operators who have essentially baked the savings of lower turnover and flat wages and productivity increases into their [profit and loss statements] need to be aware of the shift,” said Doolin. “You are talking about hundreds of thousands of dollars. There are some savvy companies already doing that and there are other companies that need to look at this and think about it. The implications are that they may have to raise wages and work on turnover.”

The People Report Workforce Index “employment levels” component rose to 67.0 in the second quarter, a three-point increase from the previous quarter. That was the fifth consecutive quarter companies reported making additions to their payrolls. During the quarter, 45 percent of participating companies added hourly workers while 12 percent made reductions, and 47 percent of companies added management employees while 11 percent made reductions.

Michael Harms, senior business analyst with The People Report, said, “With unemployment as high as we’ve seen it over the past couple of years, it’s really been a buyers market if you are a business. What we are seeing is that start to change. As unemployment starts to come down, we are seeing turnover start to increase again from record lows.”

Over the past 12 months, the People Report Workforce Index “turnover” component has more than doubled, going from 21.1 to 46.9. At the start of year, 31 percent of companies experienced rising turnover rates at both the hourly and management level, with 44 percent experiencing declines at the hourly level and 19 percent experiencing management declines.

People Report has more than 60 companies participating in its human resources surveys, from all segments in the industry.

Turnover increases are leading to rises in the recruiting difficulty and vacancy components of the index, Harms said.

“It’s not a huge problem yet, but we will see where we are in the next six month,” he said.

The index’s “employment expectations” component rose 10 points from the prior quarter, to 74.4. For the second quarter, 55 percent of companies plan to add staff at the hourly level, while 6 percent plan to reduce staff. At the management level, 52 percent of companies plan to add staff, 47 percent plan to hold staffing levels steady, and 2 percent plan reductions.

By category, the index research found:

Quick Service: The overall People Report Workforce Index reading for the second quarter was 62.3, marking a four-point increase over the first quarter and a nine-point increase over the past 12 months. People Report defines quick service as concepts generating average annual unit volumes between $500,000 and $1.5 million with per person check averages below $6.

Fast-Casual/Family Dining: The overall sector index reading was 58, a four-point decline from the prior quarter but still “indicating significant growth in staffing pressures.” The segment is defined as concepts generating average annual unit volumes below $2 million and per person checks below $10.

Casual Dining: The overall segment index reading was 66.1, a six-point increase from the prior quarter and the fourth consecutive quarter of increases.

“These are some of the strongest numbers across the board for casual dining that we’ve in quite some time,” Harms said. “It’s a strong reading for the employment levels, and probably the highest recruiting difficulty we’ve seen in quite some time as well as vacancies.”

The sector is defined with concepts generating average annual unit volumes between $2 million and $4 million with guest checks between $10 and $16.

Fine dining/High Volume: The sector index reading rose to 66.2, up from 64.8 in the first quarter. About 50 percent of fine-dining operators reported adding hourly workers in the first quarter, with only 14 percent making staffing reductions. The segment includes concepts generating average annual unit volumes above $4 million with guest checks above $16.

“Fine dining probably did the most paring of staff over the past two or three years,” Harms aid. “We saw a dramatic decrease in the number of employees per unit during the last couple of years, slipping from somewhere around 100 hourly employees per unit down to [about] 75. Now that the bleeding has stopped and sales are starting to increase, it’s to be expected they will be adding to staff.”

The People Report has published its Workforce Index quarterly since 2006.

Contact Ron Ruggless at [email protected].

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