Franchisee Labor Survey

  • We decided to survey franchisees to check comments from some 1Q21 investor calls in which management teams portrayed the labor market as possibly one of the worst ever.
  • Despite a relatively high level of unemployment, it seems clear that the industry is facing a labor shortage.
  • Implications for this labor shortage extend beyond restaurant operations, with implications for delivery and, more importantly, the supply chain.
  • As we can see from chart below, franchisee respondents confirmed that the current labor market is perhaps one of the worst-ever.

  • The bad news is that very generous government unemployment benefits and direct payment stimulus is widely believed to have dissuaded the workforce from returning to their jobs as the economy has re-opened.
  • The good news is that these new post-lockdown government benefits will not last forever.


  • Respondents are well represented across 23 concepts (19 QSR and 4 FSR).


Franchisee Comments

  • I have been in the Restaurant industry for 9 years and I haven’t seen anything like this ever or even heard about it before. Employees who have been loyal to us for 3 to 11 years are quitting their jobs and getting paid unemployment because they know for sure as soon as they become available for us we will take them back. This is the toughest labor market for the operators. So much so that a lot of operators are quitting because of this situation.
  • We are in for a severe double whammy of labor and cost of goods inflation. Years ago, we tracked the ‘at home’ and ‘away from home’ eating index. It will become more relevant.
  • No one wants to work !!
  • In addition to disincentive to work, government talking points are driving increased starting wage growth.
  • Stimulus has been good for business, but not for hiring staff. Too much business for too little staff.
  • The labor market continues to be a challenge for QSR’s. Higher expected wages, but a smaller pool of people who actually WANT TO WORK!
  • Tough time for our pizza business. Sales are up, staffing is down, so everyone who is coming to work is under a lot of stress. Doing everything we can to hire, but there are too many incentives not to work.
  • The positive and negative impact of stimulus is not equal. The hiring issues we face are directly attributable to stimulus and unemployment boost. Schools being closed also hurts. It is very hard to plan and grow in this environment. In regards to building new units, construction labor is an issue, and supply of materials has been affected by labor as well.
  • The climate for hiring in the restaurant industry today is about as bad as I’ve ever seen it!!! This is due to Congress paying people MORE to ‘not work’ than what they make by working!!! That is the biggest factor in why hiring is such a cumbersome problem today!!!
  • Most of the comp is related to lessened COVID restrictions. We certainly saw spikes with the stimulus payouts, but they only lasted a week or so.
  • Stimulus from last year shored up the economy that allowed this year’s stimulus to boost our sales. If there had been no stimulus we would be in the middle of a deep recession or worse – so 100% of our sales growth and more is due to stimulus. It’s been great and will pay dividends for the long-term.  However, this round of bonus unemployment has been a colossally hurtful waste everywhere but the few states that opened from COVID shut-down late. All of us in the middle states need it to go away – immediately. It is making a challenging season almost impossible. Time to kill it and get folks back to work…
  • In our industry we need people to get back to work. We cannot continue to give people money to do nothing.
  • I have 1/2 of my stores in a highly dense population and 1/2 my stores are resort/rural areas. Does not matter where they are, no one looking for jobs. There is no book or website to manage your way thru this, you have to be on top of this and focus on staying afloat until normal, Winter 2022, I predict.
  • The Enhanced and Extended Federal Unemployment Benefits is what is hurting the existing labor environment. Employees can make just as much money if not more by not working and collecting unemployment benefits.
  • Shortage of workers because nobody wants to work any more. They are waiting for more free money
  • We have reduced hours and restricted seating capacity due to not enough employees to handle the business available.
  • The extra unemployment is killing us as far as new employees go as a business owner I have worked harder and longer than I have ever and I usually work very hard.
  • These stimulus checks and continued increase in unemployment benefits are destroying small businesses. The current mood in this country is that businesses are having to close early or close completely on certain days of the week, ruining business. We have a skeleton crew who are quickly getting burned out and managers having to work 7 days a week and they are also getting burned out. The lack of employees added to the continued increased workload for the employees we do have is an absolute nightmare. I don’t know how long anyone will last in these working conditions. And I’m not sure it will ever go back to Pre-Covid. Very disturbing and depressing!
  • Would rather have team members than the increased sales!!!
  • Labor pool is atrocious. Minimum wage in VT is $11.75 and I can’t even get people to apply at $14/hr. for take out pizza. No one wants to work.
  • We have had applicants tell us if we offer $16 hour they may consider coming to work because the government hand-outs equal $15 hour to stay home.
  • No one wants to work when they can sit at home for over a year and collect free money. I can’t pay wages high enough to compete with the extra unemployment funding. Additionally, people are not stupid, they know employers are struggling so having any sense of discipline or authority is gone. It’s like the students are running the school. It’s absurd.
  • Very difficult to even get applications of any kind. We are hiring people that we would never have considered in the past.
  • Most challenging time ever for staffing day shift (moms and part-timers). Evenings and weekends, usually the toughest, are the easiest currently to fill slots (high school students do not get direct transfer payments from State and Federal Governments.
  • Wish government would give money to folks who work…
  • Unemployment extensions (COVID) are at the crux of the labor issue.
  • Multiple franchisees in our system are choosing to minimize hours/days to support the needs of properly staffing the other days and times. The menu prices are already being increased to make up for the higher wages having to be paid via the unemployment benefits of staying home. The middle class is being impacted the most by higher prices and not receiving the same % change in their compensation. My economics degree tells me we are setting ourselves up for disaster. The small businesses will be forced out, they simply will not have the staying power to continue to play in this game.
  • We have 700 job openings, unemployment and stimulus payments create no incentive for employees to enter the work force.
  • Whatever help government loans and grants have been to the restaurant industry, the damage done to the ability to hold, hire and keep employees has been greater. Before the pandemic we had approx. 28-29 employees. Today we have 6-7 and they have become unreliable in showing up for work due to government/political largess in unemployment benefits. And, we cannot even manage the workers, because then they again do not show up for the next shift of work if they do not like what is said to them.
  • Sales could be so much better if there was staffing. Our good employees are getting burnt out. The government has to stop encouraging people not to work.
  • Please stop giving out money. Here is what sums up many people’s philosophy. If I have money in my pocket today I am good. They never think of the future. We lost 35% of our staff with the last stimulus.
  • Had 15 interviews scheduled and 2 showed up and then the others quit responding to messages.
  • The government has to STOP giving out free money and never-ending unemployment benefits. The entry level worker has no incentive to go to work. Businesses are already altering operating hours, cutting services, cutting menu offerings, and some closing shop altogether. It is maddening!
  • I’m so understaffed that we have to restrict hours of operation and limit sales to Delivery and Drive Thru only. We have raised starting wages $2.50/hr. to $14/hr.
  • It has negatively impacted me by not allowing us to open up dining rooms, losing inside sales. Also the labor environment is negatively impacting us because we cannot capture all of the sales with slower service due to lack of employees and we have to limit our hours of being open. Employees are not coming back to work because of the extra $300 per week they are making on unemployment. If the government would pay me more each week then my current earnings to keep my business closed, I would take that deal as well. They are losing a lot of tax revenue from businesses because of this unemployment policy.  
  • Worst thing I have ever seen our government do. Destroying what our country was built on. Work hard and opportunities are there for all people.
  • Federal aid helps propel sales, however, the aid should not come in the form of cash stimulus. A potential solution would be a federal job stimulus based on hours worked. A rough idea would be for every four hours worked the federal government would pay out an additional hour of labor, either at the federal or state-specific minimum wage.

IHOP – RR’s Executive Summary

IHOP is well established as the largest player in the $1B+ family chain segment with 28% market share and the largest marketing budget. Although the brand is best known for award-winning, high margin pancakes (complimented by its never empty coffee pot & flavored syrups) and for putting an unexpected twist on “all things breakfast, any time of the day,” efforts to contemporize the brand include a pivot towards lunch, dinner & late night (to better leverage its 24×7 availability) and off-premise capabilities. The chain’s historic sit-down appeal also centered around a fun/like-able experience and engaging servers who provide a warm & welcoming environment. A significant amount of culinary innovation helps the brand to break through the clutter and value deals are well-targeted to drive traffic during the chain’s slower days/dayparts (lunch & dinner) while also used to bolster off-premise. To this end, its IHOPPY Hour LTO and the new burrito & bowl platform provide an example of successful expansions along these lines. Long-term sales should continue to benefit from: the retention of a good part of its elevated post-lockdown off-premise business; a stronger value equation; more effective marketing; increased investments in research & consumer insight designed to help understand evolving dining habits in order to drive frequency & check; a focus on traffic-generating menu innovation that helps with PM daypart expansion; reinvented guest experience; enhanced guest engagement with CRM/loyalty; guest satisfaction improvements; and remodeling. All-the-same, it cannot go without saying that post-lockdown results have been particularly severe given the chain’s breakfast orientation (reflecting less commuting & the fact that the breakfast occasion is most easily replaced with simple meals at home like cereal) taken together with its historic positioning towards the lower income demo (which has suffered the most economically post-lockdown) and older patrons (which have been the most cautious about venturing out). As a result, operators suffered dramatically during 2020, with EBITDAR dollar profits almost halving y/y (fortunately, liquidity was provided by royalty/ad/rent deferrals & government assistance). In conclusion, we continue to like IHOP’s long-term strategy, improvements and execution and it is our expectation that the brand’s near-term challenges, no matter how severe, will eventually dissipate as the human need to socialize & form community endures.

McDonald’s – RR’s Executive Summary

McDonald’s seeks to continue expanding beyond its substantial brand equity built around iconic signature products (Big Mac, Quarter Pounder, McNuggets, Egg McMuffin & fries), the largest marketing budget in the industry and foundational accessibility strategies in the form of compelling price/value and convenience. To this end, its new “Accelerating The Arches” strategic plan entails: increased innovation & competition around chicken, breakfast & coffee; continued efforts around simplification; marketing shift towards cultural brand advocacy on social media; and access improvements via drive-thru, delivery & digital. McDonald’s new Crispy Chicken Sandwich (a response to the chicken sandwich war) is consistent with the brand’s belief that there is a significant opportunity to expand its chicken offerings. Notably, the brand seeks to pivot from “advertising” to engaging consumers with a tone centered around wit, self-awareness, optimism and a bit of fun (i’m Lovin it). A significant jump in social media engagement (helped by its Famous Orders celebrity campaigns) leverages new data-driven capabilities while also helping to build awareness around the chain’s progress in delivery, mobile order & pay and its forthcoming MyMcDonald’s loyalty launch (later in 2021). Further brand strengths reflected by: improving DT times driven by operational improvements and simplifications; a doubling of 2020 digital sales mix to 20% helped by mobile order & pay, curbside pick-up and DSP delivery options available in ~80% of the system; and system high EBITDAR dollar profits which helps with substantial capex investments and rents. Having said all this, substantial check increases have masked traffic losses from price sensitive customers, and this highlights the need for the brand to find a value equation that can work in concert with its check building strategy without driving cannibalization. Further, McDonald’s must continue to struggle with stiff competition in burgers, chicken, breakfast and coffee. In conclusion, while McDonald’s continues to progress nicely on its modern, upscale re-positioning, it cannot allow a pivot to a higher income demo to negatively impact its well-established reach into the huge value market given that the chain’s mammoth size requires assess across the entire consumer market.