Dunkin’ and other quick-service franchise owners face some big challenges as we head into the summer.
The good news is that the economy is picking up steam, with rising demand for everything from coffee and snacks to cars as people return to work. But as the economy comes back to life, the quick-service restaurant sector – like many other service sectors – is struggling to find workers. Openings are going unfilled because generous jobless benefits are keeping some workers on the sidelines, franchise owners say. As Dunkin’ franchisee, and CFA Chairman John Motta told Business Insider magazine, “It’s just craziness out there. People are closing early, people are not opening lobbies.” The headline of the BI article says it all: ‘A Florida McDonald’s is paying people $50 just to show up for a job interview, and it’s still struggling to find applicants.’
So as franchisees are forced to eat into their razor thin margins and raise wages – in many cases – far above the minimum wage, they are at least aware that many consumers are flush with cash from government relief efforts and are eager to spend it now that lockdowns are over. Some quick-service franchise owners – and the big franchisors as well – are discovering they may have more flexibility in raising prices than they had thought previously.
For more on What’s Brewing, read on.
Pandemic price changes
The quick-service sector has long had a deep-seated fear of being forced to raise prices.
Faced with paying more for their favorite cup of java, customers could simply walk across the street to their competitor, franchise owners and big franchisors alike have feared. But has the pandemic, which has scrambled up so much of normal life over the past 15 months, finally shifted the pricing paradigm?
A new report by Restaurant Business finds that prices have shot up significantly in the quick-service sector. And consumers, whether grudgingly or not, are voting with their feet – or cars, more exactly – by continuing to hit the drive-thru of their favorite Dunkin’ or other quick-service restaurant. Overall, “limited-service” chains have boosted prices by 6.5 percent over the past year, the trade publication reports, citing federal data. That’s more than twice the increase seen at full-service restaurants, which, as we all know, have been hit much harder by the pandemic.
“Consumers, for now at least, have been willing to pay it,” Restaurant Business notes. “Fast-food chains have all but recovered from whatever pandemic malaise they experienced last year as they cater to lines of cars filled with hungry customers.”
But are we talking about a permanent change to the pricing paradigm? Restaurant Business suggests what we are seeing here may be a more enduring shift, one that will outlast the pandemic. Consumers appear to be putting up with the higher prices – or simply shrugging them off – in exchange for the convenience QSRs with drive-thru windows are offering.
“Yet it’s also possible the industry has found itself a new pricing structure,” according to Restaurant Business. “Quick-service chains are realizing they have something consumers want: Convenience. And they’re realizing they can price for the simplicity of using their restaurants.”
Labor shortage intensifies in the quick-service sector
Another recent headline, this one in QSR magazine, presents the question most every franchisee will answer in the affirmative: “Is the Restaurant Industry Facing a Hiring Crisis?
The article details a number of drastic statistics and steps restaurant operators are taking to find people to work in their stores. It points out that at the beginning of 2020, only 13% of limited-service restaurant companies reported being fully staffed in hourly, non-management positions, underscoring the fact that turnover in the service sector was underway before the pandemic. For comparison, today 40% of all restaurants say they are understaffed.
QSR reports 80% of restaurant operators say they are now perpetually on the hunt for at least one crew member.
Without people, franchisees have few options. According to Landed, an online hiring platform for retail and the food sector, some restaurants have boosted the pay of back of the house line cooks by 18%. John Barker, the president of the Ohio Restaurant Association, told TV station WOIO in Cleveland what understaffed operators in the Buckeye State are doing.
“When you don’t have enough staff, you have to make compromises, and the compromises we’re seeing now is people do things like closing on Mondays or closing on Mondays and Tuesdays,” Barker told the station. “There are limited hours.”
It’s not just restaurants. Recently, the independent franchisee association representing 7-Eleven franchise owners publicly called for their corporation to rescind a mandate that all stores return to pre-pandemic 24-hour schedules. “Because of today’s extremely tight labor market, many franchisees will struggle to safely maintain a 24-hour schedule, and the company needs to acknowledge that,” the National Coalition’s Executive Vice Chairman Michael Jorgensen said in a press release.
Better off on the dole?
A key source of frustration for franchisees is the impact generous unemployment benefits are having on the workforce. The March survey by the National Federation of Independent Business reported record-high levels of frustration among small business owners, with 42% saying they have job openings they can’t fill, according the AP.
Armed with the extra $300 a week in federal unemployment payments, more than a few workers have done the math and decided they can make more sitting at home, or so the argument goes. Carl Howard, CEO of Fazoli’s, a fast-casual chain based in Kentucky, explained his view to QSR.
“If I was a kid and I didn’t really have a career path, and I’m 22, and I’m working at Fazoli’s where I’m trying to figure it out, and I’m making all this money to stay at home, I’m playing PlayStation till four o’clock in the morning. I’m not going back to work,” Howard told the magazine. “Are you kidding me?”
In Pennsylvania, the Republican-controlled legislature apparently agrees. State lawmakers are pushing a bill that would once again require the jobless to demonstrate they are looking for work in order to continue to receive benefits. Those requirements were suspended when the pandemic hit and the country went into lockdown mode. Under the proposal, the work-search requirement would kick back in on June 8, the Associated Press reports.
A number of states have already announced they are withdrawing from the federal program that provides the extra $300 per month to jobless people in every state. Mississippi and Iowa will stop on June 12; North Dakota and Alabama are pulling out June 19; South Carolina and Arkansas will stop June 26; Montana is withdrawing from the program on June 27, but will, instead, offer a one-time bonus of $1,200 to people who return to work.
“It’s a common problem, it’s a national problem, not in only our state, but I think our state has exacerbated the problem by not reinstating the work-search requirement and with the federal government now giving more money to people collecting unemployment, there’s not a huge incentive for them to go back,” said Greg Moreland, executive director of Pennsylvania’s NFIB chapter, told the wire service.
Battle Blazing Over Key Federal Labor Board
The pendulum is swinging again at the National Labor Relations Board, this time back to the left.
The Trump years saw the NLRB take an aggressively pro-employer stance, especially when it came to the controversial joint-employer issue.
Rulings by the Obama-era NLRB made it much easier for labor activists to demonstrate that a franchisee was effectively operating as an arm of a larger chain, or franchisor, with only nominal independence when it came to key issues like pay and working conditions. This, in turn, provided a potential roadmap to large-scale union organizing in the quick-service sector, with the potential to recruit workers across hundreds of restaurants at a time, as opposed to campaigning franchise by individual franchise.
In early 2019, the Trump administration altered the approach with the Department of Labor instituting a four-step process for determining whether a big franchisor is in fact a “joint employer.” It hinged on four key questions. Who has the power to:
- Hire or fire the employee?
- Supervise and control the employee’s work schedules or conditions of employment?
- Determine the employee’s rate and method of payment?
- Maintain the employee’s employment records?
Then last fall, the four-step Joint Employer test was challenged in federal court.
Now the Biden Administration is moving to undo that shift and move the NLRB back to the more pro-union stance of the Obama years. The DOL filed plans in March to begin the process of rescinding the four-part test.
As Independent Joe contributing columnist Peter Bennett writes in this issue’s Legal Corner, “Once elected, President Joe Biden made it clear he would make swift and sweeping changes at the NLRB in order to advance his pro-worker agenda.”
(You can read Bennett’s column, ‘What Employers Should Know About Biden’s New Mission For The NLRB’, on page 24.)
Despite the strength they have demonstrated throughout the pandemic, Dunkin’ franchisees continue to feel the sands shifting beneath them. Higher labor costs – prompted by higher minimum wages and a shallow applicant pool – are hindering many franchisees from operating their businesses at full capacity. Even as they contemplate raising prices, franchisees are also concerned that customers will be turned off by what is becoming a dwindling level of customer service. Additional challenges are staring them down as the federal government makes a concerted effort to enhance worker rights, likely at the expense of employers who are already operating at the thinnest of margins. Much is likely to change over the next six months. Keep your eyes here for additional insight to help you find more solid footing as you continue running your franchise.