Lisa Aragon just couldn’t get the headhunter to take no for an answer. Five times in a month, she turned down enticements, including higher pay and four weeks of paid vacation.
Aragon doesn’t work in Silicon Valley or on Wall Street. Far from it. She is a manager at a Wendy’s in Albuquerque, New Mexico. In 20 years, Aragon had never been pursued as aggressively as she had by the recruiter from the Pilot Flying J chain of truck stops, a major franchisee of fast-food restaurants.
“I told him, ‘I’m happy where I’m at,’ ” said Aragon, 41, who already looked forward to quarterly bonuses and a bump for her work as a trainer. “There’s no need for change right now.”
In today’s tight labor market, restaurants are embroiled in a full-on food fight over workers. The rank-and-file is winning referral bonuses, free meals and days off, and the scarcity of candidates may be raising the minimum wage without help from lawmakers. While good news for workers, it may not be for companies and customers. Restaurants will either have to raise prices or accept falling margins. Some stores’ service is suffering.
The U.S. unemployment rate was 4.7 percent in December, near a nine-year low. With its insatiable appetite for new workers, the fast-food business serves as a leading indicator of a labor shortage. In September, annual turnover for restaurant workers jumped to 113 percent, the highest since industry-tracker People Report began collecting data in 1995.
Andrew Puzder, President-elect Donald Trump’s nominee for U.S. Labor Secretary, will be acutely aware of the phenomenon. A foe of raising the minimum wage, he is chief executive officer of CKE Restaurants Inc., which owns the Hardee’s and Carl’s Jr. burger chains. Further intensifying demand for lower-skilled employees, Trump has promised to curb illegal immigration.
“It’s a hot job market,” said Michael Harms, executive director of operations at Dallas-based TDn2K, People Report’s parent. “Every employee, whether they’re 17 years old or 40 years old, has options.”
Aragon’s boss is already pulling out all the stops to keep employees. Over the last year, Eddie Rodriguez, who operates 177 Wendy’s in Florida, New Mexico and Texas, raised hourly pay by nearly a dollar, to an average $9.05.
Rodriguez gave referral bonuses of up to $250 to employees who found prospects. He offered more flexible schedules and used his own headhunters to find staff for his corporate office in Pompano Beach, Florida. He also makes sure he doesn’t take anyone for granted.
“Today’s employee, they want to feel wanted,” Rodriquez said.
Customers, however, may feel less appreciated. Rodriguez can’t find enough employees for the lunchtime rush, which means it takes longer to get a junior bacon cheeseburger.
Diners are also being kept waiting at Chipotle Mexican Grill Inc., which is trying to hire about 600 “crew members” for its U.S. restaurants. To be able to pay more, the company, for the first time since 2014, is considering raising prices in some parts of the country.
Chipotle is already paying an average $10 an hour. (For those inside the Federal Reserve looking out for evidence that the tightening labor market is sparking inflation, this could be exhibit A.)
Chief Executive Officer Steve Ells in a December conference call complained that the lack of well-trained workers has resulted in napkins left on tables, untidy drink stations and slower meals.
“We took our eye off the ball on the customer service side,” Ells told investors.
Restaurants aren’t just competing with the fast-food joint down the street. Wal-Mart Stores last year raised wages of more than a million employees to either at least $10 an hour or by 2 percent for those making more.
Casual restaurants such as Olive Garden-owner Darden Restaurants and quick-service haunts like Taco Bell are all struggling to hire.
“It’s as hard as it’s ever been to attract and retain great people,” said Greg Flynn, Chairman and Chief Executive Officer of Apple American Group, which runs Applebee’s, Taco Bell and Panera Bread restaurants.
Terry Smith, who owns three McDonald’s, said he has been able to avoid the crunch and maintain his staff of 150 to 160 employees with small perks such as free meals and paid days off. He also visits each of his restaurants every day, making sure he knows workers by name.
“I rotate through the restaurants and they see me,” he said. “If you treat them right and have a vested interest in them, they’ll stick around.”
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