Listening to the latest earnings calls from the public restaurant franchise companies, you’ll hear two things: labor is a top concern and also labor issues will ease sometime soon.

Wendy’s CEO Todd Penegor said the brand is doing well with employee engagement, but staffing continues to cause issues.

“... We got to run a little bit overtime to make sure we’re staffed appropriately. You do see a few pockets outside of kind of core dayparts where the dining room may be closed a little bit,” said Penegor.

Wendy’s CFO Gunther Plosch said labor costs have ticked up about 5 percent year over year and the labor challenge is causing a commodities spike, too, for a one-two punch. Plosch said commodity costs are projected to tick up 2 to 3 percent. Many companies have contracts to hedge inflation, but they expire soon.

McDonald’s CEO Chris Kempczinski said labor costs fall in the same range for corporate locations and are up about 5 percent though the year, but “we’re getting close to full staffing levels.” Incentives such as free childcare and sign-on bonuses are helping, but they’re also affecting the business.

“We’ve improved service times over the last few years by about 30 seconds. More recently, we’ve seen service times decrease about three seconds. So, we don’t love that,” said Kempczinski.

The company raised prices 6 percent year over year to manage increasing labor costs.

Denny’s CEO John Miller, meanwhile, said he expects these employment issues to ease this fall. But what if they don’t?

Rob Kaplan, president and CEO of the Dallas Federal Reserve, is skeptical that labor issues are as transitory as some industry leaders and economists think.

Labor force growth “is decelerating due to aging; we felt that pre-pandemic. That trend is alive and well,” said Kaplan during Bloomberg’s “Odd Lots” podcast. “I think that supply-demand imbalance is going to be more persistent than people expect.”

He pointed to ongoing issues around COVID-19 fears, caregivers not in the typical workforce and the retirement trend continuing. The Fed, he said, doesn’t have many tools to solve supply issues like this. Productivity gains, while great anecdotally across industries, aren’t alleviating the labor headaches across the economy.

How many quarters can companies sustain such labor increases before raising prices simply doesn’t work?

comments powered by Disqus