The restaurant industry is facing a battle on two fronts – the battle for labor and the battle for market share. While some chains are managing to keep their position amid rising competition, others are feeling the pressure. And while the war for market share rages on, operators are reporting quarter after quarter that it is increasingly harder to find qualified employees.

A tight relationship exists between unemployment and turnover rates. The huge swing in unemployment bodes well for job seekers. Operators, however, are facing the toughest labor market the industry has seen in years. Between 2012 and 2018, hourly restaurant turnover increased from 100 percent to 115 percent. Management turnover during that same period rose from 26 percent to 38 percent.

Two-thirds (69 percent) of restaurant employees are walking out the door voluntarily. Not only is this costly (the cost of turnover is about $1,900 per hourly employee and $14,000 for a manager), but it has huge implications from a consistency perspective. Maintaining the flow of normalcy for your employees and your customers becomes complicated when 40 percent of hourly employees are walking out the door within 90 days and 36 percent of managers are leaving within the first year (read: Five Reasons Your General Managers are Not Engaged & How to Change It).

The Battle for Customers Rages On

The industry has seen upward momentum since the third quarter of 2017 – sales and traffic are trending up. But even with the increase in sales, only 22 percent of companies across the industry are seeing positive traffic. There are a lot of forces at play in terms of where the customers are going, whether they are leaning toward meal delivery kits, shopping for their own groceries or dining at independents.

To offset the traffic decline, much of the industry’s increase in sales is coming from raising prices. “We saw price increases between two and three percent in 2018, which is not a sustainable recipe for growth. At some point, your customers can say ‘enough’ and look for alternatives,” shared Michael Harms, vice president of operations at Black Box Intelligence (formerly TDn2K). “For brands competing on value or price point in a commoditized industry, it’s a race to the bottom.”

On the market front, the brands performing in the top 25 percent are pulling ahead, a trend that has continued for over three years. A notable difference with these top quartile brands lies in their turnover numbers. Top quartile restaurants (those in the top 25 percent of brands tracked by Black Box Intelligence (formerly TDn2K)) are seeing turnover 11 points lower for managers and 22 points lower for hourly employees.

The Ultimate Payoff for Retaining Employees: Maintaining Consistency and Increasing Sales

These brands that are seeing lower turnover are rewarded in sales and traffic. Compared to brands in the bottom quartile, top performing restaurants are 7.2 percent ahead in comp sales and 6.9 percent ahead in comp traffic.

Black Box Intelligence (formerly TDn2K) data has shown that exceptional service is a huge driver of incremental sales and traffic. It stands to reason that brands struggling with keeping qualified employees will have a harder time maintaining high quality and consistent service standards. For those brands that want to win the marketplace, focusing on retaining top talent should be one of the first issues to tackle.