On this episode of Industry Focus: Consumer Goods, Vincent Shen is joined by Fool.com contributor Daniel Kline to discuss the ongoing challenges of staffing restaurants and how labor demand will change with the growth of technology.
Plagued by high turnover and more competitive wages in other parts of the retail industry, major chains will have to increase their appeal as employers for the time being before automation potentially removes the problem entirely.
A full transcript follows the video.
This video was recorded on May 16, 2017.
Vincent Shen: An overarching theme, in terms of some of the technology we've had, eliminating the need for an employee, or someone to actually be the cashier, to be the server, also maybe minimizing some of the inconsistency that you can get in terms of the service experience. I want to end the show, though, on a bit of irony. You brought this up before we filmed, and I thought it was really interesting. Some reports that we have from insiders in the fast food industry, various recruiters for these companies who are running into a lot of problems, actually, staffing restaurants, and reducing some of the turnover that we see, which is at record levels right now, and keeping well-trained employees there. The management team at Chipotle, for example, has spoken about how they lost sight of that service side, about keeping restaurants clean, keeping the beverage and fountain machine clean, napkins off tables, trash off tables. I just thought it was interesting that, on the one hand, if you look out 10 to 20 years, you have this idea that you're going to eliminate the need for these employees entirely. But right now, even as they're testing things like these kiosks and tablets, which help eliminate the need, they're also running into issues keeping the restaurant staffed. The median wage for fast food work in this country is $8 to $9 per hour. But Wal-Mart, just two years ago --
Dan Kline: Went to $10.
Shen: -- went to $10 across the country. Across their entire network of stores, at the minimum. They're running into this competition across all of retail.
Kline: And I think you're seeing a justification for the companies that invested in employees. If you look at a Starbucks, which has healthcare and the college benefits, their turnover is less. I worked in retail, I ran a store. Just teaching someone all the procedures to run the register took months before they were good at it. If you're integrating someone onto the line at Chipotle, or working the fry later and knowing the procedural manual to clean the shake machine at McDonald's, which is horrifying, my wife having worked there in college -- that's not ice cream. But there's a huge opportunity cost. If you have been paying better all along, you might have actually been able to do it with less workers. Now, you're seeing a bit of a hierarchy. If I'm a worker at Dunkin' Donuts, I might be able to get hired at Starbucks, which will treat me better. If I'm a Taco Bell worker, maybe I can go to Chipotle or Starbucks.
And you're going to start seeing the bottom of the chain -- during the last time we had a boom economy, my wife and I used to joke that you would go to the Dunkin' Donuts and the people working there would just point, and you wouldn't get what you wanted, but eventually they would get to something you like, and you would just take that anyway. And you're going to start to see real differences in service. As a country, you can argue what full employment means. But on a technical basis, we're at full employment, or right close to it, meaning there's not a huge pool of people -- there might be lots of people looking for better jobs, but there's not a huge pool of people looking for entry-level jobs. So you're going to start to see more teenagers. Starbucks doesn't hire a lot of 16 year olds in most markets. But you're probably going to see people like that, younger people, get some of these jobs, which can be good, but it's also a training issue, it's a scheduling issue because they can only work so many hours, they can't work during school, they can't work late at night. This is going to be a major factor, and for successful chains, it's going to force automation.
Shen: Yeah. And we've talked before about how, ultimately, labor costs for a lot of these major chains, as much as 25% to 30% of their cost structure is there. It's interesting, trying to see them commit to this balancing act that they have, of making sure that right now, where they're not at the point where they can automate everything, having their employees be trained well, making sure the service experience is positive, and keeping customers coming back.
Kline: I think if you're a worker -- I'm not 15 anymore, but I have a 13 year old child, and if he told me he wanted to be a manager someday of a restaurant chain, I would tell him to look at the ones that have a commitment to people. Starbucks has endlessly said and proven that with automation, they're not looking to replace workers, they're looking to shift the labor flow into production, meaning that there's always going to be an art to building a latte. Yes, you can go to Wawa and get a latte made by a machine, but that's not the same as one built by a person. If Starbucks is saying, "Yeah, we may not have order takers who are people, but we're absolutely going to have customer service and baristas and product experts, and we're going to put in these upscale bars, and you'll be incentivized to learn more about coffee," well, those are the chains that are going to attract whatever worker pool there is. And I think McDonald's is going to automate, because it's a difficult job, there's some upward mobility but it's still a hot, sweaty, unpleasant place to work, for the most part. It's all going to sort itself out, as long as the economy stays strong.
Daniel Kline has no position in any stocks mentioned. Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool has a disclosure policy.