Episode 8: Under Pressure – The Post-COVID Restaurant Labor Force

Alicia Kelso:
Welcome to the newest installment of revenue stream with RMS. My name is Alicia Kelso and I’m a senior contributor at forbes.com where I cover the restaurant industry. And today’s part one of a three-part series, I’m joined by a power panel to discuss the new pressures restaurant operators are facing as the world reopens. Joining me today, we’ve got Don Fox. He’s the CEO of Firehouse Subs, a role he has held since 2009. He’s actually been with Firehouse since 2003. Under his leadership the chain has grown to over 1,185 locations in 46 states, Puerto Rico and Canada. Don has 46 years in the industry including in both the quick service and fast casual segments. And he is well-known as an industry advocate. Welcome Don.

Don Fox:
Thank you, Alicia. Great to be with you.

Alicia Kelso:
I’ve got Nick Vojnovic also he is the president and majority partner of Little Greek, a Tampa based restaurant brand with 40 locations in Florida, Texas, Kentucky, Ohio, and Arkansas. Another familiar face, Nick. He was president of Beef O’Brady’s before buying into Little Greek and grew the brand from a few dozen eateries in the Tampa area. So more than 260 units in 23 states. Hi, Nick.

Nick Vojnovic:
Glad to be here. What a great panel and certainly honored to be part of this panel. I hope we can get some good discussions going.

Alicia Kelso:
And finally I’ve got Justin Pridon. He’s the vice president of consulting services with Revenue Management Solutions. He works with QSR, Fast Casual & Casual dining brands across the United States. Justin, happy to see you today.

Justin Pridon:
Thanks Alicia. Thanks for inviting me.

Alicia Kelso:
Yeah. Okay. Well, we’ve got an interesting topic that I’m sure everybody will lean into today as restrictions ease across the country. Obviously that’s a silver lining topic, but we have a major complexity that is sort of hindering that silver lining and that is labor. We want to talk about this. I read last week that our labor in the industry is actually 12% lower than it was in pre-pandemic times in the restaurant industry specifically, which poses a major challenge as restaurants try and get that cadence back. Don and Nick, I want to ask you both to get us started on this topic. How does the current labor situation compare in your opinion to historical trends?

Don Fox:
I guess I’ll jump in first. Well, it’s unlike anything that we’ve seen previously. [inaudible 00:02:51] the walk from the pandemic was unique in terms of its impact. It’s hard to draw a parallel to anything else. It’s not at all like the great recession which the time leading into the great recession was more in the, I’d say more modern memory. The last time we had a really super tight labor market, like ’06, ’07 and then the recession changed that. It actually made labor more available. It kind of worked in reverse. Now we had this change at the outset of the pandemic where, of course, depression in sales traffic, naturally a lot of people leaving the industry. And now with sales back to being fairly robust, I mean, just have people out of the market for a variety of reasons. I’m sure we’re going to talk about, it’s unprecedented and the solution is to try to get people back on or much different than anything that has proceeded us.

Alicia Kelso:
Nick, do you have anything to add?

Nick Vojnovic:
Yeah, that’s a great question. Certainly. Unfortunately, I’m old. I’ve been in the industry for about 40 years and I have to say, this is the toughest it’s ever been. The nature of the whole COVID and it kind of, in the past, as we had unemployment things, you can kind of see a coming, that employment kind of get going down and this will slowly get tighter. Here, it was like somebody hit a switch and COVID kind of opened back up. People were getting the vaccines, vendors are going out, sales jump, but as we try to reach staff they’re like, “We can’t go.” And so it’s definitely been a kind of a once in a lifetime event. We really don’t have a good play card with how to handle this. Right now everybody’s kind of just desperate and pulling out every string they can and just staff up. And we see restaurants not being able to open properly, hosts early, take days off because they just can’t provide the service to the customers.

Alicia Kelso:
Interesting. I’ve not heard that before, so I appreciate that. And it kind of explains why it seems as though a number of brands are pulling out all the stops to sort of stop the hemorrhage in here. Don, Firehouse, they’ve pulled a number of levers to fill thousands of open positions, including the national recruitment events. We’ve seen things like, as I mentioned across the board. How has that stuff worked out for you guys?

Don Fox:
Earlier on, and we’ve got a lot of PR attention for this when we announced a recruitment event and the recruitment event itself did not generate much activity as we would have hoped. We had some spot successes around the country, generally given the amount of press attention it received, it didn’t get returned. Where we really started to make a difference following that, and this goes back to about mid March. I pulled some strings in our company owned units. We have 39 restaurants we own and operate ourselves. We’re primarily franchise with most of those that we operate are in Northeast Florida. You have minimum wage here that’s about $8.65. It’s getting ready to go up in the fall to $10. But I pulled the trigger on a wage increase for the restaurants we operate up to $12.

Don Fox:
And that along with some other benefits that we layered in made a substantial difference. Our staff position for the restaurants we operate is substantially better than where it was. I might say too, and this is, I think, what we experienced in April in particular is somewhat reflective of the industry. April was the real spike in sales. Stimulus money came, that gave everybody a jolt. And that exacerbated the problem with the demand and on restaurants and the labor situation. Sales had moderated a little bit, we’re still up tremendously. Our two year comp is plus 26% versus 2019. Doing tremendous sales by any standard, but off of the pace that we were on in April sort of some signs of normal seasonality. It’s allowing us to catch up to them.

Don Fox:
The challenge that I have in my system is that I’m demonstrating these fairly aggressive practices to get our staffing in order, trying to lead by example of our franchise community. And this is a natural tendency. A lot of operators will look at the sales we’re experiencing right now and question whether those sales are going to be sustained. If I make an aggressive move on wages, now, am I going to regret it down the road? If my P&L can’t support it and sales retreat. So we’re spending a lot of time and energy on the analysis, looking at trends and really determining how much of the sales is embedded for the long-term. I can come back to that later, but I think it’s going to be incumbent upon every brand or operator to really look at that and try to … Forecasting for the future is more important than ever, especially if you’re planning on taking aggressive moves to deal with the labor.

Alicia Kelso:
Okay. And Nick, I want to just sort of ask how you’re able to sort of, as a smaller brand versus say, a Firehouse or some of these bigger brands that are pulling out all the stops offering, signing bonuses, free iPhones, college tuition in some cases. What are you guys able to do to sort of compete for that really [inaudible 00:08:31] labor pool.

Nick Vojnovic:
Well, that’s a great question. It’s tough being a small brand. We don’t have the horsepower and the ability to go head to head on a large scale. What we try to do is, our advantage though, is we are franchise on our operators. Each of our owners lives in the community. They’re real people, real families, they’re there longterm. Most of these bigger chains their managers that move around, they come and go, and you kind of bond with somebody and then next you know they’re gone. We try to use that local flare. And then the other part that Little Greek is, it’s a very fresh prepared items. Our level of sophistication on the food side is very good. So we do catch a more mature talented crowd that can appreciate what we’re doing, making scratch food items. And then we also have a tip share. A lot of our employees are making sometimes several dollars an hour extra, and sometimes we’re doing big catering, it would be substantial amount of money extra where it really supplements the income. Good local franchisees try to play all those cards to compete against big brands.

Alicia Kelso:
Okay, interesting. And Justin, you’ve got a unique perspective, not as an operator, but somebody who consults brands, franchisees and corporate teams. So I’m curious to know, how you’re helping operators with these unique challenges that seem to be pretty disparate.

Justin Pridon:
As Don and Nick mentioned, this has been a hot button issue recently. I mean, there’s been a number of headwinds that have affected everybody and differently as well, obviously regionally, each different type of group. So it’s been a really active conversation. And when we look to help I mean, we really rely on the partnership model. Really resonating to what the team was saying here, it’s not just what is going on right now, but how is this sustainable throughout the future? I’d say the starting point, and it may not be the most data related or we have data around it is, making sure that the guests and the teams are happy that burnout and that happy guests is always going to give you the flexibility to do most of the other things. So making sure that that is obviously the center point and it really speaks to then how we’re helping them, because a lot of the areas we’re looking as to what information we can get from the guest and that guest is going to be unique for each different operation and each different area.

Justin Pridon:
It’s how the occasions are changing, how we’re seeing even things like hours being necessary, or those shoulder hours to help that burnout principal and retain as much sales as possible. It’s really being dynamic into that transaction level and really focusing on the guest that helps all of these aspects. And that’s where we’re partnering the most right now.

Alicia Kelso:
Okay. Well, and I kind of want to springboard off of that a little bit because Don touched on this is obviously with this is coming rising labor costs by necessity, but we’re also seeing inflationary pressures. There’s a confluence of cost pressures in general for operators. Labor cost pressures are not necessarily new, but with this confluence, it seems to be exceptionally complex right now. In this environment, is there something new that you’re offering to sort of help tackle the situation?

Justin Pridon:
Well, I wouldn’t necessarily say new in this space, but I’d be remissed to talk about one of the ways and Nick just brought it up was looking at the pricing pieces and what might be available there as an opportunity to confront these headwinds. But it’s a very important thing to take into account strategically. Honestly, if I was to give some of those best tips when you look at it so that you’re still respecting the guest and making sure to plan for the longterm, it’s looking at it to be as granular as possible, respecting the differences in each different storage, different groups. So that way you’re able to customize as much as you can what’s available and what they’re willing to give credit for. Also, just being real with the need sometimes find that folks will really overestimate or not really deal with real dollars.

Justin Pridon:
And when you don’t do that, sometimes you overestimate and, like saying you can’t put the genie back in the bottle, very hard to unwind pricing if you take it too far to come back, you’ve already lost that gap. You’ve already lost the occasion. So you really need to be real and be thoughtful and selective. And finally pricing is just one of the levers. There’s lots of ways to address headwinds, emotional pieces, menu engineering, all of those other aspects. So it’s being creative, creating that excitement around it. It’s that holistic strategy that’s really the way we’d approach. And again, that’s what we’re seeing there. One last point, the great part is it’s been so evident to guests and everything, the labor shorten, some of these headings, you are seeing some of that credit back for the fact that it is a unique environment to do business right now.

Alicia Kelso:
Okay. What are the causes of this? I’ve seen everything thrown out there and the restaurant industry is not unique here. We’re seeing this across industries, hospitality, manufacturing, everywhere is affected by this labor challenge. Nick, I want to start with you. What are the causes and the struggle to fill these positions and how do you think this industry in particular can win those employees as everybody is pulling out all the stops here?

Nick Vojnovic:
Well, the causes are, I’ll think anybody knows it exactly, but certainly it’s kind of all of the above. Clearly the COVID took a lot of people on the market and moves more out, they geographically moved. They moved to other positions and then some are at home and some are making unemployment. That’s been a real challenge. You really need to almost pull everything out of the hat. And so you’re kind of 24/7 recruiting your neighbors, friends, customers, people you interact with, you have to constantly be out and about and trying to get folks in, and then you have to move quickly. We had a candidate who was a good applicant and the franchisee waited a day. You cannot wait a day to go get them. You have to be right on top of it. Get them in, get them hired, get them trained. We say hire slow, fire fast, but here we’re saying hire fast, I don’t know about fired right now if I say.

Don Fox:
I mean, there’s three main factors that are driving it and these have been discussed a lot in various circles, but one is the extended unemployment benefits. What’s very interesting virtually in real time is you have now 22 states have ceased the use of those federal funds. And already, I was just reading a article in the Wall Street Journal yesterday, already reporting the differential in the unemployment rate in those states. There’s been varied opinions over many months about the role that that plays. But I think it’s being proven out in real time that, yes, I mean, just logically it’s the fact, for now it’s being proven out in the data, but still have concerns about COVID and with every passing day that doesn’t go away.

Don Fox:
Just reporting in the last 24 hours talking about the Delta strain and the impact. I haven’t looked at the markets today, but the perspective impact on transportation companies today because of that is still so volatile. And there are still millions of people, potential employees that have legitimate concerns about their health or the very least are impacted by the psychology of the thought of going into a public facing environment. And they’ve taken themselves out of workforce. And then you have the, what I’ll call the mom factor. It’s well-documented that a disproportionate number of women are out of the workforce when it comes to the restaurant industry. I don’t have precise numbers, but I think most would agree that the restaurant industry, as part of service and hospitality, over indexes in the employment of women in especially line roles in restaurants, hotels, et cetera. And during the pandemic, when childcare was such an issue and childcare specifically as it relates to schools being out and people being in essence homeschooled or with computer, there needs to be custodial care of the children in that case.

Don Fox:
And some millions of households were faced with how they were going to manage that. And it just stands to reason that if a two wage earner household, lower wage earner of the two is the one most likely to draw the straw of being at home, to tend to the kids and offer the care while they’re attending school at home. And hence it ends up being the hospitality worker, which use towards the women. And there you have it, and it’s a major factor taking employees. Those are the three things. One of them as in the states where the extended unemployment as been polled, we’re seeing improvement there. Hopefully during summer with kids, students coming back into the workforce, that’s giving us some relief to the extent that children are not in school normally at this point, parents one would presume are back to their normal method of managing their domestic situation with kids. That should be a little bit more like normal.

Don Fox:
The big wildcard is what happens in September. School goes back in. That could be maybe the best wind in our fails from employment and school being back in normally. And then the wildcard is the state of COVID to the extent that people are still inclined to be out. That’s the one that I think at this point at least [inaudible 00:18:19].

Alicia Kelso:
Yeah. Okay. I kind of want to go back a little bit and we’ve touched upon all of these things already, but I want to take a deeper dive into solutions. And we talked about raising wages and Don you mentioned that you’ve done this at company owned stores, which you have more leverage to do versus your franchisees obviously, but is this the best solution? You said that you are having some wild success with that. How do you encourage the franchisees to jump on board? How do brands navigate those higher labor costs and is automation part of this conversation or is it just passing it onto consumers? What are your thoughts here?

Don Fox:
Automation is the toughest nut to crack. I’ll come back to that, I guess, last. But really I think in the franchise system, it’s demonstrating the business model for the franchisee. We show leadership, we take these moves, we show how it plays out on P&L, the pricing component is critical. Like the rest of the industry, we’ve taken much more pricing than we would in a typical year. The average restaurant is about two and a half percent per year. That’s normal inflationary adjustments on menu. Two and a half, 3%. It’s already been well reported that the industry was in a much higher level last year. And that’s continuing into this year. My own restaurants, we took a 6% increase, never have we taken that level. We took that at the end of the year and now we’ve taken another three when we made the labor moves.

Don Fox:
Quite extraordinary to take that level. But again, this is what’s so unusual about the pandemic. The consumer is flush with cash. I have less restaurant rivals by some estimates. Still 8% of the restaurant population is closed. They’re not all direct rivals competitors, but it doesn’t matter. We’re all in a battle for calories and serving calories. And there’s 8% less restaurants out there serving those calories. The dynamics are unlike anything else. In terms of price elasticity, it’s very favorable. I would submit that if a brand is in this environment had to, let’s say, continue to rely heavily on discounting to drive traffic, boy, that’s representative of some really deep problems that they have in their brand.

Don Fox:
It’s not because the marketplace is not there for that, the marketplace is supporting this. Now, that’s going to be transient. And I think that’s one of the important considerations to keep in mind. Right now there’s a lot of flexibility. The comment was made earlier. Sometimes that’s backing off price is not something that at restaurants traditionally do, it’s not like the grocery world where you go to commodities and you have to do it to be competitive, it’s a thinner margin industry. That’s not been the nature of restaurants. Maybe we’ll see that change because again most people have taken price to such an extent that if there’s a dramatic change in the consumer landscape, and if we’ve embedded in wage increases and so on, the models perhaps going to change quite a bit.

Don Fox:
What I’ve got to do, going back, I have to do with franchisees, I have to demonstrate it, walk the talk, show them the business model, how it makes financial sense, and I’ll lean back in something I said earlier. So much of what we’re doing is built on the premise that we can sustain these sales increases and further build upon them. That’s at the foundation of it. Frankly, if we don’t believe we can do that, then we’re making a mistake with some of the things that we’re doing. But I don’t. I believe there are very much embedded in it, hence the investment in the labor side to protect that. If the customers are fairly forgiving in this environment, because everywhere they go, they’re dealing with short gap situations and service may not be a typical level, and you run into the curmudgeon now and then, but by and large customers are pretty understanding.

Alicia Kelso:
And Nick, do you share this perspective, again, going to the big brand versus a smaller brand like yours. Is raising wages the best solution for your labor pressures?

Nick Vojnovic:
It’s definitely been a difficult time on labor. So we are seeing wages go up dramatically. And normally when restaurants get together, we would take the price hikes to reflect the increase in food costs. This is kind of a unique situation where food is going up and we’ve seen, for instance, our chicken double and all of our disposable, all the take out materials had dropped dramatically, gloves are so kind of crazy. And so not all we haven’t raised price to reflect the impact on food and our supplies, but also labor. I think you’re going to see a lot higher and faster increases that where people normally, every year we choose 3%. We’re hearing people talking five, 10% increases. And I think from what I’ve heard, the customers are not pushing back and then they get it.

Nick Vojnovic:
They see what’s going on in their world as well. I don’t think they’ll come down either. I think once ago, because for instance in Florida, they passed a law where over the next few years, our wages go from up to $15 an hour. The only way restaurants can stay in business is to increase their prices to offset that hit.

Alicia Kelso:
And I’m glad you brought that up because several months ago, pricing to cover delivery was was the big topic. And now we’re seeing pricing to cover labor. And so I kind of want to kick that over to Justin. What are the best pricing tips? Because it seems like there’s a huge snowball effect here. We’ll just pass it along. How do you offer pricing tips to protect transactions in the longterm?

Justin Pridon:
Great question. And everybody has been really active pricers recently. Again, with each headwind, each new piece folks have had to be really … We always talk about proactive pricing and folks are still trying to stay proactive while being active, which is a very interesting principle to look at while at the same time, it’s a really fine line between that need and opportunity. And that’s where we’re getting a lot of conversations right now is finding the balance between that need, the opportunity that may be available and then what that means for how you’re going to retain flexibility for pricing in the future and gets traffic when eventually everything does settle out to a much more normal environment. We talked about a few keys and I think they’ve been talked about as we were just going over these pieces, seeing what other folks are doing.

Justin Pridon:
Guard rails about food away from home and food at home can be really good pieces. Again, as active pricers food away from home, we saw go up almost at three and a half, 4%, almost 3.8% through April. And they keep moving that estimate up that three, I think it’s two and a half, three and a half right now. And would be surprised if you don’t see that maybe even go further depending on again, what type of headwinds and also these other factors that move and at the same time, guests are aware that this is happening because you see folks like the grocery business and everything reacting very quickly as well. They can be much more nimble. So that food way from home, they’re experiencing that that is more expensive as well. That went up again this last month another percent, it was definitely at a peak during some COVID timeframes.

Justin Pridon:
And it’s still predicted to be up at anywhere, maybe at a max of two and a half percent as well. And again, that might just be a ceiling that goes forward. We do some consumer surveys as well. Just try to track this and see what folks are thinking. And Don, you brought it up a number of times, the guest is aware of this, they’re planning to eat out more during the post pandemic, and we found that all of a sudden that Russia business we talked about moved up to about 31% in our last poll. And almost 60%, I think, we saw 58% and realized that they might expect that the increased cost of doing business meant that prices might be higher. I think he started to experience some of this and how delivery was getting higher and the burden that folks felt on the initial pieces.

Justin Pridon:
And this has carried over as we go. These are good signs to make it an active pricing environment, but it’s still that fine line and flexibility. It’s finding that piece so that you can still confront headwinds, but do so in a strategic way that you don’t move over a cliff too far. And then once everything does settle out a bit more, be fighting back for those occasions and share that eventually everyone does. It’s that leading by example, we’ve seen some of the best folks leading by that example of being proactive there and staying ahead of it.

Alicia Kelso:
Okay. And you transitioned into the interesting piece here, Don. I want to get your perspective on your brands consumer research. I mean, how much are consumers able to withstand these price increases? What is the long-term here?

Don Fox:
Yeah. So far so good. Obviously it’s all about that balance, where you’re setting price and what’s happening with traffic. Hey, I’d love to be able to smell $1 million hook and ladder and call it a today for the year, but no, not the way it works. We’re constantly, daily practically, and that’s one thing that’s interesting during the pandemic much more so than before the pandemic. We are constantly reading the thermometer on what’s happening all across the country, all across our system, literally daily looking at the numbers much more than we ever did. If we start to see signs that it’s weakening. And I should point out and say, what people have to keep in mind, this was so important, especially at the height of the pandemic. Customer behavior changed so drastically that you cannot look at your data in the same way that you looked at it before.

Don Fox:
Check counts, transaction counts of the vital one it’s been top of mind because at least in our brand, and I think this is true of most. The customer changed their bundling and what they were ordering, how they were ordering, consolidating orders. If you were looking simply at your ticket counts as the gauge or transactions, you were getting led astray. You watch traffic was down more than it really was. We realized early on, no people were consolidating orders. What’s the best indicator of how many people I’m feeding is how many sandwiches I’m selling. We totally changed our outlook and we started focusing on entree count instead of transaction count. Normally, when you’re [inaudible 00:29:06] more stable environment, I think most people, when you were assessing your comp sales, it’s usually very easy. You look at your comp sales in your comp traffic and the differential between the two generally reflects what your change in pricing has been. so on, so on.

Don Fox:
Plus one in curfew count, or it’s called transaction count. I’m plus five in sale. Yeah. I’ve got 4% built-in inflation. Yes. There can be other things that influence that, but for most brands, typically in a given year, not moving that many levers, it changed that dynamic, in the pandemic that’s completely different. Gross inflation in check average that had nothing to do with raising prices. It was all the change in bundling. At one point we went from a norm of about 1.47, I’d say about, it was 1.47, entrees per ticket to almost 1.8 at the peak bundling activity. And so the transaction count went way down out of proportion to it.

Don Fox:
Again, we would have panicked in completely the wrong direction if we hadn’t quickly latched onto that. And it’s still not anywhere back to normal when it comes to that. And for every brand, if I’m advising anyone, man, if you haven’t been paying attention to it, you have better pick apart your numbers and your analytics, and really figure where you’re at. And by the way, the comparison in terms of where you’re at. We benchmark now. Everything about consumer behavior and so on, we benchmark against 2019. Our sales growth, product and exchanges, differences in channels of trade. 2019 is the point of measurement in terms of really understanding how the brand has changed and evolved compared to pre-pandemic.

Alicia Kelso:
Yeah. It’s interesting that you had to change your entire approach to assessing the data and identifying that consumer behaviors are changing that rapidly and who knows what’s going to happen in three months from now, but Nick, are you seeing the same things with your brand in terms of sort of consumer tolerance for the levers that brands are pulling in terms of pricing?

Nick Vojnovic:
Yeah, definitely the situation now is, as we’re raising prices the key question will be at what level do customers start pulling back and maybe go buy groceries as opposed to going to restaurants to buy them. We are seeing our catering customer come back, which is a big plus. We did about 10% of the sales and catering. As folks go back in the office, we are seeing that increase, but it is kind of a question too, do people really go back to work like they used to pre-COVID where I’d be on Monday through Friday there are there and we’re doing catering events all days, we’re seeing it anecdotally that it looks like it might be more of a part-time deal. There’s still a lot of questions, we don’t really know exactly what’s going to happen and we’re just having to kind of take it day by day, or we did see a big increase on our deliveries as well. So we went from 16% to 31% with the Uber Eats of the world so that’ll be interesting to see how that plays out also.

Alicia Kelso:
Okay. Well, I do want to touch real quick. I know that we’re getting close on time here, but I want to touch real quick on something that was really quickly touched upon in the beginning of our conversation. And I think we’d be remiss not to talk about operations. Most brands across the industry are dealing with a significant labor shortage. What do you do? What operational changes do you make? Do you trim the menu? Do you trim your hours? How do you accommodate working with a smaller staff? And along those lines, what interests me is we’re simultaneously sort of mandated by customer demand to fulfill omni-channel needs that really didn’t exist before the pandemic. So there’s higher throughput in all these channels. But this intense operational pressure from staffing shortages. Don, give me a glimpse of what you guys are doing to sort of work this out.

Don Fox:
Yeah, there’s a couple of key aspects to this. One is now having these multiple channels of trade and the opportunity that creates for simultaneous order arrivals. And you get into the issues around how or if you throttle that in any way or are you actually restricting business? It is a complicated topic, frankly, which I have not seen a good solution for from anyone. I mean, you want to do as much as you can, not just even with the labor considerations. Yes, from an industrial engineering standpoint in your restaurant, what can you handle? Most restaurants are very linear systems. And when 90% of our business was being conducted at the front counter, at the POS with people in line, we can be very busy, but they’re all matched it up. People are in line. You’re managing your own expectation in terms of speed of service.

Don Fox:
And they see how long the line is. They make a decision. I mean, as operators, we’ve all had that bad feeling in the pit of our stomach when we’re behind the line and we see somebody opens the door, peeks there head and then turns around and walks out. But they’re managing their expectation for fee to service when they do that. It’s too busy and they’re not going to come in. But now we have these multiple channels of trade where the customer is oblivious to that, oblivious to how busy the restaurant is when they order for delivery or better or even more importantly, when they order online to come pick it up, they don’t know that you’re in the weeds when it happens, all they know is it better be there? And now you could have 10 people at exactly the same time placing orders on your digital channel outside of the restaurant, and hence the simultaneous order arrival, and then queuing that managing the expectation. It is extraordinarily complex and difficult.

Don Fox:
We’re still trying to figure that out and then of course you have the staff situation that complicates it. Now, one thing that we fundamentally changed in our brand though and it helps on the labor front, for many, many years, we delivered food to the table. And we also served our sandwiches plated, which is a little bit unusual for a sandwich concept. As far as the major QSR/ Fast Casual sandwich chains, we’re the only ones who really do it. We stopped doing it with the pandemic. Fortunately, we’d invested in packaging. We have an excellent sandwich carton that we’re able to lean into and initially the pandemic, I closed all the dining rooms. We had zero dining business. As those have reopened over time now our dining business is up to about 15% of sales.

Don Fox:
It was 37% before the pandemic. We’re not even close to being where we were, but we’ve maintained keeping all the product in To Go packaging, even though there’s costs associated with it. And we’ve remained staying away from delivering to the tables. We call the customer’s name and they take it themselves. And there’s some labor efficiency in that. What we’re finding through all of our metrics is that it is not at all compromising the guest experience. Certainly, we’re seeing no evidence of it or hurting us in terms of sales. Somewhat to my surprise, our ratings for food quality are better when it’s in the packaging than it is when we serve it plated. That was counter-intuitive. I did not expect to see that. And it’s maybe one of the key learnings from this. And there’s other advantages with staying in the packaging helps from a labor standpoint as well.

Don Fox:
Every order is getting prepared the same way. You’re not having to do it differently [inaudible 00:37:13] training. I think for many brands, I think everybody with the labor situation, you’re always searching for the ways to try to simplify things, make it a little bit easier, often easier said than done. Something I’ve always pointed out was that if we had opportunities to simplify things or to save labor, we’d already be doing it. So it’s not like we needed a catalyst for the pandemic. It’s always easier said than done, but it is at times of hardship like this, it is a very common question. What are you going to do? But again, we’re not in the business of just spending labor hours as a hobby. We’re always trying to economize it.

Alicia Kelso:
Well, I’m going to take that opportunity to jump back and I don’t know how willing you are to get in the weeds here, but yes, we’ve always tried to find that peniche if you will. But we didn’t really have the saturation of automation like we do, or like we are going to. I don’t know if that is even part of the discussion as one of those solutions at the very least, maybe not in the near term, but is that something that could change this conversation that we’ve always been having?

Don Fox:
Yeah, I think it always has the potential. The most common solution is with kiosks that so many brands have a break that, and there’s a labor component with the cashier labor certainly, and there’s other economic advantages too. It can be with selling and so on. But a lot of the automation, I mean, the closest we come is we have an automatic slicer that helps save some labor. But the restaurants themselves, the jobs are so tactile. It is not easy and it’s very expensive. If you’re really getting and sophisticated equipment, there’s a company momentum machines, there’s a [inaudible 00:39:23] creator. I’ve been an advisor too over the years and they actually have a operating restaurant now in the Bay Area. That’s about the most sophisticated concept I’ve seen that has actually a handle off hamburger production. It is phenomenal, amazing stuff, but that type of effort is still out on the fringe and I think very difficult for the typical restaurant to avail themselves.

Alicia Kelso:
Sure. Okay. Nick, I want to ask you what you guys are doing to strive for these sort of efficiencies with a smaller staff. Are you trimming menus or hours or anything of that nature?

Nick Vojnovic:
Yes. Definitely as we’ve seen this labor pressure come in, we’ve had to take positive move. So obviously we discussed raising prices. We’ve also looked into streamlining the menu. We do it locally to about 80% of our sales are chicken and you’re all eating on a pita, a platter on a salad. So we are streamlining dishes, we’re trimming back hours of operation. We’re trying to just make it as simple and easy to execute for our franchisees and for the staff as well. So it’s been a very tricky time. And you wonder sometimes too, ultimately, this is a good thing, as you’re kind of forced to be more efficient, we can really kind of focus on what we really do best and make it easier for stores to operate. So it’s definitely kind of a day by day kind of take it as we can. And so it’ll be an interesting challenge to see how it all kind of shakes out down the road.

Alicia Kelso:
Right. It is interesting. Nick, sort of along those lines, I do want to sort of wrap things up here because we did talk about some of the levers that brands are pulling to recruit in the challenging environment. I’m curious what you have planned to retain your existing employees, the ones that are sort of stuck around and especially as you ramp back up, are you going to anticipate retention changes, training changes, anything of that nature?

Nick Vojnovic:
Okay. Definitely, as soon as increase, we definitely have to spend more time making sure that we really focus on our employees and keep them happy and engaged. I think we talked about pay is like number four on the rank and why people keep the job. So you look at the appreciation, recognition and the opportunity to grow. And certainly with Little Greek, we do have the opportunity. We have some influence ultimately become key employees, managers, and even [inaudible 00:41:54]. Those are the things that our franchisees have to really focus on and make sure that they’re really going to bend over backwards to accommodate. We also see how a lot of employees, they want kind of custom schedules where they’re in school, or they want to work certain days and certain shifts. And in the old days you could say, well, this is it, today, you need to kind of work around that as best you can.

Alicia Kelso:
Great. Don, what’s the retention picture like for your brand?

Don Fox:
Not bad. I think we have a pretty good environment. When I think about our company restaurants in particular, of course across the franchise system with almost 500 franchisees, you’re going to get some variability. We always hope everybody embraces the same culture of the brand and it’s favorable, but it’s not always. I think intangible for us is the work we do in our community. So we get a lot of loyalty with our consumer base, especially [inaudible 00:42:46] both our consumer base and our employee base, but especially maybe our younger employees because of the work we do with our Firehouse Subs Public Safety Foundation, they get very motivated behind that. They were instrumental for the fundraising that happens in the restaurant. And we do various incentives through the foundation award and recognition for the top fundraising restaurants.

Don Fox:
And a lot of times it’s about the little things that we do. Certainly when we made the move at our company restaurants, going back to the key thing of wages, still that made a dramatic impression because we raised everybody up that in the restaurants too. That was an immense tangible way of saying thank you for their hard work. And like Nick had mentioned much earlier, our restaurants are very much dependent upon a core group of people that have been with us many times for years. It’s more the exception than the norm, but a lot of tenure and loyalty there and so they really appreciate a gesture like that with advancing their wages so much.

Alicia Kelso:
Okay. Thank you guys for the conversation. Before we let you go, I do want to pick your brain on one final question. Take advantage of the experience that you have in this industry. What is your blue sky thinking on how we overcome this potential long-term labor problem? Nick.

Nick Vojnovic:
Well, this is a really tricky question because our industry’s always been kind of a stepping stone for new people coming into the workforce. Folks who are coming from other countries, we are the initial industry that trains, who get folks show up on time, in proper uniforms. And I think that we need to continue to focus on that because that is kind of a unique niche that you don’t have to have a college degree, extensive experience. You just need to be a hard worker, honest and show up and we’ll take care of you and you can grow with us and you can have a career and have family.

Nick Vojnovic:
So I think that’s kind of our sweet spot for us is we need to focus on the building to train people, get them up to speed and to kind of develop them so that they can stay longterm and create a good work environment to where it’s a pleasure to go there. And that’s kind of part of the franchising background is, they built a connection with these owners and the owners need to kind of make these people almost part of the family. And you don’t get that at most companies. I think that’s kind of our blue skies. It’s not really a blue sky thing. It’s more of just a kind of stick to our knitting as far as what’s made us successful and how we’ll get there long-term.

Alicia Kelso:
Right. Okay. And Don, what about you, what’s your blue sky thinking about labor?

Don Fox:
Yeah. There’s a lot of different elements that go into it, but if I had to boil it down to one thing, if I could wave the proverbial magic wand and fix something, it would be the leadership culture in restaurants in general. We need, I’ll use the term enlightenment. We need more enlightenment and I’m speaking very generally, not just brands independence across the board. The restaurant industry is held in pretty high regard these days by customers, it really ranks up high in industry rankings. But as far as a place to work among employees, it doesn’t quite garner the same luster. And I think that can be changed.

Don Fox:
I think so much of it comes down to leadership. I remind our franchisees that there really is no shortage of people willing to work in restaurants. There is no problem because, let’s say the typical franchisee needs five people. Today within a 10 minute drive of that franchisee restaurant, there are thousands of people working in restaurants. The problem is they’re not working for him or her, they’re out there. And what’s the biggest barrier often? It’s the culture and the leadership at the end in the restaurant. I think that’s where we all could go to work and make sure that we’re better employers and that probably goes farther than anything to help ease the issue.

Alicia Kelso:
Sure. Well, I appreciate that answer. I appreciate both of your insight and throughout the past year and a half, we’ve seen restaurants willing to make deep significant changes and more agile than I’ve ever seen in 12 years of covering it. Hopefully we can make that change to overcome this labor issue. Thank you both so much. I’m sorry. Thank you all of you so much. I really appreciated this conversation and this hugely impactful topic. And to those of you, thanks for tuning in to the latest episode of revenue stream. You can find this recording online at revenuemanage.com or on RMS’ social media channels.