How Marketers Can Mitigate the Effects of Labor Shortages in Restaurants

Key Takeaways:

• The labor shortage is hitting the restaurant industry especially hard. Nearly 7% of the food service workforce quit in November 2021 alone. Wage hikes aren’t enough to retain talented workers when inflation is driving up the cost of living. 
• Labor-saving automation and streamlined processes can have a negative impact on customer experience, and fail to drive new sales at scale. 
• Proven strategies, like restaurant discounts and deals, when combined with new technologies and precise audience targeting can get customers in the door in an on-demand manner that won’t sacrifice profitability or customer and employee experiences.

The restaurant industry was among the hardest hit when the pandemic struck in 2020. Forced closures, costly new mitigation measures, and changing consumer behavior led to the shuttering of over 110,000 restaurants. 

Restaurants are recovering from the worst of the Covid crisis, but the danger is far from over. Once-in-a-generation rates of inflation, intractable supply chain snarls, and an acute labor shortage are all eating away at razor-thin restaurant margins. 

Cardlytics analyzed current market trends and reviewed alongside our purchase insights. Here’s what we learned about the true size and scope of the problem, the effects of the restaurant labor shortage, and what brands can do to grow their margins without sacrificing the customer or employee experience.

The labor shortage and inflation go hand-in-hand

Restaurant employment is down 8% from pre-pandemic levels, a loss of over a million employees, and the Great Resignation is still picking up steam. A record 4.5 million people left their jobs in November 2021, including 6.9% of the food services workforce. 

So how did restaurants respond? By increasing wages. Roughly 60% of employers raised their wages at least twice during 2021. Nearly 30 percent of hospitality brands expect to raise them at least twice in 2022. 

But workers say it’s not enough. Wage gains in 2021 failed to offset the loss of purchasing power caused by record inflation. Even with larger paychecks, monthly budgets keep getting tighter. 

As a result, over half say they expect to find a higher-paying job in 2022, and 25 percent plan to leave the industry for another line of work entirely. It’s clear that restaurant brands are unlikely to solve their labor shortage woes with wage hikes. 

Labor-saving processes and technology may not be enough

With no end to the US labor shortage in sight, restaurant brands are investing in labor-saving technology to bridge the gap. Most major brands have already implemented streamlining solutions, and half of US restaurants plan to invest even more over the next three years. 

These new technologies run the gamut from self-service order terminals to automated smoothie kiosks and even voice-based artificial intelligence for drive-through customers. Soon, technology could even take over simple back-of-house duties like dishwashing. 

Restaurants are also turning to pared-down menus that eliminate labor-intensive entrees. The average menu item count has dropped 23 percent compared to pre-pandemic levels across all restaurant categories. Thanks to the twin pressures of the supply chain crisis and the labor shortage, it’s a trend the National Restaurant Association expects to continue throughout 2022 and beyond. 

Restaurants today are surviving, not thriving

Inflation has been especially brutal for the restaurant industry. Ingredient prices and labor costs have skyrocketed over the past year. To protect their margins, restaurants responded with modest price increases of between 2 percent and 5 percent on average,well below the current rate of inflation. 

Dining out is a luxury and a convenience, two things consumers are quick to shed when budgets get tight. This makes them especially sensitive to price increases. Instead of raising prices, some restaurants are trimming portion sizes or promoting cheaper plant-based proteins as an alternative to scarce and expensive meat. 

But labor-saving processes and price increases often aren’t enough to protect tight margins. By embracing digital promotions and advanced customer targeting, restaurant brands can look beyond brick-and-mortar economies and find innovative ways to generate new revenue. 

Cardlytics can help mitigate the effects of the labor shortage

Our insights suggest that promotional offers can be the determining factor when customers decide whether and where to eat out. Deals and discounts even outweigh recommendations from family and friends when it comes to trying new restaurants. 

What customers say about restaurant deals

• 54% say deals encourage them to try new restaurants
• 51% say deals and discounts are important to them to save money on restaurant visits
• 54% will spend more at a restaurant if they have a discount

Of course, coupons and other discounts are nothing new to the restaurant industry, but mass mailings in the current climate run the risk of over-extending locations already struggling with labor shortages. Success in driving new customers without a throttle can have a disastrous effect on customer and employee experiences, harming your brand in the long run. The other downside with mass mailers is that the people most likely to use them are the ones already coming anyway, and have already been paying full price.

Cardlytics’ customized campaigns let you precisely target customer segments you want, when you want, and for your desired locations. By excluding existing customers, you can focus your promotions on attracting new customers. At the same time, Cardlytics lets you spread the campaign impact over a longer period of time, allowing you to ramp up or down the promotion to ensure your locations aren’t overwhelmed, thus reducing the strain on your staff. As an added bonus, your restaurant stays busy, ensuring a steady stream of tips for your hardworking waitstaff. 

Get in touch today to see how Cardlytics can help you grow your customer base and boost sales with measurable incremental returns on ad spend.