The restaurant industry is one of the largest and fastest-growing sectors of the national economy. In 2009 it accounted for $277 billion of U.S. Gross Domestic Product and employed nearly 1 in 12 private-sector workers. While the industry has grown rapidly, its long-term stability is threatened by poor job quality. Restaurant workers have the lowest wages of any occupational category, and 90% of restaurant workers do not receive paid sick days, paid vacation, or health insurance through their employer. Moreover, there is often little career mobility and racial segregation keeps people of color disproportionately in the lowest paid positions. These factors increase employee turnover and decrease employee loyalty and productivity, which in turn reduce the quality of food and service. Moreover, restaurant patrons are exposed to contagion when workers cannot afford to stay home when sick.
Illustrating the direct link between job quality and the long-term success and stability of a restaurant, this report provides concrete examples of restaurateurs who have created “win-win-win” solutions for workers, diners, and employers alike. Other restaurant employers can learn from the experiences and insights of these successful business owners.
What does turnover really cost the restaurant?
Turnover is widely recognized as one of the major costs in the restaurant industry – increasing costs for recruitment and screening, training, uniforms, admin, and unemployment insurance not to mention its negative impact on team morale, trust building, and relationships with regular customers. Studies place the cost of turnover between $4,000 and $14,000 per employee turnover, and the National Restaurant Association has placed the cost at $7,000, in current dollars.10
What is the High Road?
Employers defined the “high road” as employment practices that support workers and unleash their loyalty, creativity, and productivity to make the restaurant successful. High-road employers emphasized that the benefits of increased productivity of invested long-term workers and the reduced cost of employee turnover outweigh the short-term costs of high-road practices.
While specific practices varied, these “high-road” policies fell into the following three areas:
1. providing livable wages
2. maintaining a healthy workplace through paid sick days, vacation, or health insurance; and
3. creating career ladders for employees through training and internal promotions policies
The following provides information on some of the high road employers featured in the report:
EL FUEGO - Quick Serve – Philadelphia, PA – opened in 2009
El Fuego is a quick-serve “burrito joint” that prides itself on local ingredients and great service. Their operating philosophy is, “If I watch your back, you watch mine.” This philosophy covers staff, customers, and the surrounding community.
- All workers currently earn $9.50/hr or above as a quick serve restaurant. All workers start at $8.75/hr and receive a $.50 raise after completing the 3-month trial period.
- All workers are able to receive paid sick time as half pay for missing a shift or for family or childcare reasons.
- Turnover costs are low. Workers average 5 years tenure. This retention has also helped customer loyalty.
El Fuego says their sick day policy works because it shows the restaurant cares about its employees. Ishem, a counter worker at El Fuego for three years, has benefited from the sick day policy and has repaid through his work ethic. “There was a time when I had bronchitis pretty bad, and I couldn’t work. I got half a week’s pay… and that was really cool. I tried to make it up to them. Later on I went the extra mile as part of my work. … That’s what makes this place a really healthy work environment.”
Peter explained that even though there is no formal cap on the amount of paid sick days that employees can use, “people don’t abuse it. …To be honest, the employees here are so honest. … [It doesn’t] affect the profit of the business.”
Peter asserts that having low turnover and such an experienced staff has been invaluable to the restaurant. For example, El Fuego is able to shave off $300 a week in food deliveries through portion control. “The guys in the back have eyes on it. They’re really good judges, ‘There’s way too much chicken going out today.’ They look out. Then I can talk to the guys up front.” Low turnover has been beneficial because experience is necessary to gauge portions. The front of the house takes at least six months “to get acclimated. … It just takes so much repetition. Even the way we scoop the food, someone new, they don’t know.”
ZINGERMAN’S - Upscale Family Style – Detroit, MI – opened in 1982
Zingerman’s Roadhouse, part of the Zingerman’s Community of Businesses (ZCoB), is a casual fine dining restaurant serving American cuisine. It was opened in 2003 in partnership with James Beard Award-winning Chef Alex Young. The first Zingerman’s business was a delicatessen opened in 1982 by Paul Saginaw and Ari Weinzweig with two employees. Since then, Zingerman’s has grown to nine businesses employing over 575 workers and garnering over $40 million per year in revenue. The company has won a number of accolades, including “the coolest small company in America” on the cover of Inc. magazine.
- In addition to fair wages, benefits include subsidized health insurance, paid sick days, paid time off, and matched 401k contributions.
- Employees receive above-average wages, and raises are given with increases in performance and responsibility. Open book management in conjunction with a profit-sharing “game” is used to give workers the tools, knowledge, and incentives to make the business successful.
- Providing ample training and opportunity for advancement has been key to making productive workers that will then stay at the restaurant. Growing the company has helped provide opportunities for advancement.
- Greater diversity at all levels has become an explicit goal in the 2015 vision and a diversity committee has been charged with helping the company achieve their goals.
- Zingerman’s built benefits into its business model from the very start to properly plan for pricing and volume and revenue goals.
- Zingerman’s started as a two-employee deli in 1982 and has grown to an award-winning company with 9 businesses employing 575 workers and over $40 million per year in revenue.
Paul explained that offering benefits was never easy but the payoff was worth it in the long run in: “ What do you get from it? You get a stable workforce. You get a workforce that can stay healthy. You get someone that feels good about the company and is out there trying to help the company be successful. The benefits are enormous. So now you figure out how to make it work. I don’t know what else to tell you. You try different things: What if we sell this product instead of this product? Can we have 15 people instead of 20 work a little harder, but have these benefits? All the levers are out there. Your strategy and how you manage is going to determine whether you’re successful or not.”
NEYOW’S CREOLE CAFE - Family Style – New Orleans – opened 2009
Tanya’s restaurant of over a decade was closed by Hurricane Katrina in 2005. In 2009, she reopened with a new name and location. Neyow’s Creole Café, with its quirky but charming dog-themed décor, has seen a steady rise in business over the last two years due to great service, great food and workers who are highly invested in the restaurant.
- Employees are provided regular performance-based raises and bonuses as
business revenues increase as an incentive to make the business better. Most bonuses and raises go to kitchen employees who do not directly see increased compensation through tips when business increases.
- Labor costs are fixed as a percentage of total revenue.
- Workers are cross-trained across different floor and kitchen positions as they are given more responsibility. Workers also have the opportunity to move between front and back-of-the-house positions.
- All job openings are advertised to employees inside the restaurant first. Six out of eight full-time employees have been promoted.
- Turnover costs have been low. Only one worker has quit.
- Business has steadily increased over the two years of being open and 80% of their guests regularly return. The owner has also been able to decrease her own working hours significantly by building a skilled and trustworthy staff.
Wendell, who has worked with Tanya for two years at Neyow’s and eight years in her previous restaurant, appreciates that the rewards of the restaurant’s success are shared with the workers. Aside from the bonuses, he has also received raises. Two years ago he started as a fry cook at $10 per hour. He was given a raise to $12 per hour after his probationary period, and now makes $15 per hour as head cook. He explained that incentives such as bonuses and raises when revenues increase help to motivate everyone in the restaurant to work harder. “We can tell the volume that’s picking up. I see the books. We all see the numbers. As the business grows, Tanya tries to make sure that we get a little bit of that too. … That’s what most places don’t do. It’s frustrating [when business is growing and no profits are shared with workers]. Then you ask “why am I working so hard?” Wendell summed up the work ethic in the restaurant. “If Tanya’s getting it [profit], we’re getting it. So we make sure she keeps getting it.”
Sponsored by The Ford Foundation.
Read and/or download the full report here.