The Labor Crunch Is Complicating Restaurants' Recovery

Atlanta restaurants have bounced back from the depths of the coronavirus pandemic, but operators are encountering a new problem: finding enough workers to staff their eateries. 

Hiring issues are complicating restaurateurs' efforts not only to expand during this recovery, but also fully open existing restaurants to capacity.

“We hear tenants all the time [say] they can't open regular hours because they can't find people to work,” said Jeff Fuqua, a prominent retail developer in Atlanta. “They can't even find people to deliver food. It's had a pretty dramatic effect.”

Restaurants and hotels have been among the hardest-hit businesses over the past year. In January 2020, 235,500 Georgians were employed at food service and drinking establishments, according to the Bureau of Labor Statistics. By April, that number dropped to 132,700. Roughly 4,000 restaurants in the state shuttered permanently during 2020, according to the Georgia Restaurant Association.

By March, roughly 200,000 workers were back at Georgia restaurants and bars, nearly 13% fewer than prior to the pandemic. The delta, even as the state's capacity restrictions have been lifted, is feeding angst in the industry. In a recent GRA survey, 78% of members said they are having trouble filling job openings.

Industry experts point out various reasons why restaurants are struggling to hire new workers: safety fears, extended federal unemployment benefits, which some believe are encouraging workers to stay home, a lack of available childcare and workers leaving the industry altogether. Those factors are colliding with restaurants' push to hire workers back or grow to meet a year's worth of pent-up desire to eat and drink out.

“That's the majority of the reason that we're unable to add more tables. In most of our businesses, we could not operate our restaurants at 100% capacity,” said Federico Castellucci, CEO of Castellucci Hospitality Group, which operates The Iberian Pig, Cooks & Soldiers and Sugo. “That's how bad the staffing issue is. It's the worst it's been in my career.”

Restaurants have transitioned out of survival mode as patrons have returned to eateries across the nation. Restaurant sales jumped nationally 13.4% from February to March, according to the National Restaurant Association, with sales overall rising $11B from December.

With this recovery, retail real estate owners are looking to restaurateurs and operators to take spaces emptied out during the pandemic. But some developers are finding that restaurateurs are struggling to commit to new locations because of the labor crunch, Fuqua said.

“They may not want to take the space until they can get people hired, and that's really not good for us,” he said.

Landlords who spoke to Bisnow say most of their existing restaurants are back to paying full rent, but when discussing new leases, months of free rent and tenant improvement packages are similar to those that were offered prior to the pandemic.

“I haven't seen a whole lot of change at all in terms of landlords' attitudes,” The Shumacher Group President Peter Kruskamp said. “I haven't seen any rents come down either.”

Average asking rents for retail space in Atlanta are actually up 5% over the last 12 months, according to Avison Young, while vacancy has ticked up 30 basis points. Restaurateurs on the other side of the table have asked for other considerations when negotiating leases that are aimed at addressing their labor issues.

Coro Realty President Robert Fransen, whose firm owns 400K SF of restaurant and bar space in its retail portfolio, said more tenants are requesting free rent or rent as a percentage of overall sales to give them time to ramp up new operations as they work through staffing issues.

“I have not seen us lose a deal because the guy or girl was worried that they couldn't staff a restaurant,” Fransen said. “It was really more about how quickly could they scale up.”

To attempt to get workers back to restaurants, operators are pushing up hourly pay and benefits, National Restaurant Association Senior Vice President of Research Hudson Riehle said in an email to Bisnow.

To attract prospective employees, Castellucci said his firm has raised hourly rates by upward of $3 an hour and is offering $300 referral fees to employees and $300 signing bonuses to new hourly employees. 

“We're doing signing bonuses for line-level employees, that's something we've never done before,” Castellucci said. “It's brutal. It just reduces already thin margins because our sales are not where they used to be.”

Toby Franklin, the chief operating officer of Rocket Farm Restaurants, which operates Superica Tex-Mex, The Optimist and JCT Kitchen & Bar, said just raising pay may not be enough to lure people back to the industry. Instead, restaurateurs are going to have to focus on things like consistent schedules for employees, especially those with children. Women comprise more than half of the restaurant workforce in Georgia, and comprise 71% of servers, Georgia Restaurant Association CEO Karen Bremer said.

“I don't think chasing the short-term wage is enough. That kind of smacks of desperation,” Franklin said. “In order for things to sort of return to normal, we have to take care of the people we do have first, and through that process, make ourselves more attractive to those who are choosing not to return to work.”

Some restaurants and landlords are playing a waiting game when it comes to expansion, hoping that the labor crunch eases as employees return to the workforce once expanded federal unemployment benefits expire in September.

CIM Group Vice President of Leasing Nick Garzia, who is working to lease up the retail space at the giant Centennial Yards mixed-use project in Downtown Atlanta, said he sees the labor crunch as a temporary issue, one that may resolve itself as expanded unemployment benefits expire. Restaurant operators are not expressing labor concerns when talking to CIM Group for eateries that would open in 2022 or later, he said.

“I'm not worried about our ability long-term to make restaurant deals, because there's a little bit of a discrepancy in the market right now,” Garzia said.

Other than a small sushi restaurant Castellucci said he is planning to open in Atlanta's Westside this year, the firm is pushing other new restaurants out beyond this year. As of today, Castellucci said it would be "impossible" to open, say, another Iberian Pig location because of the staffing crunch.

“As we're looking at new locations for The Iberian Pig where we need 40 to 50 staff members, those will be 2022,” he said. “I'm essentially betting that the unemployment is going to run out by the time we are going to start to open new restaurants.”