The Deli Dilemma

August / September 2019 – In surveys and private conversations, deli directors report the strongest growth in their departments is the prepared foods offering, high service bars and specialty areas. It is exciting and inspiring.

But it may not be sustainable. These labor-intense areas have great appeal, but is the labor going to be available and at an affordable price?

Minimum wages have risen or will rise in many places across the country. Important competitive employers, such as, have raised minimum pay to $15 an hour, and many large retailers and restaurants have introduced all kinds of inducements to attract and retain employees.

A recent Wall Street Journal piece titled, “Restaurants Sweeten Pay and Perks to Find Scarce Workers,” highlighted the lengths restaurant chains are going through to get and retain employees beyond pay increases:

McDonald’s Corp. said it is using $150 million recouped from federal tax-code changes to expand its offering to pay for college scholarships for employees and their families. “That is a huge recruiting piece for us,” said Melissa Kersey, McDonald’s U.S. chief people officer…

Chipotle Mexican Grill Inc. last month instituted performance bonuses of a week’s pay for restaurant workers who help hit quarterly sales targets and other goals. Chipotle also expanded tuition-reimbursement earlier this year and extended some education benefits to employees’ family members. Chief People Officer Marissa Andrada said Chipotle has directed managers to discuss career development in their quarterly performance reviews for restaurant workers.

“It’s showing an interest in people beyond this hourly job they have,” Ms. Andrada said.

Noodles & Co. recently enhanced its parental-leave policies, while Mighty Quinn’s BBQ in New York is trying to bolster loyalty in its employees by rewarding top performers with manning the company’s food booth at concerts, co-founder Micha Magid said.

“You can go get a paycheck anywhere,” said Mr. Magid, who has hired about 25 workers so far this summer, up around 20% from last year.

Dave & Buster’s Entertainment Inc., meanwhile, is offering prizes to workers who sell more menu specials or game cards at the video-arcade chain.

And franchisees of chains including Applebee’s and Burger King have hired app developer ShiftOne to create an incentive system with the feel of a videogame that gives rewards such as free meals and more scheduling flexibility to employees who receive strong satisfaction scores from customers they serve, the tech company said.

Yet the real risk for deli departments may not be the inability to get labor or even the high cost of labor or the creativity necessary to keep the current generation happy in an age of full employment. These are surmountable obstacles, as the profile of what all the restaurant chains are doing shows.

The real problem may be the unwillingness of retailers to pay the price necessary to attract, train and retain high quality people.

The Street ran a piece that profiled the work of Wolfe Research analysts Scott Mushkin, Michael Otway, Cody Ross and Benedict Shim:

Wolfe’s analysts said that they are starting to notice a decline in staff at giant retailers in Houston, including Walmart, Kroger, Target and especially at dollar stores like Dollar General, and the impact it’s having on stores is disconcerting.

“Execution across retailers was wanting even for good operators like Kroger,” the Wolfe analysts said in the note. “Significant out-of-stocks were evident in the frozen and dry grocery areas at the supermarkets and Target while fresh food was largely the issue at Walmart.”

Wolfe’s analysts estimated that with the rising cost of wages in the U.S., retailers, even those performing better than most, are cutting labor costs to make a profit. But, the firm warned that “this can compound the sales problems over time.”

Nowhere is this truer than in fresh foods and high service departments. But the culture at many retailers is, of course, retail-oriented and focused on cost reduction.

To have departments in which these techniques of driving costs out of the system don’t work is alien to the way many retailers think. But to invest in having the people who make service a delight—and a differentiator—may well be the key to success in an age when most retailers will focus on cutting labor.   DB