- Panera Bread loses close to 100% of its workers every year.
- For fast-food chains employee turnover runs as high as 130% to 150%, according to industry measures.
- McDonald’s is spending nearly $1 billion in 2019 to add ordering kiosks and other tech to stores.
- Some experts believe it is inevitable that fast food will be the first job sector ruled by robots.
If you think it sounds like a mathematical impossibility for a company to lose more than 100% of its workers every year, you’ve never worked in the fast-food industry. At fast-food restaurants, losing 100% of employees — and then losing still more of the employees hired to replace those workers — is a common, and worsening, labor problem.
The case of Panera Bread shows just how deep the employee turnover issue is for restaurant companies. Panera loses close to 100% of workers every year, and by fast-food industry standards that’s considered good.
“In the restaurant industry, turnover is 130%, turning over more than a full workforce every year,” said Panera bread CFO Michael Bufano at CNBC’s @Work Human Capital + Finance conference in July. “We are a little under 100%, but still a huge number.”
The official Bureau of Labor Statistics turnover rate for the restaurant sector was 81.9% for the 2015–2017 period, but industry estimates are much higher, reaching 150%, and the problem has gotten worse in recent years. “It’s definitely been going up,” said Rosemary Batt, chair of HR Studies and International & Comparative Labor at the Cornell School of Industrial Labor Relations.
Batt said decades of fast-food industry efforts to standardize and “routinize” jobs — take the skill out of them — has been intended to create turnover-proof jobs. “If you lose someone, it is not a real cost, because they are so easily replaceable. … The industry has thrived on this HR model of turnover-proof jobs for many years, because they could get away with it,” she said, through a slack labor market or absorbing the cost of high turnover. But that model is being stretched.
“Now turnover is absolutely excessive, and some chains are beginning to put numbers on the cost of turnover. I know some chains that are focused on it,” Batt said. “Because turnover is getting so serious and because chains have the ability to do the HR analytics, they can begin to cost out turnover and say, ‘This is not a cost we have taken seriously, because historically we were counting on high turnover model as acceptable.’”
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The cost of turnover
How much does turnover cost? According to Batt, the rule of thumb in estimating the expense can be broken down into a few simple parts: the time it takes a manager to hire a worker, the time it takes to train a worker, and the time it takes for them to become proficient on a job — in fast food, that is measured in one to two months, and during that period of time, half of the pay should be considered a loss. And there are less tangible costs: organizational disruption and team disruption.
“If people get beyond 90 days, turnover really drops, and so that’s why we make investments in technology and training in those first 90 days. It has a huge return,” the Panera CFO said at the CNBC event in Chicago. “Turnover and recruiting costs you money and is felt in the guest experience.”
Robin B. DiPietro, director of the International Institute for Foodservice Research and Education at the University of South Carolina’s School of Hotel, Restaurant and Tourism Management, says that six years ago, when she was in touch with Burger King, the average cost of turnover was about $600 per employee.
Cornell’s Batt said a survey of restaurants she helped conduct in 2013 put the cost of fast-food turnover at $1,600 per worker, and that was at a time when turnover was significantly lower.
The turnover cost estimates have kept going up.
The cost per employee now is estimated by the National Restaurant Association at $2,000 per employee. Those figures will vary by restaurant type as fast-food employees are still less expensive to turn over than those in upscale dining. Restaurant research firm TDn2K calculated replacement costs at $2,100 to $2,800. But all operators feel the pinch of the deepening turnover crisis, especially with a higher minimum wage, and higher recurring business costs.
“This is an industry issue across the board, and it’s getting worse with the labor market tighter,” said David Portalatin, NPD Group vice president and food industry advisor. “Restaurants will increasingly look to technology to solve the problem. Both technology to train and automate.”