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Denny’s Is the Latest Brand To Suffer From Growing Labor Shortage

With increased unemployment benefits and ongoing COVID-19 health concerns, franchise operators are having a hard time finding employees, and it's stunting their pandemic recovery.

As restaurant sales pick up around the country, several chains have reported suffering from a labor shortage as they struggle to hire enough people to handle the incoming demand. Specifically, operators that are looking to stay open all night are finding it increasingly difficult to find staff for all 24 hours, despite high unemployment rates.

During the brand’s Q1 earnings call on Tuesday, Denny’s executives said that the lack of workers has prevented over two-thirds of franchisees from resuming 24-hour operations, a primary source of revenue for the diner chain. 

“We can't even find the individuals to interview,” said CFO Robert Verostek during the call, noting that the chain needs to hire 20,000 people systemwide. 

The inability to stay open all night is having a significant impact on the chain’s post-pandemic recovery. The Denny’s locations that were able to operate 24/7 reported April sales were 11% higher than pre-pandemic levels, while comparable sales at units closed at night fell 11%. In Q1, Denny's same-stores were down 20% from the same period of 2019 and 9.7% from the first quarter of 2020, according to the earnings call.

Earlier this week, 7-Eleven franchisees reported a similar labor shortage issue, asking their franchisor to suspend 24/7 service because they can't find individuals willing to work the graveyard shift. 

While it is hard to pinpoint a specific reason for the growing labor shortage, stimulus checks and increased unemployment benefits could be disincentivizing people from returning to lower wage work. In addition, in the restaurant industry specifically, many employees may feel concerned about the health risk — the CDC released a study in March showing COVID-19 illnesses and death rates are higher in areas that allow on-site restaurant dining.

According to a One Fair Wage report released on Wednesday, the top three reasons restaurant workers are leaving their jobs are low wages and tips (76%), COVID-19 safety concerns (55%) and concerns over hospitality and harassment from customers (39%).

To compensate for some of these issues and attract new workers, many restaurant brands have been rolling out increased benefits. Chipotle, for example, announced it would be offering $6.5 million in discretionary bonuses to managers, apprentices and field leaders last year. Whataburger is offering its general managers bonuses of up to 150% of a manager's target incentive and six-figure salaries. 

Raising the minimum wage could be another way to incentivize employees to return to work, but many operators, including Denny’s stakeholders, argue that right now is not the right time to put more pressure on restaurants’ bottom lines.

In addition to looking for new employees, brands have been finding ways to maximize the efficiency of their established manpower, most notably through the use of virtual brands and ghost kitchens

Late last year, Denny’s rolled out two new virtual brands — The Burger Den and The Meltdown. Around 1,100 domestic Denny’s units are now offering the delivery-only Burger Den menu, and The Meltdown has been implemented by about 175 stores. Traditional Denny’s operations are focused on the daytime, but since 70% of Burger Den’s business comes during dinnertime and late into the night, executives say participating stores can generate more revenue without having to hire additional staff. 

“These brands provide opportunities not only at dinner and late night to leverage underutilized labor and kitchen space, but we are also seeing a meaningful number of transactions during the week versus the weekend,” said CEO John Miller during the earnings call.

It remains uncertain how long this labor shortage will last, but looking ahead, brands may need to continue getting creative if they hope to fulfill the incoming consumer demand and speed up the post-pandemic recovery process.