US restaurants see labor as major growth hurdle

By Nichola Groom

CHICAGO (Reuters) - Hiring and keeping hard-working, enthusiastic employees is a major obstacle for fast-growing U.S. restaurant chains and is only getting tougher as unemployment remains low and benefit costs are soaring, executives in the sector said.

About 12.5 million people, or 9 percent of the U.S. workforce, work in the restaurant industry -- making it the country's largest private sector employer. That number is expected to swell to 14.4 million over the next decade, according to trade group the National Restaurant Association.

Where those millions of employees will come from and how companies will afford to attract and keep them is a key concern for fast-growing restaurant chains like Starbucks Corp. (SBUX.O), Panera Bread Co. (PNRA.O), and Dunkin' Donuts, executives from those companies said this week at the Reuters Food Summit in Chicago.

"Over the next few years our great challenge will be that labor pool as we continue to grow," said Jon Luther, chief executive of Dunkin' Donuts parent Dunkin' Brands. "It's probably the single biggest challenge the industry has is to continue the growth at the levels they are at and bring in a qualified labor pool."

Beyond offering competitive wages, privately held Dunkin' Donuts is working with franchisees to encourage them to offer performance-based incentives to employees, such as cash bonuses or tickets to sports events, Luther said.

The race to hire and retain talented employees has intensified in recent years, in part because of the growth of chains like Starbucks, which offers health insurance and other benefits to store workers, including part-timers.

Competition for employees is also fierce because the U.S. unemployment rate is at a 4-1/2-year low, so fewer people are available to fill open positions. Turnover in the industry, however, still hovers at around 100 percent per year.

"When there are labor shortages, those people are still there; you just have to work that much harder to find them," Panera Bread CEO Ron Shaich said at the summit.

In recent years, many chains have begun offering health, retirement and other benefits, and restaurant companies said they are now looking beyond those traditional means to attract and inspire workers.

Starbucks, for instance, has tuition and fitness program reimbursement options for its employees, according to Jim Alling, president of the chain's U.S. business. By helping employees pay for their exercise programs, Starbucks is not only offering a perk, but also trying to drive down its own soaring health care costs, he added.

Darden Restaurants Inc. (DRI.N) Chairman and CEO Clarence Otis said competition among sit-down chains like the company's Olive Garden and Red Lobster businesses has increasingly become about providing a fun, inspiring work environment, since wages are about the same throughout the industry.

"You have to provide a work experience where they feel valued ... If you don't, they'll walk across the street," Otis said. He added that the ability of restaurant chains to offer competitive pay, benefits and career paths is one reason they have taken market share from independently owned restaurants.

IHOP Corp. IHP.N CEO Julia Stewart, who worked at an IHOP restaurant as a teenager, also said a brand's image as an employer is just as important in hiring as the pay and benefits workers will receive.

"It's really making certain that your image, your brand, isn't just attracting people to come in and eat, but it's attracting people to work there," Stewart said.

To help attract and retain young employees, Stewart said IHOP, at its franchisee convention, brought in an expert to speak about motivating members of Generations X and Y.