As Garutti noted, Shake Shack is facing the same labor pressures stressing companies across the landscape, but maybe even more so given the brand’s operating model.
Take this directive: “Our commitment to taking care of our team may cause us to incur higher labor costs compared to other restaurant companies,” Shake Shack said.
The chain has always shouldered the burden as a necessary expense.
"We believe in building the right way for the long term and you should expect to see us continue to deploy spend in our people, in our guest experience, and in our underlying technology that we believe will deliver both leverage and compelling long-term returns for our shareholders,” CFO Tara Comonte said in February.
Shake Shack created nearly 2,000 jobs last year and promoted 1,151 employees. That’s one retention-inspiring model the company preaches and believes can remedy other issues. Restaurants, unlike many other fields, benefit from longevity on the balance sheet. Beyond the customer service and operational rewards you don’t always see in non-customer facing businesses, turnover is an expensive and chronic problem in hospitality.
Turnover rates for restaurant management positions are closing in on 40 percent annually, according to TDn2K. And although non-management turnover rates remain high and are getting higher (increase in turnover over the last seven years has been nearly 20 percentage points as of the first quarter of 2019), management retention is most worrisome, TDn2K said. Since 2012, turnover rates for management employees in restaurants jumped more than 10 percentage points, per TDn2K’s People Report.
As TDn2K’s data also illustrates, 20 percent of restaurant companies are continuously understaffed for general managers. The 2019 Recruiting and Turnover Survey said that, on average, at any given time, about one in every three quick-service restaurants are not fully staffed.
For counter-service brands, including fast casual, half or more of the positions available will be occupied by a new, untenured manager within the next 12 months.
That’s a pretty scary proposition for a growth-minded concept.
“You see us making continued new investments in general managers and all of our managers, frankly,” Garutti said earlier. “But that will be something I would imagine will be the No. 1 challenge forever in our business. We’re in a people-led business. It’s also our sweet spot. It’s also what we do better than anyone and it’s how we’re going to continue to invest so that we have restaurants that are standing with great leaders decades from now. But it’s never going to be easy.”
Some quick math: The cost of replacing a single restaurant GM, per TDn2K, is about $14,000. That includes hard costs related to separation, replacement, and hiring, as well as the manager leaving and what it takes to hire another employee.
It makes this next Shake Shack initiative seem a lot less crazy. In Q1 of 2019, the chain issued additional equity awards of $10,000 to each of its general managers—the first time it’s done so since Shake Shack’s IPO, when it exited 2014 with nearly $120 million in revenue.
The company also expanded 401K eligibility, tested various work environments, including flex hours at the home office, and a headline-grabbing four-day work week in several restaurants across the country.
The latter pilot was announced March during an investor conference in Las Vegas. Garutti said he hoped the perk would attract employees in the sub 4-percent reality that is today’s labor climate. The turnover rate in the hospitality sector climbed above 70 percent for the second straight year in 2018, according to the Bureau of Labor Statistics.
“That’s a big thing,” Garutti told Bloomberg of the four-day work week. “Nobody’s really been able to figure that out in the restaurant business. If we can figure that out on scale, it could be a big opportunity.”