Prior to the Covid-19 pandemic, the hospitality industry was rapidly changing.
The millennial generation became the largest segment of the workforce accounting for more than a third of all workers. Previous hospitality industry conventions were no longer accepted by this new generation of workers. Demands for higher pay, quality of life and flexible scheduling were forcing the hospitality industry to accommodate these new norms and reshape itself.
The pandemic illuminated more changes in the hospitality industry beyond new labor standards and practices.
The hospitality industry has been permanently altered by the pandemic.
How the industry will reshape itself in the future is up to our industry thought leaders. We must rethink how we operate in all sectors of hospitality forging a new path forward.
The millennial workforce and its influence on the hospitality industry
The hospitality industry has many sectors including food and beverage, travel and tourism, recreation and lodging. According to Selectusa.gov, “The U.S. travel and tourism industry generated over $1.6 trillion in economic output in 2017, supporting 7.8 million U.S. jobs. Travel and tourism exports accounted for 11 percent of all U.S. exports and nearly a third (32 percent) of all U.S. services exports” (selectusa.gov). Travel and Tourism is the largest US service export within the hospitality industry.
The majority employed by all sectors of the hospitality industry are hourly workers, with one third of them being millennials.
The millennial generation accounts for 30% of our current workforce in the US across all sectors of business. According to Deloitte, “Millennials will comprise 75 percent of the global workforce by 2025” (Deloitte Millennial Survey, 2014). One of the most significant demands made by the Millennial workforce has been for higher pay. Millennials have changed our relationship to work by demanding a better living wage. For previous generations, in many parts of the Hospitality industry, entry level workers were paid the minimum wage. Currently, companies like Shake Shack are paying an average of $13.70 per hour for entry level positions while the national minimum wage is $7.25 per hour. Companies like Shake Shack are addressing better pay for employees as a strategy to attract and retain Millennial workers. In addition to better paying jobs, Millennials seek work that aligns with their desire to improve their quality of life (Payscale.com).
“Sitting at a desk from 9 to 5 is not a Millennial’s idea of a dream job. Millennials strongly prefer the option of a flexible work schedule and see it as a way to create a better work-life balance overall” (Todd Wallis, April 2017).
Many hospitality brands can’t provide a work from home scenario for their workers so they have instituted other forms of flexibility to their workers. Allowing more flexibility in schedules is a method that has proven successful to many hotel and restaurant groups. Personally, our event hospitality company, Schaffer, has always provided flexibility to our hourly employees. We have a natural fluctuation in our business that allows for our hourly staff to take time off for personal days or life events. At Schaffer, we believe that providing hourly staff with this flexibility is an attractive recruiting tool and helps to retain workers.
The employment practices of higher pay and flexible schedules contribute to the overall wellness and satisfaction of hourly workers. The result is an increased quality of life, a more productive and optimistic work environment and longer retention of staff. In the hospitality sector, the influence of the millennial worker has changed many aspects of the industry. The hospitality industry was making a sea change leading up to the pandemic and now the industry is practically unrecognizable. As the pandemic is reshaping many sectors of business, the hospitality industry is reeling from the totality of changes.
The hospitality industry and the pandemic
In 2019, the hospitality industry accounted for approximately 10.4% percent of the world’s GDP (wttc.org). Covid-19 restrictions happened across the US and the hospitality industry is struggling to recover. Hotels, restaurants, travel, food service and manufacturing were all subject to massive closures. Supply chain issues, loss of workers and permanent closures of many small businesses are factors in how the hospitality industry’s landscape has changed dramatically.
Supply chain issues
The hospitality industry relies on a supply chain that provides everything from ingredients, equipment and paper goods, to uniforms and cleaning supplies.
Due to labor shortages and lack of revenue during the pandemic, many smaller businesses along the supply chain were acquired by national brands or shuttered. These closures have created a lack of competition and pricing for supplies are dictated by large corporations. Inflated pricing, as a result, is passed on to consumers. An example of inflation in our current supply chain is the price of chicken breasts. Our company, Schaffer’s purveyor, Premiere Meats, is now selling chicken breasts for $8.26 per lb. compared to the $4.15 per lb. in 2019. The current price of gas in Los Angeles is $4.68 per gallon compared to $3.18 per gallon one year ago (gasprices.aaa.com). These increased costs are passed on to the consumer while making it more expensive to operate a small business. Along with pricing increases across the board, many items used in hospitality are no longer available. Service wares, hotel linens and equipment, uniforms and disposables are all in short supply. Owing to foreign manufacturing of many of these supplies, the supply chain has broken. With labor shortages to receive and distribute foreign made goods, demand has exceeded supply causing further price increases. It is imperative for the future of our hospitality industry to return to more domestic manufacturing of many of these supplies in order to repair the supply chain. As shipping and distribution companies struggle to hire and train new workers, many smaller purveyors have closed. With fewer distribution companies available, many jobs are permanently lost. Along with distribution and supply issues, large numbers of hospitality workers have left the industry permanently.
Loss of workers
Many hospitality workers have left the industry entirely in search of more stable work. With the uncertainty of the pandemic and protracted layoffs, hospitality workers have sought alternative forms of employment for survival.
“Leisure and hospitality have lost 3.1 million jobs during the pandemic that have yet to return, representing more than a third of all unemployed persons in the United States, according to the Bureau of Labor Statistics. Even more stark, the unemployment rate in the accommodation sector specifically remains 330% higher than the rest of the economy" (AHLA.com).
The desire to work in a field with more job security along with the desire to achieve a higher quality of life have drained the hospitality workforce. With skeleton crews, hospitality companies are struggling to stay afloat with the large losses of revenue and continued uncertainty of the industry’s future. Our company, Schaffer, has experienced an uptick in cancellations of events due news of the Delta variant and the Omicron variant. The uncertainty and fluctuation of revenue makes forecasting and planning more difficult than ever before. We remain cautiously optimistic, but we understand a lot of hospitality related businesses cannot withstand these fluctuations and are closing in large numbers.
Small business closures
Many small hospitality businesses could not withstand the temporary closures from Covid-19 restrictions and shuttered permanently. Small hospitality businesses including restaurants, inns, motels, event catering companies and banquet halls could not endure the revenue losses of temporary closures as most small businesses cannot afford to keep the reserves of operating capital beyond a few weeks. As mandates were in place to prevent the spread of Covid-19, small businesses tried to hold on and weather the storm. Roughly one third of restaurants in California have closed permanently due to the pandemic. National statistics report 14% of all restaurants permanently closing due to the pandemic (Therealdeal.com).
The closures will permanently affect the hospitality industry as small businesses are what makes the industry interesting. Innovation and creativity in hospitality is based on small independent operators not global corporations. All food, beverage and service trends happen in small businesses first and later adopted and implemented by corporations.
Small businesses are how corporations are born. Danny Meyer, founder of Union Square Hospitality Group, began his business with The Union Square Café in NYC in 1985. From humble beginnings, Meyer built a brand with a valuation of over $250 million. It was his forward thinking, innovation and creativity that built his brand and developed it into a publicly traded juggernaut. With the mass closures of small businesses, our economy is missing opportunities for innovation and creativity of entrepreneurs like Meyer. As a leading authority, Meyer is interviewed many times recently about the future of the hospitality industry. He believes that the pandemic is an opportunity to reimagine how the hospitality industry operates. His company, USHG has worked on changing the gratuity or tipping dynamic in his restaurants to create equity between front and back of house employees. Meyer has also worked with his team towards more inclusions and diversity among all of his brands. His fine dining restaurants have not reported profits since the before of the pandemic, but his fast food concept, Shake Shack continues to grow in sales. There are many brands that have experienced similar growth during the pandemic in the fast-food market, but the majority of the hospitality industry is still lagging behind other industries. The future of hospitality will depend on how business leaders rethink how they do business.
Moving beyond the pandemic into an unknown future has many thought leaders and economists predicting a variety of outcomes. Since the hospitality industry has lost so many small businesses and workers, it must innovate and create a new model. Lodging, travel and leisure will hopefully return to pre-pandemic volumes with the caveat of more automation and technology to support a smaller workforce. From ticketing kiosks, phone app check-ins to virtual concierge and delivery apps. Many innovations towards automation are in practice with new technologies emerging daily. Restaurants and dining concepts will continue to have a difficult time reentering into the marketplace. As automation works to replace workers out of necessity, the former industry conventions will shift. In addition to automation, the ghost kitchen concept has emerged. The advent of ghost kitchens is helping to keep small independent operators in business.
Ghost kitchens are commercial kitchens that house many brands under one brick and mortar space. Ghost kitchens, share operating costs with many brands at once and create a lower point of entry into business. Analogous to the food truck movement, ghost kitchens are a way in which a brand can enter into the marketplace with very little investment or risk. Ghost kitchens are opening in many cities and act as incubators to test proof of concept for small food brands and micro businesses. Although this eventuality is a promising development, it will not create as many jobs as pre-pandemic small businesses in the sector. As well, ghost kitchens are consolidating independent operators while reducing the creativity and innovation that make small businesses a vital part of our economy.
Analogous to independently owned small businesses, large hospitality corporations are rethinking how they do business. Large global hospitality brands are rethinking previous business practices and focusing of technology and automation, employee diversity and satisfaction and reshaping their business models.
“Resilient organizations understand that recovery is a human and multi-dimensional experience that requires trust and confidence. These involve physical safety, emotional support, digital security, and financial stability” (Deloitte.com).
As larger brands rethink their relationship with the consumer, they are also devising plans to reshape their employment practices. Global hospitality corporations like Marriott previously employed over 174 thousand workers in 2019 and are currently employing 120 thousand employees. As current hotel operations need augmented cleaning practices and various automated services, Marriott is figuring out how to operate with less staff.
CEO of Marriott, Tony Cupuano, “cited statistics indicating that 20 percent of employees in travel and tourism globally have left the segment permanently” (luxurytraveladvisor.com).
This trend will continue as global hospitality brands try to recover and rethink personnel and consumer relationships that embrace more technology and automation while eliminating positions and streamlining operations (statista.com).
Global corporations rethinking how they interact with customers and embracing emerging technologies and new employment practices will further change the hospitality industry from what we recognized before the pandemic.
The Covid-19 pandemic has permanently changed the hospitality industry forcing it to reimagine how to move forward. New labor practices and compensation, broken supply chains, loss of workers, closing of small businesses, and the rethinking of global corporations have all contributed to this new landscape. Many hospitality thought leaders are hopeful that the new industry will be positively affected by these changes and become a better industry attracting more talent in the future.
Diversity and equity for workers, providing higher pay and schedule flexibility will play a key role in rethinking how the hospitality industry operates.
Automation and emerging technologies are a vital part of reshaping the future of the industry.
The United States must incorporate domestic manufacturing of supplies in order to repair and strengthen the supply chain for the future. The reliance of foreign goods weakens our economy and productivity.
Without domestic manufacturing, we will continue to experience a broken supply chain.
The continuation of micro businesses, food trucks and ghost kitchens will allow small independent operators a chance to enter into the market. Small businesses need to be supported and encouraged to promote innovation and creativity. Growth within this subsector will provide the industry’s future leaders with a path forward.
Hospitality leaders are hopeful the industry will move forward and eventually recover economically. The industry will continue to change and reshape itself but never return to what it was before the pandemic.
The hospitality industry will remain permanently changed.