Restaurants Will Never Be the Same

A former owner says the staffing crisis has little to do with unemployment benefits.

Good morning!

Here are today’s highlights:

• Department stores are converting retail space to co-working space.

• Delta—the variant, not the airline—is stealing Southwest’s profit.

• Will the pandemic-inspired productivity boom continue?

MARKETING

Google Search is increasing the penalty for having a slow, annoying website: “If two websites are identical in every other way, the one that launches faster, jiggles around less when loading and lets users interact with it more quickly will be placed higher in Google Search. These three metrics, which Google calls core web vitals, will let the company rate a page’s user experience, alongside existing Google measurements of how mobile-friendly it is, whether its connection is secure and whether it contains intrusive elements such as pop-ups.”

• “‘If a page is super slow, but it’s the most relevant page to the search, it’s always going to trump’ websites with a better page experience, said [Barry Schwartz, chief executive of RustyBrick, a New York web-service company].”

• “But page experience can be important for search visibility where many sites are similar in relevance, Google said.” READ MORE

BUSINESS MODELS

Restaurants will never be the same, says a former owner. And that’s a good thing: “Operating on the thinnest of margins, restaurants often engage in a race to the bottom to offer diners ‘value’ and keep them coming back. They buy cheap ingredients, pay low wages and stretch people to their limits. In many restaurants, immigrants and people of color are marginalized, and reports of sexual harassment and assault are widespread. And restaurant culture more broadly shames employees for taking care of themselves, valorizes abuse as ‘tough love’ and shows little regard for work-life balance. This can be especially true in high-end, prestigious restaurants. They’re often worse places to work because they capitalize on the résumé-building value of their reputations, extracting even greater sacrifices from employees.”

• “Restaurants’ staffing crises were not created by former employees opting to collect unemployment benefits rather than return to work, as some people have argued.”

• “They have reflected on the abuse, exploitation and lack of safety they endured in kitchens and dining rooms, and questioned whether or not to return.”

• “If restaurants are to raise their wages, grow their staffing rosters and improve their cultures, diners will have to pay more to dine out and should embrace those increases as expressions of their own values.” READ MORE

Hudson’s Bay Co. is converting department-store retail space into co-working space: “The Canadian retail business group is transforming current and former Saks stores, and some of the spaces previously occupied by Lord & Taylor, into these WeWork-managed co-working offices. The nearly 200-year-old department chain declared bankruptcy in 2020 and said it would close all its remaining stores to operate exclusively as an e-commerce retailer. Hudson’s Bay Co. owns the buildings that were once occupied by Lord & Taylor stores.”

• “‘We think about, ‘What can we bring to the suburbs that we used to serve with retail concepts where our customers still live?’ said SaksWorks President Amy Nelson.”

• “Daybase, a New York startup, said it is looking to open co-working spaces in former suburban shops. Co-working company Industrious has opened a number of locations in malls.” READ MORE

THE COVID ECONOMY

Southwest no longer expects to turn a profit in the third quarter: “The airline’s revised forecast represents a rapid turnaround from a few weeks ago, when Southwest and other major carriers said that business was booming and the highly contagious Delta variant of the virus was not yet affecting sales. In fact, Southwest said Wednesday that it was profitable again in July, but that it no longer expected to turn a profit for the current quarter, at least after excluding the effect of federal payroll aid to the industry.” READ MORE

The Delta variant is shifting consumer behavior: “Although consumer spending has held steady amidst the Delta variant surge so far, cracks are beginning to emerge. While the hard data doesn’t indicate that consumers are pulling back on spending at physical storefronts just yet, at least one survey suggests that concerns are growing. According to Civic Science, the percentage of consumers who say they are not concerned about being in public spaces has fallen from 50 percent to 41 percent in recent weeks.”

• “Among those consumers who shopped with a new brand during the pandemic, almost one-third cited safe in-store experiences as a top reason for choosing that brand.”

• “Live streaming events, for example, have worked especially well for independent brands, as well as Amazon.” READ MORE

It’s also having an impact on China’s economy: “After quickly suppressing Covid-19 through mass-scale lockdowns last spring, Chinese authorities are now contending with new outbreaks in at least 17 provinces, according to the country’s National Health Commission. Daily new infections climbed to 143 on Monday, more than double the number from a week earlier, when the country saw its highest daily caseload in half a year. While those numbers are extraordinarily small compared to the U.S. and other countries, China’s zero-tolerance strategy means authorities are responding with tough measures, including lockdowns of residential compounds and cancellations of public events.”

• If the Covid-19 resurgence does spread further, it could potentially strain China’s manufacturing output, leading to disruptions in global supply chains which have relied heavily on China to provide electronics, medical gear and other goods.”

• “A weaker Chinese economy could also diminish China’s appetite for imported goods, affecting growth in some other countries, especially across Asia.” READ MORE

Inflation stayed high in July: “Prices in categories hit hardest by the Covid-19 pandemic are still recovering to pre-pandemic levels, including for air travel, apparel, entertainment and recreation. Those price increases should slow once prices return to more normal levels, though the outbreak of the Delta variant of the Covid-19 virus could delay that process, many economists say.” READ MORE

HUMAN RESOURCES

Businesses face risk if they choose not to mandate vaccinations: “New research from Qualtrics suggests it’s true that companies might alienate workers if they require vaccines. The portion of Americans who say they would consider leaving their jobs if their workplaces made vaccination necessary has ticked upward, from 39 percent in March to 44 percent in August. But employers may also want to consider another risk: The same Qualtrics survey shows that 38 percent of workers would consider leaving their current employer if the organization did not enact a vaccine mandate.”

• “The majority of U.S. workers still support vaccine mandates, according to Qualtrics, though the share who say they’re in favor of ultimatums slipped to 60 percent in August, compared to 66 percent in March.” READ MORE

Will the productivity boom continue? “For most of the last 15 years, the United States economy was mired in a period of low productivity growth. Who would have guessed that the pathway out of it might include a pandemic? Yet that is what the numbers show. Since the second quarter of 2020, labor productivity — the amount of output per hour of work — has risen at a 3.8 percent annual rate, compared with 1.4 percent from 2005 to 2019. New data published Tuesday showed the trend persisted this spring, with a 2.3 annual rate of productivity growth in the second quarter.”

• “Restaurants are experimenting with people ordering on their phones rather than through a waiter. Retailers are offering more self-checkout options.”

• “And there is evidence that the difficulty recruiting workers is making companies invest more in training employees — potentially shifting people from low-productivity jobs to higher-productivity ones.”

• “In effect, the pandemic forced a lot of innovation around office work practices to happen far more rapidly than would otherwise be the case.” READ MORE

The decline of immigration threatens growth in once fast-growing regions: “The United States over the past 10 years experienced the slowest population growth rate in eight decades, according to the 2020 census, because of plunging fertility rates and shrinking immigration. The surge of unauthorized migrants from Mexico and Central America is testing the Biden administration, but images are deceptive: A vast majority of the single adults crossing the border to find work are quickly deported. And the flow of legal immigrants, whom Northwest Arkansas companies also heavily rely on, has fallen precipitously since the Trump administration clamped down on all kinds of immigration with the belief that it was displacing American workers.”

• “Now, business leaders are hoping that President Biden will make good on his pledge to overhaul the immigration system and establish a legal pipeline for foreign workers to take jobs in Northwest Arkansas and other places that depend on them.”

• “The U.S. Chamber of Commerce has called on Congress and the White House to double the number of visas for high-skilled temporary workers under the H-1B program and also for seasonal workers in sectors like agriculture and meat production, another economic mainstay in this part of the country.”

• “Jared Smith, the chief executive of Kitestring, a boutique technology company that serves retailers, has been trying for months to fill 30 jobs.”

• “About 35 percent of his 175 employees are on H-1B visas. ‘If I were to depend exclusively on U.S. citizens, it’s hard to imagine I would grow,’ he said.” READ MORE

LOGISTICS

The U.S. Postal Service is proposing holiday surcharges: “The agency said the added fees, ranging from 25 cents for smaller packages to $5 for heavier items traveling longer distances, are in line with broader industry practices to charge more during the holiday season. ... Retailers face a range of challenges heading into the holidays, including logjams at seaports, supply-chain disruptions and higher prices for materials and labor that are making it more difficult and expensive to stock their shelves.”

• “The Postal Service, under Postmaster General Louis DeJoy, last year introduced its first holiday surcharges on packages, but applied them only to commercial customers like retailers and large shippers.”

• “The agency served as a safety valve for many shippers during the holidays, as FedEx and United Parcel Service held their customers to tight shipping caps while other regional shippers ran out of capacity.” READ MORE

THE 21 HATS PODCAST

Episode 72: It’s a Pile of Money: This week, Paul Downs makes two seemingly contradictory points: One is that his business is on track to have its best year ever. The other is that he expects to claim another huge government subsidy, courtesy of the recently enhanced Employee Retention Tax Credit. As Paul says, if you don’t know about the ERTC or if you don’t know that its requirements have been relaxed, you probably should check it out. Meanwhile, Jay Goltz tells us what happened when three employees found out what the others were being paid, and Dana White feels a little deflated after talking to an investment banker. Plus: Paul shares his new strategy for coping with the labor shortage.

• You can subscribe to The 21 Hats Podcast wherever you get podcasts.

If you see a story that business owners should know about, hit reply and send me the link. If you got something out of this email, you can click the heart symbol, you can click the comment icon below, and you can share it with a friend. Thanks for reading, everyone. — Loren