Restaurants take aim at improving manager turnover rates

Key Points
  • The restaurant industry has long struggled with employee turnover, but chains are now testing ways to improve manager retention.
  • Shake Shack has expanded its test of the four-day work week, and Red Robin and Taco Bell are both looking at improving general manager compensation.
  • The longer the tenure of a manager, the higher the sales of that restaurant location, according to the National Restaurant Association's Hudson Riehle.
A worker takes a pager from a customer at a Shake Shack restaurant in Bridgewater, New Jersey.
Ron Antonelli | Bloomberg | Getty Images

Shake Shack, Red Robin Gourmet Burgers and Yum Brands' Taco Bell are among the restaurant chains getting creative to keep their managers sticking around longer.

The restaurant industry has long struggled with high turnover rates, caused in part by low pay and a workforce that skews younger. In 2018, turnover rates in the hospitality sector surpassed 70% for the fourth year in a row, according to data from the Bureau of Labor Statistics. 

Even among managers, who are more highly paid, restaurants have had a difficult time filling jobs in a tight labor market as employers are competing for a shrinking pool of potential employees.

"In this labor market, the investment of training and development of staff is definitely viewed much more as an investment versus an expense," said Hudson Riehle, senior vice president of the National Restaurant Association's research and knowledge group.

Red Robin and Taco Bell are both addressing manager turnover by improving compensation. Taco Bell announced last week that it would test $100,000 annual salaries for general managers at select company-owned stores later in 2020.

Red Robin's turnover rates for managers and general managers fall below the industry average, according to its investor presentation at the ICR Conference on Tuesday. But the casual dining chain is still looking for ways to get general managers to stick around even longer.

"The research is pretty clear that the higher the tenure of the staff person is, the higher the sales per square foot in that establishment," Riehle said.

In 2020, Red Robin is changing its compensation program so the sales volume of the restaurant location no longer factors into general managers' bonuses.

"GM tenure in the restaurant profoundly impacts operating metrics, people metrics and also the financial metrics," Red Robin CEO Paul Murphy said at the conference.

Murphy joined Red Robin in October, and is embarking on an effort to turn around sales. Earlier in the week, Red Robin said it expects same-store sales to rise 1.3% in its fourth quarter, but customer counts fell 3.4%. 

Red Robin shares have a market value of $459 million and have risen more than 9% in the past 12 months.

Shake Shack is taking a different approach. The burger chain started testing a four-day work week for managers in early 2019. CEO Randy Garutti said at the ICR Conference that the shorter work week is now in place at about a third of locations.

"It's been an incredible competitive advantage for us to learn more about this," Garutti said. "We're not sure if it will roll out everywhere. We're taking our time, listening and learning so many new things."

Yum shares are valued at $30.8 billion and have gained 13% over the past year, while Shake Shack has a market value of $2.6 billion, and has gain 50% over the past year. 

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