Fincredible MacroTalk November 3: Labor Shortages
Insights on the labor shortage from company earnings calls. Quotes from: $AMZN $CMG $CPT $BJ $BJRI $SIX $KMB $PCH $WM $QSR $BYD $TXRH $KMPR $YUM $HUBG $MMSI $JBT $HSY
The Great Resignation has created significant problems for labor intensive industries. Over the past month, dozens of companies have talked about their struggles filling positions, the wage increases they’re undertaking to attract new hires, the measures they’re taking to alleviate labor shortages, and more. In this post we’ve curated and highlighted the most relevant quotes regarding the current labor shortage. Quotes are sourced from Fincredible.
We’ve divided this post into 6 sections: Wage Increases, Labor Outlook, Hiring and Training Challenges, Business Operating Hours and Availability, Labor Shortage Implications, and Automation Efforts.
Wage Increases
High demand for labor and limited supply have resulted in significant wage increases in several companies. For example, large companies like Amazon and Chipotle have raised their starting wages to $18/hr and $15/hr respectively.
“In Q3, we saw nearly $1 billion of inflationary pressures, primarily tied to wage increases and incentives in our operations. Our average starting wage is now over $18 per hour with an additional $3 per hour depending on shifts in many locations and sign-on bonuses that can be up to $3,000.”
Brian Olsavsky, CFO
“When you look at price inflation because of supply chain issues. We're looking at 10% to 12% increases in labor and in construction costs.”
Richard J. Campo, CEO
“Labor costs for the third quarter were 25.8%, an increase of about 40 basis points from last year. This increase was driven by our strategy to increase average nationwide wages to $15 per hour, which is partially offset by menu price increases, sales leverage and a onetime employee retention credit. Given ongoing elevated wage inflation and greater new unit openings, we expect labor cost to be in the mid-26% range in Q4.”
John R. Hartung, CFO
“Labor inflation probably kind of still in the mid-to high single digits, even though it does seem to be abating a little bit. I think what we're seeing differently is we're seeing people show up for interviews and then show up for their jobs for the first day. We didn't really see that at the very beginning as the economy opened up. We saw people that would kind of book an interview, but they didn't show up for it or we find people that might not have shown up for a job.
Gregory S. Levin, President, CEO
Labor Outlook
While the labor shortage should ease somewhat as the economy goes back to normal and the pandemic subsides, executives believe the wage increases will likely be permanent.
“As we sit here today, the operating environment remains challenging with a tight labor market and ongoing supply chain constraints. We believe that approximately half of the additional costs we are incurring are transitory and will normalize over time. However, some of these costs, particularly wage inflation, may prove to be more permanent.”
Sandeep Reddy, Executive VP & CFO
“We mentioned U.S. labor costs and pressures on transportation globally. I think that's going to remain elevated for a while because I don't see a fundamental catalyst to change that in the near term.”
Michael D. Hsu, CEO
Hiring and Training Challenges
One aspect not discussed enough when speaking about the labor shortage is the hiring and training challenges. It takes time and money to do both of these tasks, which puts even further strain on businesses.
“I'm seeing inflation on the labor front in terms of what's going on around the country. It's challenging to get people to come to work when we have a job opening. We put out an ad. And historically, we might get 30 people applied. Now we're getting 3 people to apply. They may not be that qualified. I'm reading about potential strikes at the large companies around the country. I'm reading about how Walmart and McDonald's and all these other companies are raising wages significantly to attract labor. We haven't formalized our plans next year, but I am very concerned about what's happening on the labor front.”
Eric J. Cremers, President, CEO
“I would tell you that when I look at the labor increase whole dollars, and this is in aggregate, about 1/4 of it is related to some additional training and hiring we're doing. Some of that has to do with turnover pressures that I think we're seeing and just about everybody in the transportation industry is seeing. I think the good news is over the last 4 or 5 months, we've actually started to make good progress in terms of our retention rates and whatnot. And I think the labor resets we talked to last quarter, which are clearly showing up in this quarter as well are having an impact there. The other 3/4 of it, if you will, rough numbers is related to some of the OT we're incurring.”
John J. Morris, COO
Business Operating Hours and Availability
Labor constraints have led some companies to reduce their operating hours and capacity, which leads to missed revenues and could impact customer satisfaction. It also affects employees who have to deal with increased workloads and hours.
“Across the country, many of our hotels have been running below capacity since reopening due to a tight labor market. As a result, we have not been able to accommodate many rated customers who have established gaming histories with us. As the labor market normalizes, we will be able to bring more hotel rooms online, driving gaming revenue growth from these customer segments.”
Keith E. Smith, CEO
“We had a pretty good summer of hiring and getting new people into the system. We're back to our original 2019 numbers. But again, based on our sales growth, we still need some folks and just in different areas of the country, in the front of the house, in the back of the house and management. But I will tell you that our folks are probably working a little more overtime and spend a few extra shifts, and we'd really like to get them some fresh legs and some help, and we definitely need some more people.”
Gerald L. Morgan, CEO, President
“U.S. labor availability remains tight across most industries, driving wage inflation and staffing challenges that have resulted in a small number of our stores limiting operating hours particularly during the early morning and late-night dayparts.”
Christopher Lee Turner, CFO
“On traffic, ongoing labor challenges led to reduced service modes and operating hours, particularly in late night as well as a temporary distribution center interruption in the Northeast.”
Jose E. Cil, CEO
Restaurant Brands International Q3 2021 Earnings Call
Labor Shortage Implications
The labor shortage has severe implications for supply chains. One bottleneck can lead to a cascade of problems that result in even more bottlenecks.
“What ends up happening when you're repairing a vehicle is anything -- if you get in an accident and do $2,000 worth of damage to the bumper, that's the minimum that's going to get paid. From that point, effectively, leakage starts. We've got to repair that vehicle. If you've got a labor shortage and it takes longer at the body shop, that might cause another day or 2 of rental car expense. If the rental car companies don't have all the inventory they had pre-pandemic, they might have their rates up. So now in addition to a day or 2, you got, it is actually at a higher cost. If you're finding out there's labor shortages in the supply chain, so trucks aren't moving from ports in California, you might find that the headlight you needed that was manufactured overseas isn't there, and it's taking a little extra time in that car sitting in the body shop, and there might be storage charges because it's waiting for the parts to come in. All of these things add up to incremental increased costs in the process. It might be that those parts cost more because they had to pay the truck driver higher wages to get them there or they're running 24/7, so there's, over time, run through the process.”
Joseph Patrick Lacher, CEO
“I would suggest to you that the West Coast port situation is not going to be resolved quickly or easily, that we're going to continue to see congestion at least through the end of the year, and I would suggest to you beyond. So there just is not enough warehouse capacity. The 24/7 is really not going to work. I mean, you still need skilled labor to be able to load and unload those vessels. So you are seeing some diversion to some of the East Coast ports, and people are trying to Port of Portland and other ports on the west, but the congestion is there for a while. And it's -- this is not -- there's no light switch to turn it off and on.”
David P. Yeager, Chairman, CEO
Automation Efforts
Labor shortages and wage increases will likely lead to increased automation efforts by companies. The three quotes below show that companies are focusing on automation and reducing the need for labor in their processes.
“One of the things that we've talked about the logistical issues and and freight and all those sorts of things, supply chain, but labor is going to continue to be a problem. And even though supply issues in the marketplace may take care of those disruptions and eventually equivocate some, we don't see that in labor. So one of the things that we'll be looking at is automation projects and spending our money on those projects that help to reduce the reliance and just become more efficient that way.”
Fred P. Lampropoulos, Founder, CEO
“Within these favorable order trends, we are particularly excited about customer interest in automation solutions that increase output with less labor. At FoodTech, anything that automates material handling and processing, such as our robotic harvester and portas de correr, automated case packing systems, DSI Waterjet portioners and automated guided vehicles are all enjoying tremendous demand. On the AeroTech side, automated docking for fixed and mobile equipment has become a competitive differentiator and is generating strong interest.”
Brian A. Deck, President, CEO
“Recently, a lot of the focus from our retailers, or there's been a big focus, around the labor shortage, and thus, a push for even more presence of self-checkout. And so we've partnered really closely with those retailers to increase the presence of the category at self-checkout and to maximize the presence in those queuing lines leading up to checkout and particularly self-checkout. I mean it's a perfect fit with some of the struggles they're having around labor and a great opportunity to get the category out there and make sure that people don't miss that chance to have that last impulse purchase.”
Michele Gross Buck, Chairman, President & CEO
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