View of the Prohibition Taproom in Philadelphia. Owner Michael Pasquarello, who owns two other facilities in town, is optimistic about the future despite the problems plaguing the industry.

Source: Google Earth

Like many in his field, restaurateur Michael Pasquarello is grateful for surviving the damage the pandemic wreaked on his business and is now looking forward to something that resembles the normal.

He knows it won’t be easy.

“We all appreciate the fact that we can welcome guests again and we are very grateful to be hosts again,” said Pasquarello recently amid the usual din of a day when family and business duties are jumbled to be brought. “But it’s a different world.”

For the likes of Pasquarello and his wife Jeniphur, who run three restaurants in the Philadelphia area and are about to open another, the world has changed dramatically from the one it saw before March 2020.

The pressures the hospitality industry has been exposed to surpassed likely any other in the country with the exception of education. The owners faced a revolving door with locks, space restrictions, sanitary regulations, and an ongoing uncertainty about what’s next.

Some survived thanks to government support, take-out deals, and the luck of the draw, but many did not. In addition, they now face crippling labor shortages, as well as regulatory and legal obstacles.

That burden rests on a sector whose success in regaining its place is an essential part of the US recovery path from Covid.

“A mixed bag of tricks”

The Pasquarellos managed to weather the crisis by leveraging each company’s unique assets to adapt.

CafĂ© Lift offers brunch dishes that are ideal to take away. The Kensington Quarter has a large outdoor area at the back that can accommodate guests if indoor seating was prohibited. The Prohibition Taproom couldn’t have bar seating, but became a “street shop” when the city allowed businesses to use parking spaces for dining.

“Like everyone else, we didn’t make any money. But it felt good to open a business,” said Pasquarello. “So it was a mixed bag of tricks. Each place had to find a different way to deal with it.”

Many such companies have not been so lucky.

According to the National Restaurant Association, more than 110,000 bars and restaurants will have closed their doors for good in 2020. In most states, strict lockdown measures to combat Covid-19 forced companies that were already operating at low margins to close completely and then reopen with mostly limited capacity.

However, with vaccinations providing hope in the fight against the pandemic, fortunes could turn for hospitality-focused businesses.

“I am very optimistic that we will be back where we were,” said Pasquarello.

Not everyone is so convinced.

Dealing with labor shortages

In other parts of the country the picture is not quite as clear and it is not just about reopening in Covid-era conditions.

Carlos Gazitua is the CEO of Sergios Family Restaurants, a group of Cuban restaurants in Florida.

Gazitua is gearing up for what it sees as a potentially record-breaking summer in terms of demand, but fears a significant problem on the other end – supply, as it has enough manpower to meet all customers who are hungry again to eat out.

“We expect record numbers here in the summer,” he said. “All hotels are fully booked, restaurants await gangbusters. What happens after that is a different story. Once the incentive is gone, we’ll understand where the industry is at.”

In a situation that is hardly unique to bars and restaurants, Gazitua sums up the main challenge – there are numerous vacancies, but a number of factors make it extremely difficult to fill.

According to the U.S. Chamber of Commerce, there is increased unemployment benefits that are preventing poorly paid workers from returning to work. There are also skill mismatches that are causing workers to struggle to adapt to new disciplines, as well as an ongoing fear of the future path of the pandemic that still keeps some at home.

Whatever the cause, the shortage weighs on both entrepreneurs trying to hire and employees who have to work longer hours to make up for the shortage of available staff.

“We have raised wages. We have about three different recruitment agencies that are always looking for people,” said Gazitua. “Other diners are walking around the neighborhood handing out flyers. The heroes in our communities are the people who are currently working for you and me. These people are burned out.”

The April non-farm payroll report came as a shock when the Labor Department said the economy created only 266,000 jobs in a month that Wall Street estimated at 1 million.

Some economists cited increased unemployment benefits as a driver of labor shortages, while others said the census could only have been a statistical anomaly. Virtually all other labor market indicators were positive, including unemployment claims, the number of private ADP payrolls, and a Conference Board report on Monday showing that the employment index rose 2.7% in April and is now 45, 7% higher than a year ago.

But the hospitality industry still pulled more than 2.8 million pre-pandemic workers in April, with an unemployment rate of 10.8% versus 6.1% nationally, according to the Bureau of Labor Statistics.

The battered industry is looking for hope

Kirby Mallon, owner and president of Elmer Schultz Services, sees the sector’s employment problems firsthand in his business of repairing kitchen appliances in restaurants, nursing homes, hospitals and schools. He is also based in the Philadelphia area.

“Restaurants generally suck wind. These guys are crying on my shoulder,” he said.

Kirby Mallon, Owner and President of Elmer Schultz Services.

Courtesy Kirby Mallon

Mallon knows her pain somewhat – he too is struggling to find workers, despite his recruiting efforts as president of the nonprofit Commercial Food Equipment Service Association. Despite lucrative pay and ample opportunities, there are only a few buyers despite the high unemployment.

In March, Pennsylvania had an unemployment rate of 7.3%, neighboring New Jersey was 7.7%, and the national rate was 6%.

“We can’t hire skilled people,” said Mallon. “It’s always been a problem in the industry, but it’s the most critical issue right now. We can’t even find people to train.”

However, in Gazitua another factor holding back job creation is seen, namely the Biden government’s urge to get companies to tip workers at the federal minimum wage. As a member of the conservative network of job creators, Gazitua is a business lawyer who says the hotel industry is singled out while other professions like real estate and insurance do not have to pay a minimum wage.

“I find it a bit hypocritical that they are attacking the restaurant industry’s sales model by employing people at a time when the industry was disproportionately affected during the coronavirus pandemic,” he said. “Changing the policy and sales model for an industry that’s not even on its feet is a bad idea.”

Still, Michael Pasquarello is waiting for his fourth restaurant to open soon with the expectation that some sense of stability will return to the industry over time.

He is not worried about staffing levels and has not had to pay higher wages. Instead, he relies on a work environment that is less stressful than the average restaurant scenario and guarantees managers two consecutive days and health insurance.

“We call it ‘culture’ and try to build a family culture within the place that we believe exceeds the financial slice,” he said. “It will take some time, but I think on the other hand the industry is in a better place as everyone earns more. So I’m very optimistic.”

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