Restaurant workers ‘have a lot of leverage,’ NYC Hospitality Alliance exec says

New York City Hospitality Alliance Executive Director Andrew Rigie joins Yahoo Finance Live to discuss the restaurant recovery, a post-pandemic industry, high labor costs, inflation, the revitalization fund, and California passing a bill that will regulate fast-food wages.

Video Transcript

BRIAN SOZZI: All right, many experts point to strong jobs data and high demand to argue against a recession. But higher labor costs and inflation continue to weigh on the hard-hit hospitality industry. Recovery effort is in an uphill climb. Joining us to discuss is New York City Hospitality Alliance's Executive Director Andrew Rigie.

Andrew, good to see you here this morning. Look, I think a lot of folks are looking for some type of economic pain at some point, whether it's later this year or early next year. If that comes, what does it mean to this industry?

ANDREW RIGIE: Well, thanks for having me. I mean, the city's restaurant industry has been feeling a lot of pain for the past couple of years. And if folks stop going out or they cut back on their spending when they're dining out, it's going to have a significant impact. We see inflation, the cost of labor for restaurants, which mind you, are still, for the most part, all operating short-staffed, have a lot of challenges.

So if folks stop spending at restaurants, it's really going to trickle through the local economy because we hire people locally. And these are everyday people who are working at restaurants and bars.

BRAD SMITH: When we think about some of the ways that restaurants have tried to stay engaged with the prospective customers and even new customers that may be coming into this city, it's often through some of the either delivery or pickup apps. And with all of that in mind, we think about the efforts that Uber Eats, that a DoorDash and a Caviar, how significant that has been for some of those businesses to at least sustain revenues in other ways. Do you see them continuing to lean further into that? And how is that helping them get through and navigate at least this period of time?

ANDREW RIGIE: Well, third party delivery has always been really important. When the pandemic struck and shut everything down, it became just absolutely essential. In New York City and some other cities around the country, there was actually a fee cap because a lot of these companies were really taking outrageous fees for each transaction.

So some restaurants in cases were actually losing money on each order. Fee cap is still in place here in New York. So that's something that's important for these businesses. But they're going to have to continue to directly manage that relationship with their customer, both for takeout, delivery, and in-restaurant business.

But the reality is, it costs a lot to eat. And customers are price-sensitive. So there's this really give-and-take on how much restaurants feel that they can increase menu prices to offset these expenses without either scaring their customers away or just having them order less.

BRIAN SOZZI: In part why it's costing more people just more money to eat out is because of worker wages. Wages have gone through the roof. What are you seeing on the wage front? Has there been any relief in the restaurant industry?

ANDREW RIGIE: No. It's gone up. New York City's restaurants and bars still employ about 50,000 fewer people compared to pre-pandemic employment levels. And nearly every restaurant and bar out there is desperately needed of staff. So workers have a lot of leverage.

We've seen wages go up. Obviously, the cost of living is going up. So how they're benefiting or not is another conversation. But yeah, it's posing a lot of challenges. And there's still restaurants that have limited hours. I mean, I know some restaurants that aren't even open seven days a week in New York City, which is crazy to even think about because the cost of doing business, the high commercial rents on top of everything else, which have come back up as well.

So it's a tough situation. Thankfully, people are eating out, which is important. But just if we see busy restaurants, we have to understand that does not equate to a healthy restaurant industry.

BRAD SMITH: When we think about the comp and the comparison, perhaps, to the pre-pandemic times, when a lot of restaurants, they didn't have this extra seating that was outdoors to be able to also facilitate more sales, more revenue, more of that customer engagement, is there a fair barometer, is there a new barometer that we've seen set in many cities that have now been able to add on and, for some of them, maintain that extra square footage that they can use to engage?

ANDREW RIGIE: So I don't know if there's exactly a new barometer. But I will say outdoor dining has been absolutely essential. Some restaurants have benefited more than other restaurants because they've been able to use more outdoor space. Restaurants that were fortunate enough to get the Federal Restaurant Revitalization Fund grant will also have nice outdoor dining or are in a much better place, paying for the higher food costs, higher labor costs.

In New York alone, about 65% of restaurants that applied for that Federal Restaurant Revitalization Fund grant were shut out when the money was quickly exhausted, and Congress failed to replenish it. So outdoor dining is really important. A lot of it is making up for two and a half years of lost sales. But moving forward, we need it.

And customers love it. I mean, you walk around any neighborhood, really in any city that has it, and you see people eating outdoors. So that's good. But now that indoor dining is open, I think fewer people are going to be dining outdoors in the winter, particularly in places like New York City, like we saw them bundled up when everything was shut down or infection rates were much higher.

BRAD SMITH: Yes, indeed.

ANDREW RIGIE: There you go.

BRIAN SOZZI: Yeah, me too. Andrew, before I let you go, big news out of California this week. Officials looking to potentially take wages for fast food workers up to $22 an hour. If that happens, you would have to think that restaurants could darn near double their prices for many items on the menu. What does that do to the restaurant industry in California?

ANDREW RIGIE: Well, listen, it certainly changes the dynamic. A lot of the fast food restaurants where people expect fast, cheap food, less expensive food, you can see price increases. And I also think there's a big difference between some of the corporate-owned locations versus some of the franchisees.

I mean, I know in California, I know here in New York, these are not big conglomerates. A local Dunkin' Donuts or other fast food restaurant is often owned by a local person, an immigrant, really, that saved up money to open. So I think these need to be very carefully made decisions because they can have a big impact. You increase costs, you lose employment. People's hours get cut down. You increase menu prices. So it's something that we're certainly looking at here from New York. And I know with all the challenges we're currently facing, it has people concerned.

BRIAN SOZZI: Yeah, Andrew, I can tell you just anecdotally, I have one or two people on my team here at Yahoo Finance that would probably pay about $15 for a pumpkin spice latte from Dunkin' Donuts. It does not matter if they raise the prices. Let's leave it here. Andrew Rigie, New York City Hospitality Alliance Executive Director, good to see you. We'll talk to you soon.