Why the Gig Economy is Bad for Hospitality

Why the Gig Economy is Bad for Hospitality

Mikhil Raja 2017/09/12

Flexible and empowering? Not so fast.

Hospitality in the UK is changing fast: Michelin star restaurants, bars with live entertainment, pop up stalls, farm to fork initiatives, and the dramatic rise in takeaways with the like of Just EatDeliveroo, and, more recently, Uber Eats and Amazon Restaurants.

It’s not just what we are choosing to eat, drink and buy which is changing. It’s the way we are consuming, the choice we have, and the value we are demanding from each purchase. That means that individual businesses need to be at the top of their game to stay relevant in this hyper-aggressive market.

Meanwhile, costs continue to rise. The minimum wage is now £7.50 and is set to reach £8.75 by 2020. In addition, pension costs are going up, food costs are rising, and business rates are soaring. The possible impact of Brexit on customer demand remains unclear. The key to succeeding in this challenging landscape is people. Good people will serve more customers with better service, and thus bring in more revenue. Moreover, as people build their careers with businesses, they will, in turn, be the next leaders in the industry.

However, while businesses understand this in concept, poor hiring decisions and staff turnover as high as 100 percent annually, undermine the time, effort and focus needed to hire – and retain – the best people. So, for many, the apparent default option is the drive towards recruitment agencies and the American-style ‘gig economy’.

"Many forward-thinking employers are not looking at CVs at all, instead finding ways to judge the personalities of their potential employees"

For me (and I know that fortunately, I’m not alone in this view) whilst employees gain increased flexibility, the move towards poorer job security and career progression, added to the erosion of the bond between employee and employer – especially when faced with the increased pressures on the sector – can only have a negative impact on hospitality recruitment and retention, and therefore on longer-term profitability.

It will erode the quality of service customers receive and further reduce profit margins as employers are constantly spending money and time on recruiting staff to fill the inevitable job vacancies.

Our own research suggests that a typical London restaurant with 30 team members has an average staff turnover of 80% and will spend £14,400 a year on recruitment. That’s before you add in costs such as losses due to poor service, losses due to understaffing, and the additional costs of training each new staff member. All of this will ultimately take hospitality backwards, and continue its reputation as a sector which offers poor long-term job prospects and therefore fails to attract the best people. This spiral has to be broken.

One of the best places to start is right at the beginning – with recruitment itself. Instead of merely taking CVs from agencies, employers need to be able to get a better idea of which candidates are best suited to the vacancies available.

"The spiral has to be broken"

Many forward-thinking employers are not looking at CVs at all, instead finding ways to judge the personalities of their potential employees. This is crucial, as all our data and research points to the fact that personality is more important than experience or education in determining the ‘best fit’.

Technology now allows employers to replace gut feel with models which score would-be employees across a range of relevant human characteristics such as customer care, teamwork, reliability, and performance under pressure. The process is thus simplified for both employer and employee. There is more chance that the best candidate will be matched to the best role for them, which in turn will increase the chances of them being retained longer term and therefore drive down both the initial recruitment cost and any ongoing costs to the employer.

Those in the hospitality sector who are looking ahead recognise that this model offers a new and better way to build both their businesses and successful careers for their brightest employees. This then attracts better talent to the hospitality recruitment pool.

Equally, technology enables employees to give feedback on employers. This already happens informally through social media, but most recruiters are yet to embrace it formally. The pressures for change are real, but the ‘low cost’ option of the gig economy is never going to offer a permanent solution. Its apparent ‘flexibility’ is an illusion and the potent mix of rising costs and poorer service will expose this – even more so should some of the predictions around the impact of Brexit on the freedom of movement turn out to be true.

The plain fact is that employers need to pay well, give their team regular hours and provide training and viable career progression. Get these right and better-motivated employees will lead directly to higher customer satisfaction levels, which in turn will see a rise in profitability.

The good news is that the technology to start this revolution is here right now. The time is also right for the sector to embrace it. The alternative, given the new pressures the hospitality industry is facing, is really not an option. The gig economy may appear to be here to stay, but for hospitality, it’s a false dawn and one which in the long run could cost the industry far more in terms of both finance and reputation.

This article was written by Mikhil Raja, CEO & Co-Founder of Sonic Jobs

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