You Decide: How will the hospitality industry change?

Published 2:33 pm Wednesday, June 1, 2022

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By Mike Walden

The North Carolina hospitality industry, primarily composed of restaurants and hotels, is a multi-billion-dollar sector in the state. As a percent of the state economy, its share has been growing in recent decades. The industry accounts for one out of every 11 jobs in the state. On average, every $1 million of new spending in hospitality creates 15 direct jobs in the industry and another five jobs in other industries.

During the pandemic, the hospitality industry suffered some of the largest losses among all industries. Employment dropped 44 percent compared to 12 percent for the entire economy. Even in early 2022, employment in hospitality was five percent lower than prior to the pandemic, while employment in the total economy had fully recovered. Surveys show that hospitality is one of the sectors where many pre-pandemic employees have moved on to other jobs rather than returning to employment in restaurants and hotels.

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As a result, hospitality is an industry, along with personal services, construction and manufacturing, where there are large numbers of unfilled jobs. Recent data on job openings in the state show 10 percent of all jobs in hospitality are unfilled, the highest among all industries.

The good news is that consumers are returning to spending at restaurants and hotels. Revenues in the industry are today two percent higher than pre-pandemic, even after adjusting for inflation. The worry among hospitality operators is how they can meet rising consumer demand with so many employment positions unfilled.

To add to the industry’s challenges are demographic trends. Young workers are a key part of employment in the restaurant industry, which employs seven times the number of workers as the hotel industry. Due to the declining birth rate – both in the nation and in North Carolina – the population of young individuals between the ages of 16 and 24 is expected to be the slowest-growing among all age categories. For example, between 2020 and 2050, individuals ages 16 to 24 in North Carolina will increase 16 percent, half the rate as for the total population.

What are the answers to these challenges so the hospitality industry in North Carolina can flourish? I think there are three approaches that will need to be considered.

First, to compete with other industries for workers, the hospitality sector will have to make work in the industry more lucrative. Pay will have to be increased. Indeed, the industry is already doing this. In 2021, average hourly pay in North Carolina hospitality firms rose almost twice as fast as in all of the state’s industries. This will likely need to be continued.

Today’s workers also like certainty in their schedules and possibilities for advancement. Unfortunately, this can be more difficult to achieve in hospitality than in other areas. Nevertheless, owners and managers of hospitality companies will need to get creative in structuring work schedules and promotions in order to “stay in the game” for workers. The second approach has owners and managers looking at the efficiency of their operations in order to find savings in both labor and money. The goal is to find wasted efforts and time in providing the final product and service. Sometimes the wasted efforts are due to a lack of communication between workers. Or, often the work won’t be properly divided between workers to achieve the final result in the lowest cost way. The bottom line is, too often owners and managers don’t step back and look at operations with an eye toward achieving savings without compromising output.

The third approach may be the most important: the use of technology and automation to substitute for human labor. In the future, technology and automation will increasingly be applied to all industries, but for the hospitality sector it may be the difference between success and failure.

We’re already seeing this transition at work. Hotels are using robots for cleaning and check-in has become automated. Some fast-food restaurants are using digital ordering boards to replace humans taking customer orders at a counter. Some sit-down restaurants have customers use tablets for ordering and paying the bill. There are also stories of up-scale restaurants delivering meals to customers with robots and of using other robots to assist chefs and cooks.

As technology continues to advance, these uses in the hospitality industry will be perfected and also become more common. And while it may be expensive to shift from humans to “bots,” the long-run economics of the change may make it inevitable.

The hospitality industry suffered a big blow during the pandemic. And while it has made a strong recovery, labor and financial issues suggest the industry will undergo major changes in the future. I believe most of us will continue to eat-out for some of our meals, as well as stay in hotels when we visit the wonderful sights of North Carolina. But what will our restaurants and hotels of the future look like? You decide.

Dr. Mike Walden is a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University.