2018 Economic Forecast: Hospitality

By Pam George
Special to Delaware Business Times

In Delaware, some 49,000 workers — about 10 to 11 percent the state’s workforce — are in the hospitality industry. It’s a leading small-business employer with nearly 1,900 restaurant locations generating $3.8 billion in annual sales. Here are five things to watch in 2018:

Continued buzz about wages

The effort to raise the minimum wage, now $8.25, is still active in the Delaware Legislature. An increase will impact the industry, some maintain.

“If minimum wage goes up, expect fewer large restaurants to survive or open,” said Sheryl F. Kline, a professor in the Department of Hospitality Business Management and deputy dean of the Alfred Lerner College of Business and Economics at the University of Delaware. “You’ll see more casual or fast-casual restaurants.”

Jim Berman, a chef and contributor to FoodableTV.com, agrees. “Labor is one of the historically controllable expenses that is now getting out of control.”

Kitchen staff typically is salaried or hourly workers. Tipped employees are paid a base $2.23 an hour in Delaware. If a tipped employee isn’t making the equivalent of the minimum wage — or exceeding it — the employer supplies the difference and takes a tip credit.

Each pay structure has advantages and disadvantages. “The kitchen crew can weather the choppy waters on a slow night,” Berman said. “On the same note, servers reap the blessings of the 20-percent-tip god when a Friday night pops.”

To reduce the disparity, voters in Maine approved a referendum that increased Maine’s minimum wage and eliminated the tip credit. In June 2017, the Maine Legislature restored the tip credit at the urging of restaurateurs and restaurant workers.

Expect the conversation about pay to continue with strong opinions on both sides.

The need for labor

Labor shortages, particularly in the kitchen, will continue. “I’m seeing the restaurant industry more nervous than ever about filling positions,” said Carrie Leishman, president and CEO of the Delaware Restaurant Association. “As the economy improves, people are moving up the chain or moving out of the hospitality industry.” Visa issues have become another concern, said Ed Hennessey, an instructor in the culinary arts program at Delaware Technical & community college.

To encourage new talent, the National Restaurant Association implemented ProStart, a culinary high school curriculum with a scholarship component. The Crop Foundation, founded by Kip Poole, a culinary instructor at William Penn High School, also offers scholarships, as does the Touch of Italy/RehobothFoodie.com Foundation.

Food writer Bob Yesbek, managing trustee, said the Touch of Italy/RehobothFoodie.com Foundation is considering a requirement for second-year recipients. If implemented, the students must agree to work in coastal Sussex County upon graduation to receive funds.

An emphasis on training and HR

In some circles, restaurant jobs are viewed as transient; people move in and out of the industry while going to college or waiting for a better job. Programs like ProStart and instructors like Hennessy are working to change that stereotype. “This is a great career,” Hennessy tells his students. “You can make a living at it.”

His goal is to provide restaurant workers with skills already under their belt. Professional training shouldn’t stop at graduation. “Restaurants that focus on developing their people will be more successful than those who don’t,” said Scott Kammerer, president of Rehoboth Beach-based SoDel Concepts, which in November held
a professional development retreat for employees.

The company, which has 10 restaurants and a catering arm, also has a list of employee benefits,
a regular roster of activities to encourage teamwork and a human resources department.
Experienced HR directors are becoming must, given sexual harassment training and labor issues, Leishman said.

Growth and consolidation

Competition is also driving the need for skilled, steady labor. “There’s definitely an increase in hotel inventory coming,” said Sarah Willoughby, executive director of the Greater Wilmington Convention & Visitors Bureau.
She points to Springhill in Newark, the Residence in Downtown and two properties under development along the Wilmington Riverfront. Last May, Eric Sugrue of Big Fish Restaurant Group and partners announced plans to build a 122-room hotel and banquet hall attached to the existing Big Fish Grill on the Riverfront.

There’s a need for more guest rooms in Georgetown as medical services expand to the area and the Sports at the Beach complex draws major tournaments, said Scott Thomas, executive director of Southern Delaware Tourism.

Expect more new restaurants in the northern beaches, especially on Del. 1, which is becoming a hub for independents, said Yesbek, whose new radio show “The Business of Eating” is on 105.9 FM. Without seasonal tourism and relocated retirees as stimuli, restaurant growth won’t be as robust in Kent and New Castle counties, Leishman said.

Corporate mergers and acquisitions in the hospitality industry will continue, said Kline. Consequently, poorly performing sites — picture Macaroni Grill on Concord Pike — will close.

That opens the way for locally based hospitality groups, Kammerer said. “The casual chains will be replaced by chef-driven restaurants.”

A transformation in casual dining

Any new restaurant will likely have the casual vibe that gastropubs and bistros have made so common. That said, expect an increasingly upscale menu in casual environments. “People are into food but they don’t want to dress up,” Hennessy said. Look for more local, seasonal and organic options even in places with counter service, Kline said.

Quality products don’t come cheap. She wonders if the number of consumers willing to pay more for to-go food will hit a ceiling.

Hennessy predicts that restaurant diners will emulate Europeans. They’ll pop into coffee shops for a latte then lunch on light fare at a full-service casual restaurant. “I feel this is going to take hold in high-foot-traffic areas,” he said. “It will be a cross of a Starbucks and casual dining later for business or casual meetings.”

As a result, casual dining will become more than a category. Like anything in this millennial-driven world, it will be a lifestyle.

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