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Small businesses scramble to adapt to labor shortage

Raising pay, adjusting operations are among the responses at businesses across the Upper Midwest.

Hot Chip Burger Bar
David Hoffman and his wife Beth Hoffman of Stevens Point, Wis., order lunch using the kiosk monitors Wednesday, Dec. 15, 2021, at Hot Chip Burger Bar in Rochester.
Traci Westcott / Post Bulletin
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EDITOR’S NOTE: It's called "The Great Resignation," a seismic upheaval in the workforce that is reshaping today's economy. This week, Forum Communication Co. reporters will look at The Great Resignation's profound effects on workers and businesses across the region in our multi-part series, “Help Wanted.”

ROCHESTER, Minn. — As more workers walk out the door as part of the pandemic-spurred Great Resignation, small businesses across the Upper Midwest are being forced to adapt to the new reality of having fewer employees and needing to do more to retain the ones that remain.

In some cases, those adjustments mean shutting down parts of a business.

“The last almost two years have certainly not been typical. Pre-COVID, I had five restaurants,” said Chef Justin Schoville, a co-owner of two restaurants in Rochester. “Now I have two… A fair amount of that has to do with labor shortages.”

In Minnesota, the labor force participation rate dipped slightly, to 67.7% in October as 2,575 Minnesotans left the labor force.

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A similar dynamic is playing out in North Dakota, where 2,415 people left the labor force in November, leaving just over 400,000 available workers, and the unemployment rate dropped to 3.2%, from 3.5% in the previous month.

“Businesses of all sizes are certainly feeling this and are trying to figure out ways to hang on to people, attract new employees and mitigate the impacts of the workforce shortage that is affecting every state,” said Arik Spencer, CEO and president of the Greater North Dakota Chamber of Commerce.

And, as it turned out for Schoville, downsizing was another option. He co-owns the Hot Chip gourmet burger shop with Lindsay Zubay, and the pair of them co-own Mr. Pizza North with two others. But a few other restaurants didn't make it.

The first pandemic casualty for Schoville and Zubay was their downtown Rochester food court lunch spot — Lettuce Unite — that they closed in August 2020. While labor issues were a factor, that closure was primarily driven by large numbers of Mayo Clinic workers working from home instead of downtown as well as city construction blocking access to the area.

Help Wanted
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It was a much bigger hit when they were forced to shut the doors of Porch Fried Chicken and its downstairs ghost kitchen counterpart, Boxcar Hippie, in September 2021. The restaurants operated in the historic railroad depot building.

When indoor restaurant dining reopened, they revamped Porch as well as Hot Chip to use computer kiosks to take customer orders and payment to reduce the need for staff. That change is here to stay.

“Hot Chip will never go back to full to full dining service. It will always be kiosk and counter service with full service at the bar,” he said. “That genie is never going back in the bottle.”

Schoville and Zubay are certainly not alone in facing labor challenges.

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Against a backdrop of workers leaving the labor force, the Minnesota Department of Employment and Economic Development recently reported that the state gained 8,600 jobs in November, up 0.3%. That’s a growth rate higher than the U.S. as a whole, which was up 0.1%.

Average hourly earnings for all private sector workers in Minnesota rose 42 cents to $33.79 in November, according to DEED. Over the year, average hourly earnings rose $1.73, up 5.4%. Since November 2019, they are up 9.5%.

An annual study by North Dakota State University predicted a positive economic outlook for Fargo, where total wages grew by 5% in the second quarter of 2021.

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Spencer, of the Greater North Dakota Chamber, said that the labor shortage has changed the way businesses operate in his state.

“You see small businesses doing different things, like adjusting their hours in the hospitality or modifying their menus," he said. "We're seeing wages increase as people try to hang on to folks and everyone is looking at how they can offer different benefits.”

Spencer added that North Dakota businesses are trying to make changes as it looks like this labor shortage might last for a while.

“As every state in the country is facing this, it's not a matter of where are we going to get people from, because everyone's trying to kind of steal from the same pool. It's a matter of how we continue to adjust and be nimble as we kind of move into the future,” he said.

All of the employment data in the region adds up to an equation where businesses have more open jobs and fewer potential employees — plus each of those employees costs more than they did pre-pandemic.

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Dunn Brothers
Barista Viktoria Cortez refills coffee beans on Tuesday, Dec. 14, 2021, at Dunn Brothers on Elton Hills Drive Northwest in Rochester.
Joe Ahlquist / Post Bulletin

A recent survey of local business owners conducted by the Rochester Area Chamber of Commerce found both the top challenges of 2021 and top concerns for 2022 are hiring, employee costs and employee retention.

Dennis and Lynn Wong own two Dunn Bros. coffee shops and the Blue Plate Diner in Rochester and have operated restaurants here for decades. Dennis Wong said they have never seen these kinds of labor issues before.

“We're still trying to figure it out. We don't have a solution for it,” he said, roughly estimating that his employee numbers are down about 20% compared to pre-pandemic/Great Resignation numbers.

The challenge that keeps Wong busy is trying to balance the customer’s expectations of service, the employee's need for enough hours to make a decent wage and making it all work to keep the business economically viable.

“We're adjusting and learning on the fly… The market has changed so quickly and so often that it's difficult to keep up,” he said.

They have reduced their hours of operation to accommodate the shortage of employees. That means covering the popular breakfast and lunch shifts, as in the past, but shutting down earlier in the afternoon than they have ever done before.

Like Schoville’s restaurants, Wong said his employees are leaving for a variety of reasons. Some have gone to better paying competitors. Some have opted to stay home for family reasons supported by a boost in unemployment benefits. Other employees have chosen to pursue careers in other industries with some going to work for Mayo Clinic.

Competing with Mayo Clinic for employees has always been an issue for small Rochester businesses. However, the unusual conditions of today's market have made it a bigger problem than before.

Dunn Brothers
Assistant manager Tom Johnson makes a drink for a custoemr on Tuesday, Dec. 14, 2021, at Dunn Brothers on Elton Hills Drive Northwest in Rochester.
Joe Ahlquist / Post Bulletin

Overall, retaining employees requires much more effort and investment from small businesses than in the past.

“We, of course, want to be competitive and want to retain employees, but what it takes to do that keeps changing at a much faster rate than it used to,” said Wong.

Steve Dunn, the owner of Rochester's Taco Jed, agrees that hiring and retaining employees today requires business to adapt more quickly than in the past.

“COVID, from a business owner standpoint, has made us think a lot more about the many, many different aspects of the jobs. We are still learning how to work through that,” he said.

Like Wong, Dunn has been forced to reduce the hours of his restaurant.

“What we ended up doing was looking at when most of our sales were and saying we're going to offer lunch, dinner during the weekend and we're going to shorten our breakfast hours to be able to keep our full-time staff fully employed through COVID,” he said.

Of course, changes like that are not always popular with customers. Taco Jed is now closed on Mondays and Tuesdays, which strikes some people as particularly problematic.

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Luis Vargas, left, prepares a taco as Susana Anguiano cooks a fresh batch of chips Friday, Dec. 10, 2021, at Taco Jed in Rochester.
Traci Westcott

“Customers say to me, ‘What about Taco Tuesday?’ But from a numbers standpoint, it makes sense,” said Dunn. “So we are sometimes not open when people who enjoy our restaurant want to eat there… That’s the downside of it.”

To accommodate the labor shortage, Schoville has an actual remodel and redesign of the dining rooms at Mr. Pizza North.

“Our business is still 60% takeout… and because of that, we have to shrink the dining area so we can control it. Also, we need to make the dining room layout more efficient,” he said. “We need it so you can operate a dining room that's efficient and you still provide good customer service, but that doesn't need an army of servers… So we got to condense so it's more efficient and can be operated with fewer employees, because, obviously, it’s extremely hard to find employees in this market or in any market.”

Jeff Kiger writes a daily column, "Heard on the Street," in addition to writing articles about local businesses, Mayo Clinic, IBM, Hormel Foods, Crenlo and others. He has worked in Rochester for the Post Bulletin since 1999. Readers can reach Jeff at 507-285-7798 or jkiger@postbulletin.com.
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