Why the gig economy is bad for hospitality and retail

Its apparent ‘flexibility’ is an illusion and the potent mix of rising costs and poorer service will expose this

Hospitality and retail in the UK are changing fast: Michelin-starred restaurants, bars with live entertainment, shops with handmade items from around the world, pop-up stalls, farm to fork initiatives, and the dramatic rise in take-aways with the likes of Just Eat, Deliveroo, and Uber Eats.

It’s not just what we are choosing to eat, drink and buy that is changing. It’s the way we are consuming, the choices we have, and the value we are demanding from each purchase. That means 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 £8.80 by 2020. In addition, pension costs are going up, ingredient prices are rising, and business rates remain high. The possible impact of Brexit on customer demand remains unclear.

The key to overcoming 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 leaders of the future hospitality and retail sectors. However, while businesses understand this in concept, poor hiring decisions and staff turnover as high as 100% annually undermine the time, effort and focus needed to hire – and retain – the best people. Thus for many the apparent default option is the drive towards recruitment agencies and the American-style ‘gig economy’.

While employees get increased flexibility, the move towards poorer job security and career progression and the erosion of the bond between employee and employer can only have a negative impact on recruitment and retention, and thus 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 a typical London restaurant with 30 staff that has an average staff turnover of 80% has a recruitment spend of £14,400 a year. That’s before you add in costs such as losses due to poor service or understaffing, and the additional costs of training each new employee.

All of this will ultimately take hospitality and retail backwards, continue their reputation as sectors that offer poor long-term job prospects, and therefore fail to attract the best people. This spiral has to be broken.

One of the best places to start is at the beginning with recruitment itself. Instead of merely getting in CVs from agencies, employers need to be able to get a better idea of which candidates are best suited to the vacancies available. Many forward-thinking employers are not looking at CVs at all, but 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 that 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 the longer-term cost to the employer.

Those in the hospitality and retail sectors who are looking ahead already recognise that this model offers a new and better way to build both their businesses and successful careers for their brightest employees. This in turn attracts better people to the sector. Equally, technology also 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 long-term solution for the hospitality and retail sectors. 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 staff regular hours and provide training and viable long term 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 hospitality and retail are facing, is really not a viable option. The gig economy may appear to be here to stay, but for hospitality and retail 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.

Mikhil Raja is CEO and co-founder of Sonicjobs