Kevin Rezvani grew up in the kitchen: He spent summers in his grandfather’s bakery in Japan, completed a work study in the cafeteria at his university and worked for years as a chef in medium-sized restaurants, in addition to a few positions in the fast food sector.
By the time he was in his late 20s, Mr. Rezvani’s biggest takeaway from his experience “in all areas of the food industry” was the industry’s widespread inability to balance the art of a kitchen and the science of a restaurant with the math of a food business Business.
He says too many ventures aren’t profitable enough to justify all the hours of work required by managers and employees to stay afloat, let alone grow. In other words, they lack productivity.
“There’s a very fine line between doing well and doing well in this business,” said Mr. Rezvani, now 36. “And if you’re doing well, it’s not worth the time.”
A few years after graduating, he and two partners opened a casual restaurant near Rutgers University. But in early 2020, they broke up with him due to personal and business disagreements and he was on his own.
To pay bills, he worked for a moving company and delivered for Amazon, which boomed during lockdowns as people idle at home spent their disposable income buying goods.
These types of companies, Mr. Rezvani noted, are simple, lean and strict about how many machines or man-hours are needed per job. When looking for a second way to open a restaurant, he made maximizing output his guiding principle: “I thought to myself, ‘I have to make this whole thing more efficient.’ At the end of the day, it’s a business.”
In early 2021, he discovered a restaurant space for rent on East Seventh Street in the East Village neighborhood of Manhattan. The landlord, desperate to find tenants after the pandemic-related closures, gave him and his new partner a discount. They had to pay the deposit themselves, but they believed in their bet.
“I maxed out my credit card,” Mr. Rezvani said. “And it hit.”
With a minimalist menu, tiny square feet, and a limited selection of ingredients and products, 7th Street Burger opened in May and took off quickly. What started as 40 employees 16 months ago has become a chain with 330 employees in 13 locations, with plans to expand nationwide.
Some fancier, full-service restaurants in the city, with long lists of overhead costs, a fluctuating workforce and an array of rarely selected menu items, generate sales of “$200 an hour,” Mr. Rezvani argues. But on a good day, he can make $2,000 an hour “with three people at the grill, with three dishes on my menu, nine ingredients in my restaurant.”
“We are an ATM,” Mr. Rezvani said.
Looking for a win-win situation
7th Street is a success story that illustrates the nascent productivity surge that the U.S. economy has experienced last year after a slump in 2021 and 2022.
Economists typically measure productivity as a simple ratio: the total amount of output an economy produces per hour worked by its workforce. According to the Bureau of Labor Statistics, productivity rose 2.7 percent in 2023 and grew more than twice as fast in the last two quarters as it did from 2005 to 2019.
On a less technical level, productivity can generally be explained by the old axiom of “doing more with less” or the popular virtue of “getting the most bang for your buck.”
Economists tend to sigh with relief when they see productivity gains because it offers a potential win-win for workers, customers and business owners: If companies can make as much money or more in fewer hours of work, then – according to standard economics Logic – they can make more per hour, reinvest in the operation, and pay workers a little more without sacrificing profitability (or relying on price increases to increase profits).
Joseph Brusuelas and Tuan Nguyen, economists at consulting firm RSM, put it bluntly in a late January note: “The rise in American productivity over the past year, if sustained, is a potential turning point for the economy that represents this mythical rise. “Flood that raises everyone’s standard of living.”
In recent history, the give and take between productivity increases and worker wage increases has been inconsistent. Many economic models suggest that workers who start doubling their daily or hourly production are likely to earn about twice as much as before. However, from 1979 to 2022, productivity increased by more than four times the 14.8 percent inflation-adjusted increase in compensation for average non-managerial workers in the private sector, who make up about eight in 10 workers.
Still, productivity has acted like a secret sauce so far this cycle, allowing the other ingredients of what analysts call a “soft landing” to coexist: slowing inflation, robust economic growth, strong wage gains and unemployment near record lows.
“The labor shortage caused by the pandemic caused many companies to think about how they could use their workforce more efficiently,” said Dean Baker, an economist at the Center for Economic and Policy Research, a labor-focused think tank in Washington. “So for the first time in my life, I’m going to be a productivity optimist.”
More companies in finance, manufacturing, and transportation logistics are offering digital tools that—even without avant-garde AI features—seem to offer the much-touted promise of working “smarter, not harder” and reducing drudgery.
Ycharts, a company founded in 2009, sells a platform where users visualize complex financial market data and then create elegant, customizable charts and portfolios. According to recent updates, the company reported that its clients at financial advisory firms saved an average of more than a dozen hours per week through the busy work of data analysis.
Additionally, there has been a rapid shift towards corporate austerity overall since 2021, either in response to higher borrowing costs due to higher interest rates or an expected slowdown in sales. And that has impacted a number of investors and entrepreneurs who were part of the rapid business creation push that began in 2020.
“The pressure on companies is greater than ever to get to profitability as quickly as possible,” said Katie Tyson, 37, founder of Hive Brands, a new online retailer that curates, reviews and sells sustainable branded food and wellness products.
Although she calls Hive “a child of the pandemic,” having been founded in 2020 when borrowing was still extremely cheap, “we were very cost-conscious, I think in a way that the startups of the 2010s were not were,” said Ms. Tyson added. “It’s no longer growth at any price.”
Companies also appear to be responding more quickly to changing consumer habits. For example, the increased focus on delivery and pickup orders has increased the profit margins of many food companies. Retail analysts report that more targeted ads and growth in e-commerce have helped businesses large and small. And proponents of hybrid and remote work options argue that these models reduce wasted time commuting and help leaders bring in the best talent regardless of location.
Fruits of a tight labor market
Productivity data can be misleading. Its core calculation – output per hour – worked best when America was an industrial and agricultural society, producing primarily bushels of wheat or nuts and bolts for manufactured goods, as opposed to the harder-to-quantify service-oriented consumption that makes up most of today’s economy .
The data can be misleading, particularly when measured over short periods of time.
For example: Did the entire U.S. economy actually become 20 percent more productive on an annual basis in the second quarter of 2020, as a sober reading of the data suggests? Or were millions of workers laid off in a matter of months while the economy contracted only slightly, making the simplified output per worker ratio look falsely better?
Even apparent leaps in efficiency can be lost in the official data or lag behind for years. In 1987, Nobel Prize-winning economist Robert Solow noted that “the computer age is visible everywhere except in productivity statistics.” (There was a brief spike in numbers in the late 1990s and early 2000s before declining again.)
In 2016, Google’s chief economist, Hal Varian, told Bloomberg: “We certainly don’t measure productivity correctly – but we haven’t measured it correctly before either.” So can we measure productivity any worse than we used to? I think there is some argument to suggest that we are.”
Looking ahead, a number of market analysts argue that a key variable in overall productivity improvement so far has been an unemployment rate near record lows.
Peter Williams, an economist and managing director at 22V Research, an investment strategy and quantitative analysis firm, wrote in a recent note that “companies have been forced to innovate and adapt in a tight labor market environment,” adding that for many companies there has been none The real option is to rely on “cheap labor and cheap capital”.
When a company needs all hands on deck to keep up with sales, using layoffs to improve bottom line can have the opposite effect. Instead, improving efficiency rather than reducing headcount often proves to be a better growth driver or competitive advantage.
Maintaining productivity growth at current levels may require efficiencies through AI technology and further curbs on inflation, although a number of Wall Street analysts are confident that both are possible.
For some labor economists – who have seen shareholders and entrepreneurs recoup most of the productivity gains over the past few decades while wage growth has collapsed – the primary question in the near term is whether workers will be able to make a bigger difference To get a piece of the cake this time.
Kathryn Anne Edwards, an economic policy consultant and fellow at the RAND Corporation, worries that future productivity gains could come largely from technological innovation rather than worker effort or skills, which would weigh on average wage growth, which has recently surged.
“Wages are determined by either power or productivity,” Ms. Edwards said. “The low wages that so many workers earn are based on the idea that people are paid for the value they provide. And how exactly is this value measured?”
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2024-02-14 10:00:13
www.nytimes.com
