Truck Stops Detour Around the Service Worker Shortage: TravelCenters of America (TA)

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Lower labor participation Favors On-the-Road food Franchises

NEW ORLEANS: Normal life should have returned 18 months ago. Yet managers here still wonder if the Big Easy has become a location for a remake of the sci-fi classic The Invasion of the Body Snatchers. 

Where have all the workers gone? 

Like other cities, the beds here are made less often. The coffee that one had to cue up for at Cafe Du Monde was both tepid and oddly salty. The Po Boys were cold. Open bathrooms were hard to find. Clean ones were non-existent.

“The service that used to be at McDonald’s has crept up into Olive Garden. What was Olive Garden is now becoming the Marriott. And the high end? “That’s gone,” explained a former hotel manager, who now co-runs a southern cooking school just outside the oddly quiet French Quarter. 

Workers in New Orleans, like in most cities in the U.S., continue to be in short supply. This city is accepting that no one has any idea why.

It’s not just managers in New Orleans that have been left working through the eerie fadeout of the American labor force. Owners of packaging manufacturing plants in Michigan, retailers in western Pennsylvania, agricultural producers in mid-coastal Maine, and managers of financial services and real estate firms in the lower Hudson Valley of New York, have all been left to speculate as to where their workers went.

Out of this fog of service economy uncertainty, New Orleans’s less-is-more take opens a fresh lens to value. Namely it leads us to a franchised group of – wait for it – truck stops. That’s right, the chain of 276 commercial vehicle travel centers and service facilities branded as TravelCenters of America (TA) has emerged as a template for success in today’s declining workforce.

Government subsidies – both public assistance and those tied to the pandemic – are often blamed. Newly popular barter exchanges, like the Maine Homestead Bartering Group or disaster preparation networks like PrepperNet, have been said to lower the costs of living for workers, and thus their need to work. Some point to new ways to work from home that further lower costs for laborers. The young are posited to be moving back in with parents. Parents are said to be retiring early or sharing residences. Tightened immigration rules might be keeping workers outside America’s borders. Maybe it’s costly child care that keeps some at home. 

Or it simply could be that workers, who are tired of low wages and minimal benefits, are inventing their own gigs. 

“After all, the acronym for JOB is ‘Just Over Broke,’” said one self-employed Maine landscaper who also runs a riding school, raises chicken, and sells local provisions from a home she self-built with her plumber husband, who in turn leases his tractor to local homeowners looking to save money on pricey marine construction. 

Viewed statistically, limiting the narrative of disappearing workers strictly to the pandemic understates the confusion of modern labor dynamics. The U.S Bureau of Labor Statistics estimates that the rate of civilian labor participation – that is, the percentage of people ready and available to work – has steadily dropped for the past two decades. And today’s low labor participation rates have not been seen since the mid-1970s.

Labor participation rates today are as low as they were in the mid-1970s.

Low labor participation is not the only macroeconomic outlier related to disappearing workers. The key indicator of the efficiency of this declining workforce is also deeply contradictory. The percent change in output per hour – the key metric for how much any worker gets done – has fallen into the negative ranges not seen since the mid-1980s. 

And through some statistical lenses, labor inefficiency hasn’t been this low since much of the American workforce was overseas fighting battles in Europe and the South Pacific during World War II. 

The productivity for that declining work force as certainly as low as the early 1980s. By some measures, it’s as low as just after World War II.

Not a single soul can seem to agree as to what could possible drive the loss of both workers and productivity. 

Some stick to the notion that a large pool of untapped workers awaits. “The decline in the participation rate overstates the progress in labor markets,” says Sal Guatieri, senior economist at BMO Capital Markets. Central bankers nominally agree, pointing to high labor vacancy rates that indicate a hidden demand for workers in the private sector. But others have a darker view. The U.S Chamber of Congress flatly states that nearly 2.75 million workers have permanently left the economy. And new technologies are seen to permanently reduce the demand for labor. McDonald’s, for one, is betting heavily on touch-screen ordering tools that lessen labor costs. 

But here in New Orleans, a simpler, yet far more profound explanation for the thinning atmosphere of available labor is emerging. “People have always lived here knowing they could die of something horrible like yellow fever next week,” explained an amateur zydeco washboard player at a local bowling alley, who also is an IT consultant for national brands working in the Caribbean. 

“Since the 1600s, we’ve always lived in the moment,” he said. “Sometimes you just feel like taking a breather.”

Wouldn’t you know it, just like jazz and jambalaya, New Orleans’s centuries-old knack for finding the path of least resistance through hard times, has yielded an effective value discovery narrative: The service economy is entering a kind of serviceless phase. 

And the enterprises that embrace the diminishing expectations of the un-knowableness of today’s workforce will captured a major competitive advantage. 

The Service Sector from 30,000 Feet

The service economy has never served up its secrets with ease. Merely quantifying the business of doing things for others turns out to be a serious macroeconomic hack. The Bureau of Economic Analysis estimates that  services make up roughly $14 trillion of the $22 trillion in total U.S. gross domestic product. The sector tends to grow. During the most recent period, private services was the only area that grew, when compared to manufacturing and government spending in the U.S. 

But exactly why services sparked such growth in an otherwise wobbly economy remains unknown. 

Some researchers believe the service economy is an extension of traditional Marxist classism. Increasing wages is a story of some groups gaining power, while others lose. Some economists argue that services are a natural progression to a more efficient economy. Others say it’s skills that are the key driver. That might be true for computer programmers, but like welders, plumbers and even nurses complain of bitter worker shortage, and even worse working conditions.  

Even skilled workers like nurses are seeing record shortages of labor and complaints about quality of work.

The service economy only gets more clouded when particular sectors are considered. Take eating out: The American postwar period featured a boom of eating outside one's kitchen. That boom has continued through almost continual price increases. The Bureau of Labor Statistics estimates that the cost of food consumed away from home has doubled from 1999 to 2022. 

But exactly what food services consumers were willing to pay for has never been predictable. Once unstoppable service-economy giants like Howard Johnsons, Friendly's, Krispy Kreme, and Mrs. Fields Cookies have all faced major downturns. By some accounts, 7 out of 10 top franchise failures have been restaurants. 

How the food services business will recover from pandemic-induced losses is even less well-understood. Some research say gaining back customers will be a tricky dance of communication and slowly rebuilding trust. Regardless, getting the butts back in seats won't be easy. 

“This idea of service failure recovery focuses on a different type of moral hazard in the presence of demand uncertainty,” wrote Yan Dong, a researcher at the Darla Moore School of Business in Columbia, South Carolina, in a 2015 research paper.


Mishandling the Serviceless Economy

The inability to adapt to a serviceless service economy has had a profound effect on the values of restaurant chains. Bellwethers like Darden Restaurant Group (DRI), Aramark (ARMK), and Texas Roadhouse (TXRH) still seem gripped by limited labor, high costs, and uncertain arguments with their customers. $90 for dinner for two at Olive Garden? Really?

Once glitzy food-service destinations like Dave & Busters (PLAY), Cheesecake Factory (CAKE), and Shake Shack (SHAK), also seem to offer a never-ending buffet of decreasing margins, reduced traffic, and more questions about core consumers. Once robbed of their brand magic, how good has the food been at any of these destination eateries? 

Even at the low-end, eating out has become a terrible value proposition. Chipotle Mexican Grill (CMG), Burger King, Tim Horton, or even Popeyes (QSR) seem no closer to finding the story that creates sustainable value. Nor do they seem closer to making reasonably decent fries or donuts. 

Trust us, reporting this story has been a greasy mess. 

Even industry giant McDonald’s (MCD) shows few signs of diagnosing how to manage a vanishing labor force. This once unstoppable value-creating turbine, has been quietly reporting negative book-value per share results since 2016. Are we at the stage where the Golden Arches devalues the properties it sits on? 

By some measures, the service economy is such a challenge that even McDonald’s now devalues the properties its restaurants sit on.

Investors are sensing smoke in the kitchen. Share prices have been gyrating by as much as 20% over the past 52 weeks. 

TravelCenters of America has emerged as a template for properly managing a services business in an economy with fewer workers.

Eating on the Road

Which brings us back to the aforementioned truck stops. We understand, technically speaking, the Westlake, Ohio-based TravelCenters is not a restaurant chain. It’s a gas station, with a commercial-trucker supply store, showers, reasonably-priced food, and lots of free parking. Its valuation multiples and comparables shouldn't factor in the restaurant sector. Envisioning TravelCenters as service economy story is a big leap, for sure. 

Still, there’s also no question that TravelCenters president Jonathan Pertchik has found a novel model for how to manage a services business when there are few workers to service it. 

For one, he has invested heavily in rebuilding and upgrading his facilities to place less stress on services and more on practical fixtures. Next, he has been rigorous about picking locations that both target his core market of professional truckers but also are useful to amateur travelers like us. Facilities we visited in central Pennsylvania and Ohio were bright, if laid back. Service was indeed slowish. But it was amiable and exactly in tune with its mostly male trucker customers. 

On paper, TravelCenters is attractive. Gross margins ran about 21%. Book value per share was $47.37. Return-on-investment ran at about 10% during the teeth of the current slowdown. The enterprise is trading at its 52-week high – name another restaurant chain that can say that. Yet it’s still worth only about 7 times its price-to-earnings. In many ways, the stock is cheap. 

Investors do not seem to mind the concerns of another pandemic or increasing fuel prices. The demand for the ticker has been steadily exceeding supply since the beginning of the summer. 

To us, TravelCenters is a tangible example of the New Orleansian answer to the body-snatched American worker. For now, workers are gone. No one knows why or when they will return. That frees us to focus on what matters. For truckers, that’s a good location, a hot shower, and the best price for diesel. A spotless bathroom is nice. But clean enough is good enough. 

Toss in a good cup of coffee that runs just $1.25, and the professional drivers we saw were happy to tip well. As did we.