Labor Costs on the Rise – Managing Minimum Wage, Quality of Life, and High Staff Turnover

Labor Costs on the Rise – Managing Minimum Wage, Quality of Life, and High Staff Turnover

The industry is constantly changing and it’s easy to get left behind.  Keeping your concept relevant and competitive in any market, big or small, is difficult.  Historically, the cost of rent was the biggest cost concern for restaurateurs, but times have changed.  Rising labor costs, high turnover, and quality of life demands by employees have caused owners to make big changes in their operations. 

Minimum Wage Increase

Already operating on razor-thin margins, minimum wage increases are real problems that restaurateurs need to grapple with. The restaurants that have been hit the hardest are in states where tipped workers must be paid the state or county minimum wage.  While the federal government requires a wage of at least $2.13 per hour be paid to employees that receive at least $30 per month in tips, eight states do not allow this differential treatment for the tipped workforce.  An even greater burden has been placed on owners in cities like San Francisco that require all businesses with more than 19 employees to allocate additional funds on top of the minimum wage towards a health insurance plan.  

Raise Menu Prices

What is your small, independent restaurant going to do about it?   Many are turning towards increasing menu prices. In a survey recently conducted by Harri, over 70% of restaurants raised their menu prices 3-5% year-over-year. Meanwhile, accelerating wage growth has also given consumers confidence to spend more at restaurants even though they may be eating out less often

Price increases are a delicate balancing game.  Simply adding 5% across the menu may not work.  First, analyze your sales to see which items are your best sellers.  Do they sell because they are delicious or because they are priced lower than your competitors?  Depending on the concept, the most expensive item could be your best seller, but have the lowest margins.  Loss leaders can be great, but too many in this labor market may severely impact your bottom line.  Whichever strategy you decide on, be sure your menu stays valuable and customer service remains outstanding.  Your guests will never say a thing.

Staff Efficiently

Nobody wants to reduce staffing, but it is a readily available solution. However, many restaurants view this as a risky proposition. While many businesses have some distance between themselves and their customers, restaurants need people to operate the business and interface with customers every day.  Simply reducing labor without considering service quality could cause deeper damage than high labor costs.

Using technology to manage your schedule with companies like ScheduleFly can increase efficiency and reduce costs. This platform was tailored specifically for independent restaurants to keep labor costs affordable and simple to manage.

Avoid High Turnover

It’s not getting easier to maintain a skilled team at your restaurant. It can be difficult to hire strong back-of-house talent and turnover is a constant for the restaurant industry. Managers are often the hardest positions to fill and competition for skilled managers is fiercer than ever.  

Labor stats show that it costs nearly $2,000 to replace an hourly employee and around $14,000 for managers. Consider doing and spending whatever it takes to keep your restaurant fully staffed and on a smooth onboarding for your new staff.  If you can keep your new staff more than 90 days, it’s more likely you will retain them for years to come.

Operational Changes

Delivery and catering are booming.  From quick service to fine dining, everyone is jumping on board as delivery boosts the top line without adding major expenses.  Not only will you see immediate increases in revenue, but you can keep your staff busy during fringe hours.

Now is a better time than ever to lower your food and beverage cost.  Rising labor costs are affecting restaurants as well as the farms, factories, and companies that grow, manufacture, and deliver goods to restaurants. The trickle down effect has been evident in retail and wholesale pricing over the last decade and will continue to be the case as minimum wage increases. Consider new vendors, such as Cheetah, that are working to innovate the wholesale food and grocery supply chain. 

There are many other ways to reduce your food costs as well. For example, proper food and beverage costing (and menu pricing) will help offset the increase in labor costs.  Also, scratch cooking requires more skilled workers which will undoubtedly increase the cost of your labor. Consider dishes you can purchase without creating from scratch. Finally, narrowing your menu will minimize prep and plating times and can make your staff more effective and efficient.

While many restaurants try to cater to all guests at all hours of the day, it may not be affordable anymore.  While new reservation platforms, like OpenTable, have options to encourage fringe hour dining, rising labor costs may be discouraging restaurateurs to utilize these features. Analyze your hourly sales between lunch and dinner or late night to see if you can trim costs for your restaurant during off-peak hours. Offering a smaller menu can help reduce kitchen staff during these times. Consider seating guests at the bar to eliminate servers during off-peak hours.  

Changing service styles or remodeling the restaurant is risky and can put your restaurant in jeopardy.  Sure, guests could start ordering at the bar or you can convert the host stand into an order counter, but these are dramatic changes to the guest experience.  Ultimately, decide on what’s best for your budget and the amount of risk you are willing to take. 

Stay Ahead
The restaurant industry faces a challenge with rising labor costs amidst already narrow margins. Meanwhile, restaurant owners know they must continue to provide excellent service to their customers and remain true to their restaurant concepts. Labor costs and minimum wages will only continue to grow so restaurateurs will need to find creative solutions to stay ahead. In the end, smartly pricing your menu, being efficient with labor staffing, and offering competitive pay and benefits can each help you manage your labor costs.  Combine all these ingredients and your bottom line will be better than ever.

About Cheetah 

Headquartered in San Francisco, Cheetah is a startup that is quickly disrupting the $1 trillion US wholesale grocery and foodservice distribution industry. By offering flexible, next-day deliveries as well as transparent pricing and inventory in an easy-to-use app, Cheetah is helping support thousands of SMB restaurants with their grocery and supply needs in San Francisco, Oakland, San Jose, Los Angeles, Anaheim, Seattle, and Dallas. Cheetah has made more than 150,000 deliveries to over 2,000 active customers and has achieved over $100 million in annual sales with triple digit growth. Next up – turbo charging growth by bringing Cheetah to small businesses nationwide. 

Interested in more details? See our website, download our iOS and Android apps, or call us at 1 (800) 571-5231.

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