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May 2018 Edition
Seven Strategies for Restaurants to Survive Minimum Wage Increases
by Celeste Young-Ramos, CEO, Restaurant Success Center
Minimum wage increases are always a concern to business owners, especially restaurants and retail who have the highest percentage of employees that fall in this category. It is a double-edged sword. You want the people you work with, sweat out the peak period rushes with, and depend on to have a comfortable life, but you also need to make enough profits so that you can keep the doors open for everyone. In California, we are accustomed to .50 an hour wage increases, but some cities like Los Angeles are making mega jumps such as the upcoming July 1, 2018 increase of $1.25 or $1.50 per hour depending on the staff size. But raw labor is not all that rises, the payroll fringe of payroll taxes and workers compensation expenses also rise. Doing some quick calculations, you might as well add another 15.8% to your increased dollars in raw labor for these payroll fringe categories. Overall, the variance in labor + payroll fringe has the potential to raise the labor to 1.2 percentage points or more depending on the number of minimum wage employees you employ and their tenure. For a break-down of standard payroll taxes click here.
Now is the time to strategize how to preserve your revenues and make the best pass through with the following 7 minimum wage survival strategies:
Strategy #1: Raising Your Prices
When the cost of doing business increases, either the business has to eat some of it or pass it along to the guest. There is no way to get around raising the prices when a $1.50 an hour increase is looming. All your competitors will have to take a price increase and media will be doing a lot of coverage on the increase so your customers will be expecting it. Make sure you plan enough time to figure out how much the increase is costing you so you can determine how much you will need to increase your menu.
Strategy #2: Menu Re-Engineering
A consistent theme we find in independent restaurants is the lack of information regarding how much their food cost is for each menu item. We highly recommended completing recipe cards so you can determine which items produce the most profit and feature them on the menu. Ways to do this are to spotlight the big profit makers by putting them on the top right on menu boards and pages, drawing attention to them by highlighting them or putting them in an attention-grabbing box. Consider bundling items at a higher price if it creates better profit for you and a perception of value to the guest.
Strategy #3: Focused Suggestive Selling
Once you have determined the profitability of the “Stars” of your menu, train your sales team to suggest them during order taking. While they’re at it, add something that will complement the meal such as a side or desserts. Have drinks that people want to drink. Drinks are usually high profit, especially alcohol and take very little energy on the part of your staff to prepare. Suggest items by name such as “You’ve got to try a slice of our homemade Key lime pie!” vs. “Do you want dessert?”
Strategy #4: Improve Your Operations to Keep Guests
As the cost to eat out rises, customers become more sensitive to their experience and expect more. They will start to notice things such as poor upkeep, lack of cleanliness, and inconsistent food and will switch to restaurants where they feel they get better value. Now’s the time to really listen to your Yelp or Google reviews and take action. Studies show that a 1-star improvement in these scores have the potential to raise your sales up to 5%.
Strategy #5: Invest in Technology or Tools to Improve Productivity
We see more instances of technology every day. You can actually pay for my car registration and stickers in 2 minutes without waiting in a long line at my neighborhood grocery store! Fast feeders and fast casual restaurants now have ordering kiosks, on-line to go ordering, and quicker payment options. Often independent, small restaurant owners opening on a shoe-string budget are prone to choosing more manual activities overlooking the labor savings of more expensive POS systems that can reduce accounting, tracking, or payroll time. That $500 onion dicer than can cut onions for Pico de Gallo in a flash with less tears or the $1,000 vegetable peeler now looks essential. Even opting for pre-cut veggies can slightly increase food cost, but save ultimately in labor. Be inquisitive and be open to options that could create labor savings over the long haul.
Strategy #6: Tip Pool Sharing
Often with minimum wage increases, the more skilled cooks and supervisors demand more pay as the gap between the minimum wage staff decreases. This is called compression. We found with cooks, that when there was at least a $3.50 separation between the front and back of the house, wage tensions remained relatively contained. It can be surprising with servers currently making $12.00 per hour plus $150+ per day in tips, that more cooks did not mutiny to become servers or weren’t more demanding for higher wages.
With the recent March 2018 legislation now allowing tip sharing with the “heart of the house” staff, some of the bounty of the front of house can now be more equitably distributed. Some establishments have now moved to total tip sharing or even more courageous owners opting to include the tip directly into the price of the menu items. If you change to these structures, I would recommend that you seek assistance from a skilled HR Professional to insure the distribution is done in a fair and equitable manner.
Strategy #7: Reduce Your Turnover
The average restaurant industry turnover tops 100%. It is imperative that we reduce this constant influx and exit of employees as studies estimate the loss of each fast food employee equates to approximately $2,000 and managers $8,000+. As an employer, keeps employees longer they will also reduce the amount of three types of state and federal unemployment taxes since they are eliminated after $7,000 in earned wages each year. Be selective looking for candidates with good track records, invest in training, provide regular feedback, and don’t be afraid to take proper progressive discipline with non-performers. These actions will not only increase productivity, but guest satisfaction and employee morale as well.
We hope these 7 strategies will help you thrive and grow. If you need further guidance please contact us at email@example.com
Celeste Young-Ramos will be a featured speaker at the Western Foodservice & Hospitality Expo on Tuesday, August 21 at 1:00 pm discussing Easy Ways to Protect Your Restaurant from Sexual Discrimination and Harassment Claims.
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