There’s no getting around the fact that minimum wage rates are rising.
Recent legislation will bring the minimum wage in California and New York to $15 per hour within the next few years, and other states and cities are likely to follow suit. As a result, restaurant operators will be forced to more thoughtfully manage labor costs.
Many in the industry say they will be forced to raise menu prices, and some say jobs will be lost.
But there are other ways to defray rising labor costs—without the need to cut staff or even raise menu prices dramatically, says Mark Kuperman, president, North America, of Revenue Management Solutions, which works with food and beverage clients across all segments.
Independent restaurants face the same labor challenges as chains, Kuperman observes. But multi-unit operations can spread their labor cost increases out across a larger system. Many independent operators don’t have that luxury.
One advantage independents do have over chains is flexibility, he adds. It may take some trial and error to find the right balance, but independent operators can be much more nimble and creative as they build a more efficient menu.
Here are nine ways to rein in labor costs without hurting your business:
1. Rethink the menu
It’s something operators do every day, but it’s an obvious first step. Take a hard look at reengineering your menu, from the ingredients used to the recipes and presentations. There may be ways to cut costs in a way that will be invisible to your guests.
Streamlining the number of items offered will help reduce labor costs and, perhaps, improve execution, Kuperman says. “Don’t try to be everything to everybody,” he advises.
3. Do the math on operational efficiency.
Chefs should look at the operational impact of specific menu items to see if the way certain dishes are prepared impacts profitability or throughput.
“There are menu items that are very profitable, but actually slow down the service,” Kuperman says.
A quesadilla, for example, can be a profitable item, but it takes a lot of space on the flattop and it can slow other operations, he said. “Understand operationally where those bottlenecks are.”
4. Keep price changes small and more frequent
If you feel you must hike prices, do it in small increments over time, Kuperman suggests. “In an environment of increasing costs, you’re better off taking more price changes in smaller increments than doing it all at once.”
In the quick-service world, generally every dollar increase in the minimum wage requires a 1 percent to 2 percent increase in menu pricing to cover that labor increase.
Kuperman says he’s seen franchise operators hike prices 5 percent in response to a $1 per hour minimum wage increase. “That’s very risky,” he says. Guests are likely to notice a jump in prices and that can hurt frequency. “What’s really going to kill you is if you take 5 percent and your smarter competitor takes 2 percent,” he notes.
5. Understand price barriers
For both chains and independent restaurants, there are certain price barriers consumers are reluctant to cross. For casual dining concepts selling burgers, for example, that barrier is typically at $10, Kuperman says.
If that’s where your burger is now, better to tweak the burger than the price. “You’re better off reengineering the portion size or what comes with that burger, than crossing barriers that may be prohibitive,” he adds.
6. Be unique
If you offer burgers or pasta with chicken in cream sauce, guests are going to have an idea in their minds about what that should cost.
But if you get creative with menu items, using lesser-known ingredients, guests are less likely to have a frame of reference for price. That means they will be less likely to balk at price increases, Kuperman observes.
7. Change your hours of operation
A restaurant open for breakfast, lunch and dinner may not need to be open between 3 p.m. and 5 p.m. Again, Kuperman points out, this is where independent restaurants have the benefit of flexibility.
8. Leverage loyal customers
Unlike chains, independents have a lot to learn about knowing who their customers are and reaching out to them through social media or point-of-sale data to provide incentives for bounce-back visits, Kuperman says.
Offering discounts is worth exploring, especially if they bring guests back during slow periods. “Independents are able to react more quickly, so they can use trial and error until they find something that resonates.”
9. Don’t cut staff
Cutting staff impacts the overall restaurant experience, Kuperman notes. “There’s the saying, ‘Food brings them in, and service drives them out.’ Cutting back on service can be very risky.”
Contact Lisa Jennings: [email protected]
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