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How to combat rising labor costs

Katie McCann

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While speaking with a number of different restaurant operators across the country over the last few months, we’ve noticed a collective fear: rising labor costs. Franchisees turn different shades of red as soon as topics like minimum wages, increasing insurance premiums, and talent pools are broached, and most have no idea how to tackle these issues. Do restaurants pass new cost increases onto the customers? Should they cut employee hours or the number of team members they employ? If you’re facing any of these questions, check out our 7 tips below for balancing growing costs!

1. Pay attention to your sales forecast.

Sales fluctuate from month to month and season to season. Do you keep your scheduling consistent between a barely-there January and a booming June? If so, your business could be stripped of profits extremely quickly. Think ahead and use sales reports from previous months and years to guesstimate gross sales at least 10 days before the start of the upcoming month. You can then adjust employee schedules to accommodate the projected number of guests and business needs. Confirm that a set labor cost percentage is in place so you know exactly how much you can afford to spend on hourly employees after you’ve paid salaried staff.

2. Hire smarter.

Building a high-quality workforce can address escalating costs without risking customers (and can even increase guest visits!). Utilize background checks and consider evaluating candidates via various behavioral assessments during the interview process. While this idea may seem extreme, these evaluations easily reveal prospects who match the core values and goals of your operation. Many operators hire the first person who walks in the door just to fill an open spot on the line, or take on employees based solely on years of experience. If you instead hire on skill, drive, and enthusiasm, these employees will stay engaged with your operation and work harder, better, and faster, driving results directly to your bottom line.

3. Track labor on a daily basis.

Get a clear picture of your labor costs by running daily POS reports to see how many employees were working (keeping in mind how much you’re paying each of them per hour) and what your total sales were. You can also take advantage of remote monitoring tools to keep an eye on front-of-house and drive-thru traffic patterns as well as see how efficiently employees are handling back-of-house responsibilities. By running reports and checking live and recorded video each day, you can efficiently adjust staffing needs, spot performance issues with specific employees, and monitor the effectiveness of any sales promotions.

4. Cross-train employees.

Some operators think it’s more efficient to train certain employees on front-of-house procedures and others on back-of-house duties, rather than allowing staff to learn and work all areas of the business. By cross-training your employees and ensuring that each team member is capable of handling any operational procedure, you won’t run into scheduling headaches when one person is out sick or when someone needs to be cut from a shift on a slow day. Allot time for additional training if necessary to verify that each employee is comfortable at the register, drive-thru window, and various food stations.

5. Leverage loyalty.

Consider implementing a loyalty program to reward your frequent guests. Provide incentives for bounce-back visits via social media, email, or text message, especially during slow periods of the day or week. While you may be hesitant about the cost of a loyalty program, the additional revenue generated by the resultant pickup in sales will overshadow the comparatively slight expense. An effective loyalty program can encourage guests to share their appreciation for your store with friends and family, which in turn can create a cycle of business that’s highly impactful on profits.

6. Size up your menu.

By examining your food options and making small tweaks, a revamped menu can work wonders towards making up for mounting labor costs. This could mean renegotiating with or sourcing new suppliers, reducing portion sizes, or removing higher-priced ingredients. Ensure that there are no menu items slowing down the line – while they may be profitable, foods that are slow to prepare or cook reduce guest satisfaction and overall BOH efficiency by taking up space in the kitchen for an extended period of time. You might also try out a limited-time promotional item, which may help draw renewed interest and traffic to your restaurant.

7. Use small and frequent price changes.

If you know you need to increase pricing, don’t do it all at once. Customers will be confused and unhappy, which can reduce or eliminate their visits altogether. Try increasing prices at just 1-2% to start, then gradually go up again every few months if needed. Monitor your major competitors and ensure your pricing doesn’t skyrocket above market trends. Also keep track of tacit industry price caps for any standard menu items like burgers, sandwiches, and salads. Know that unless your offering is out-of-this-world and totally unique, customers probably won’t pay above the barrier.

With such slim margins industry-wide, business owners are already hawkish in controlling every penny. Costs are changing fast, and owners are forced to adjust budgets on the fly and think carefully about employee pay. Make sure your enterprise is prepared to cover increasing wages without sacrificing revenue or customers!

How to combat rising labor costs

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