Preparing Your Restaurant or Bar for Wage Increases

Originally Posted on FoodableTV – By Doug Radkey 03/09/2018

If you haven’t done so already, preparing your restaurant or bar for a regulated wage increase should be near the top of your to-do list, no matter your region. There has been plenty of government level discussions and a ‘movement’ if you will, defining a need to offer better living wages for citizens across North America (and abroad), with a focus on the hospitality industry.

The day is coming if it already hasn’t happened in your area.

Should your venue have already been offering what’s called a ‘living wage’? Arguably yes, but the market for years has demanded ‘good food for cheap’ (for the most part) which has dictated the need for restaurateurs in particular, to pay out the lowest wage possible to its hard-working staff.

However, the times are rapidly changing. And that’s not necessarily a bad thing.

Not surprisingly, however, many restaurateurs, potentially ones like yourself, have become concerned about the complications a dramatically large increase in their costs will have on their operations.

The biggest challenge most restaurant owners face when considering a large wage increase is how they’re going to adjust their concept and overall business models, sales, and marketing strategies to effectively respond to the increase.

Smaller independent restaurants are placed into a concerning financial position that could have dramatic implications. But, it doesn’t have to be so grim for small operators with a well-thought-out plan about what processes need to be in place.

1. Review of Concept

Restaurateurs are ultimately responsible for achieving long-term viability. The key elements to a successful concept are scalability, sustainability, profitability, consistency, and delivering memorable experiences.  To achieve this, one must weigh their overall value against their expenses.

The first step to preparing for a wage increase is to measure your value proposition. How can you add further value to your guests to ultimately increase your revenue? What are one to two ways you can increase value within each of the above five listed elements within your unique venue?

Create a SMART action plan to implement over the next 1-3 months.

2. Review of Systems

Successful restaurants are also built on systems. As an employer, these systems need to be reviewed on an ongoing basis. What FOH and BOH systems can be scaled, improved upon, or simply cut-out, to maximize efficiencies without diminishing guest experiences, profitability, sustainability, and consistency?

This is the time to review your restaurant’s service sequences, training programs, food & beverage preparation, line of equipment, food & beverage suppliers, menu development, communication systems, inventory management systems, use of technology, and many others.

A complete 360 degree assessment of your operations is the most ideal approach.

Doing so will position your venue to potentially reduce weekly hours while offering an improved competitive wage that will be more utilized to its maximum potential.

3. Utilize Available Data

Improving a restaurants staff scheduling process within itself is an easy way to control costs, positioning a restaurateur to maximize its sales per labor hour and other labor performance indicators. Restaurant labor costs are a prime expense that needs to be properly controlled to eventually turn a profit.

An increase in labor benchmarks means your other prime costs including food and rent costs, need to be reduced below what’s been known as ‘industry standards’. This means that your food costs should be between 25-30% (instead of 30-35%) while your rent should be 5-8% (instead of 10-12%).

Aligning these benchmarks to profitable levels will position your venue for a sustatainable future; even with a wage increase – there is nothing to stop a venue from obtaining what’s often referred to as an impossible 10-20% net-profit over a period of time.

Utilize data on labor, hourly sales, and the month-over-month operating results from your point-of-sale system, to forecast expenses (creating a revised budget) with an increase in your new minimum wage over the next twelve months.

Physically visualizing this data and its results will determine the route you will need to take to pivot and align the remainder of your cost categories.

4. Menu Engineering Strategies

Once your systems are deemed to be operating at their full potential, it may be time to review your menu engineering strategies. To assist in a wage increase, for example, it is ideal to consider adding ‘value added’ menu items, simplifying food preparation methods, and looking to eliminate any complex menu items.

Your last resort should be to increase menu prices. Look at all other aspects first, including size of menu, preparation time, prime food costs, the number of ingredients used, and the repurposing of those raw ingredients throughout the menu, where possible.

Looking for ways to reduce and control food & beverage costs (controlling – not cutting), while developing a menu your target audience wants & needs, may position your restaurant to have more available funds to use towards an increase in labor costs.

5. Review Promotional Plans

The math is simple, an increase in sales and margins will position a business to pay its staff higher wages. Often the problem doesn’t lie within traditional lunch and dinner hours. To fill seats during traditional non-peak hours, restaurateurs need to consider menus that target day-parts and added-value; while understanding their ideal customer profile.

The moment a restaurant stops marketing is the moment it starts failing. Once a restaurateur truly understands their locations slow periods and peak periods, in addition to the target market and guest spending habits, a strategic plan can be developed and executed to maximize each moment of each day; by ensuring your restaurant has a monthly and quarterly marketing and sales plan created.

In summary, once that moment is gone, you don’t get it back. Therefore, what could an extra $100 to $200 per day in sales during typical ‘slow periods,’ do for you and your new labor costs, in one full year?

6. Look After Your Employees

Employees are your number one asset. If we (most restaurants) weren’t already paying just a minimum wage to employees, this discussion wouldn’t be needed. It’s time restaurant owners look to take the initiative and implement a better living wage for their employees.

Build culture and value by developing sustainable hiring programs, consistent training systems, scalable pay grades, profitable working environments, and memorable customer experience strategies to develop a brand your entire community (customers and employees), will want to support over that of your competition.

It’s understandable that small independent restaurants are vulnerable to a minimum wage increase, but there are ways a restaurant can prepare itself for, and take the initiative on their own, to increase wages and pay their staff a more comfortable living wage.

Change starts now!