Offset the Cost of Minimum Wage Increases with Better Labor Management
Minimum wage is rising in the United States. But that doesn’t mean your labor costs need to go through the roof.
Minimum wages are on the rise across the United States, with 18 states introducing new minimum wages on January 1, 2018. As those changes are ushered in, financial, planning and analysis teams are digging into their reports with even more fervor – looking for areas of cost savings to stay afloat in this dynamic environment. (Eater)
Higher Labor Percentages are the New Normal
Sources say higher wages and other labor costs could have cost restaurants as much as $250 million in 2017. (Restaurant Business Online) Another analysis by Dean Haskill, consultant and owner of National Retail Concepts Partners, found that nationally traded public restaurant companies saw their labor costs increase by $300 million in 2017.
Restaurants are acknowledging the realities of rising wages occurring at a disproportionate rate of restaurant prices. If not through earnings reports, the topic is in just about every conversation. Andrew K. Smith of Four Foods Group acknowledged how the rise in labor has impacted his group’s brands at a recent MarketingVitals conference:
“Labor used to hit around 22-24%. Now, it’s more like 26-27%. But we realized that if we raise people’s pay and provide ongoing training and development plus equity to our managers, we’re in good shape. I’ve had two managers leave out of 140 restaurants in the past two years.” (You can read our full RestCon recap in this blog!)
Texas Roadhouse is another example of a brand with higher labor costs. In their recent earnings call, the company posted higher labor costs than other publicly traded companies in their size and segment.
Yet, Texas Roadhouses’ sales and traffic comps were higher. In a press release on their Q4 2017 results, the company contributed their 5.8% comparable sales growth for the quarter to strong traffic gains, relatively flat food costs; and mid-single digit labor inflation.
Mid-single digit – is that the new normal for casual dining restaurants? And what is the new normal for QSR, fast casual, and fine dining? All good questions that have yet to be answered by one single association, research or analyst firm.
What financial planners, operators, and owners need to be focused on is keeping the labor percentage at a manageable level. What manageable level means to one company may be different from another.
“The goal is to offset the cost of rising wages and generate a forecast that optimizes your labor for the forecasted sales and traffic expected,” said David Cantu, co-founder and chief customer officer at HotSchedules. “It’s not enough to reduce labor costs – restaurants have to look at their ability to keep labor percentages at a level the business can withstand without sacrificing the overall guest experience.”
Here are 5 ways we believe innovative forecasting and labor management best practices will offset the cost of rising wages and labor costs:
It starts with the forecast.
1. Partner Managers with Predictive Analytics & Machine Learning
Restaurants that operate with excellence and consistently meet their goals monitor their P&L on a weekly basis. They have strict labor budget requirements. Their managers forecast sales to build accurate schedules.
Raise your hand if you’re 100% certain that 100% of your managers are doing all of those things … Great forecasting is an essential manager skill, yet it’s often overlooked in favor of gut instinct.
And, this is why the forecasting task is moving to the machine. The number of variables that a manager must take into consideration – events, weather, large groups, third-party orders, in-app orders, etc … – is far to complex and frankly, it’s always changing.
Machine learning technology can act as the partner to a manager to deliver the most accurate forecast. One that’s statistical in nature, leaning on mathematical models and historical data points and ongoing daily input. As it learns the seasonal rhythm of the store, the system (not the manager) spots changes in trends by analyzing new data – returning more and more accurate forecasts.
2. Automatically Generate Best-Fit Forecasts
The result of the machine learning the ebbs and flows of the business is that it generates best-fit forecasts based on complex algorithms. Best-fit forecasts lead to accurate shifts which optimize labor costs.
“But what if the manager doesn’t trust it?” It’s a question often asked in an industry historically led by a lot of (good and valid) gut instinct forecasting. Even best-fit forecasts generated by advanced algorithms require a human touch. The system has to provide the rationale while the manager needs to interact with and provide guidance to the machine as anomalies appear.
3. Forecast Staffing Needs by Revenue Center
You can’t talk about forecasting without addressing off-premise ordering. In a restaurant, these are typically referred to as revenue centers. Before the off-premise ordering trend took off – these revenue centers were typically limited to catering or to-go/pick-up orders. Physically, revenue centers are the POS terminals you see in a restaurant.
The most effective way to achieve that objective is to separate the various revenue centers of a restaurant and apply forecasting capabilities such as:
- View by Day and Time Interval. Get precise sales and labor projections with visibility into each revenue center in 15-minute increments.
- Forecast by Activity. Gain flexibility when creating schedules for different job codes resulting in even more precise forecasting.
- Schedule by Area. Gain the ability to schedule back of house and front of house differently, based on business needs.
4. Stagger Arrivals/Departures
When you have a labor forecast based on actual labor data, you are able to stagger arrival times and departures. Instead of having block schedules where everyone arrives at the same time and leaves at the same time, managers start to learn which positions can arrive and leave at different 15 or half-hour increments to optimize your labor spend. Over time, that extra 15 or 30 minutes adds up to significant labor savings.
We can’t leave you without one of the simplest ways to reduce unnecessary labor costs …
5. Stop Paying for Early Clock-Ins!
Five minutes here, 15 minutes there. Every time one of your team members clocks in too early it’s like skimming a tiny sliver of profit off your bottom line. On average, without time clock enforcement, 15-20% of a restaurant’s staff will clock-in at least 10 minutes early/day. Additionally, staff can ride the clock at the end of their shift, translating into increased overtime and increased labor hours paid out. The solution? Enforced clock-ins through an integration with your POS-system. You configure the POS system to only let employees clock-in five minutes before their shift, and an online scheduling system like HotSchedules goes to work making sure your employees punch in at the appropriate time.
Labor management is an exercise in optimization—not sweeping people cuts due to rising wages. The goal is to focus on finding the right balance between quantity of staff and quality of service while complying with wage hikes and paying your team a living wage.