The High Cost of Labor in the Restaurant Industry

The high cost of labor for restaurants

It’s no secret that the labor market can put pressure on brick and mortars. Unfortunately, the pinch isn’t letting up just yet.

CNBC reports that some 20 states are forecasted to raise their minimum wages in 2019. The raise will surely put added pressure on restaurants’ bottom lines in an already competitive industry. Additionally, it’s evident that finding good help is difficult. In fact, it’s reported that more than 72 percent of people left jobs in food service or hospitality in 2017.

Combined, these trends have caused restaurants to take some creative routes to cut costs and protect their bottom line.

In this post, we’ll explore the high cost of labor and what you can do to help your restaurant grow and thrive in spite of these challenges.

Reducing the Need for Labor

Many restaurants are doing whatever they can to avoid increasing their prices to accommodate higher labor costs by reducing the number of items on their menu. The idea behind this tactic is that fewer menu items mean less labor to create them.

Wingstop CEO Charlie Morrison announced that the chain cut items from their menu in an effort to reduce the labor it takes to create some of their side dishes. At an ICR conference, Morrison announced, “In 2018, one of the simple decisions we made that proved very effective for us was the elimination of our three core side menu items, which had been with the brand a very long time.”

By making small swaps in its menu, the company was able to save a total of five hours of labor time, Morrison said. The company also saw new side options being ordered four times more often than the previous choices, which helped increase revenue.

And Wingstop wasn’t the only restaurant making menu cuts. Dave & Buster’s reduced their menu items by 20 percent last February, in hopes of accelerating meal prep times.

Adopting Technology Ordering Systems

Replacing human labor with technology isn’t a foreign concept, and certainly not within the restaurant industry. Because in-store front-counter ordering accounts for around 25 percent of labor, adopting new technology has become the norm.

In a bid to reduce labor costs for counter employees, more and more restaurants are encouraging online ordering via websites and mobile apps, in addition to providing kiosks and other self-ordering systems. This allows labor cost-cutting and the allowance of re-allocating labor to other areas of operation.

Increasing Employee Retention

Technology is not only a key player in restaurant ordering. It’s also being used to increase employee retention.

Restaurants like Dave & Buster’s, Five Guys, and Applebee’s are integrating technology that tracks their employees’ progress and aggregates critical data regarding performance. This allows managers to identify high performing employees and send them electronic recognition for exemplary performance. This technology also reports which employees are worthy of a promotion, and which ones are likely to quit.

The idea of implementing this technology is that it helps foster a sense of belonging and regard for employee happiness. It creates a culture where good work is rewarded, aiming to decrease costly turnover.

Widely-recognized restaurants such as Starbucks, Chipotle, Taco Bell, and McDonald’s have also taken employee retention more seriously. Enough to make it a core value. This includes offering enticing benefits such as college tuition assistance, favorable parental leave benefits, and paid sick days for part-time employees.

Wrap up

The high cost of labor is putting pressure on restaurants to come up with innovative ways to reduce costs that won’t negatively affect the customer experience. In an age of technology, a lot of this innovation involves digital solutions that are worth the investment in the long run. As wages continue to rise, we’ll see more emerging digital platforms being used to offer benefits for employers as well as their employees.