The news of minimum wage increases across North America is hardly 'news' these days. As a headline, it's become a familiar refrain, and as a challenge for restaurant owners, it's become a pylon that restaurateurs have had — or will have — to safely navigate around in order to protect margins and establish restaurant cost control.
This year, the following states have, or will, introduce new minimum wages that soar above the federal minimum.
Note: As the year continues, you can refer to The Economic Policy Institute's Minimum Wage Tracker for up-to-date information on wage changes.
So, how can restaurateurs adapt? When a new wage is introduced, it becomes a fixed labor cost that a restaurant carries. All other costs in your operation must be re-evaluated so that you're able to continue with business as usual.
What are restaurant cost controls?
Restaurant cost controls are an essential part of your business and the analysis of its financial performance. This process is accomplished by setting projections and then comparing those to your restaurant's actual results. Following that, you can analyze the difference between and take corrective measures to eliminate the variance.
The costs themselves can take the form of food, liquor or kitchen equipment, and are generally a one-time purchase.
There are five major restaurant costs that will need to be controlled:
- Equipment and supplies
- POS systems
How do they help?
Understanding your restaurant's cost control will help maximize your restaurant's profitability. You'll be able to recognize your expenses and identify the areas that need attention, which will not only save you money but time as well that can be dedicated to other restaurant duties.
6 Ways to Establish Restaurant Cost Control
First, you'll want to ensure that your restaurant employee scheduling software reflects the updated wages. It may take some time to manually set this up, but it's worthwhile to get the new values inputted as soon as you can. Second, work with your payroll software to make sure that any owed back pay is paid accordingly.
Once all the payroll details are handled, it's time to think about how you can make your restaurant work with the wage increases. Here are three ways you can establish restaurant cost control without having to sacrifice staff, customers, food quality, your bottom line, or your sanity.
Recommended Reading: Ultimate Restaurant Payroll Guide 2022
1. Look at Your Menu
If you plan to accommodate for the wage increases by making adjustments to your menu, there are subtle ways to introduce new prices that won't rub diners the wrong way.
Consider how you're writing prices in your menu. There are entire psychological studies on the topic, and research shows that simply omitting a dollar sign when listing prices in a menu can subconsciously encourage your diners to increase their check size.
Some menu engineers and consultants (these are actual jobs!) recommend strategically placing the big-ticket item at the top of the menu to make the rest of the items appear more reasonable. Others suggest spreading expensive items throughout the menu—it will all depend on your offerings, your restaurant's culture, and—most importantly—your customers' reaction. Test out a few menu types to see which works best for your business.
Long, richly detailed descriptions can help you sell up to 30% more food, according to a study by Cornell. “The more copy you write on the menu item, the less it costs in a customer's mind because you're giving them more for their money,” explains Menu Engineer Gregg Rapp.
Negotiate with suppliers
Review your food costs and see if there's an opportunity to negotiate better prices with your suppliers. Restaurateurs often think this is a fixed cost when it is well within their control to find different, more affordable supplies. Use a procurement management app like Bluecart to keep track of food costs, monitor supply levels, and save time managing inventory.
Standardize menu items
Keep it simple and support a standardized menu. Some restaurants have rotating menus that are driven by seasonality, which will cause frequent changes to your restaurant's budget and overall plans. Standardized menu items are items that consistently remain on your menu all year round. This way, you're limiting the amount of cost changes to your restaurant.
2. Track Your Labor Costs
A great way to save money is to keep a close eye on your labor costs. You'll be wise to schedule mindfully, since labor budgets are notoriously thin and inflexible.
Use scheduling software
Put your scheduling software's automatic scheduler function to work! Your schedules should be built based on your employee's availability, and shaped by historical and projected sales data. You'll keep your labor costs under control because you'll always be properly staffed for busy and quiet shifts alike. With a data-driven schedule, worrying about cutting employees or scrambling to find more staff at the last minute will become a thing of the past.
Notify your team and restaurant staff in advance
In case you need another reason to work within auto-scheduling requirements, consider the savings you'll see by simply sending out your schedule earlier. The effect cascades—not only will you have your work completed in advance, but your employees will be able to easily plan their lives around their jobs—something that leads to happier employees. Happier employees with predictable pay checks lead to decreased turnover rates…which lead to decreased hiring, onboarding, and training costs! When you reduce those costs, you'll be in better shape to roll with the minimum wage hikes.
Overtime is expensive, even without new wage rates added to the mix. When employees work beyond their set hours, your restaurant's budget bears the brunt of it. The solution? Prevention! When you take advantage of Overtime Alert functions, you'll be alerted when employees are at risk of crossing the overtime threshold, and again when employees have officially entered overtime hours.
Example of the 7shifts overtime alerts for managers and owners
3. Listen to The Legislations
Rules exist for a reason. In the restaurant industry, they're there to ensure that businesses run smoothly and that employees are respected. By avoiding fines for breaking the rules, your budget will be in better shape to handle the new wage increases.
Avoid costly penalties
Follow Auto-scheduler guidelines. New scheduling practices have been implemented to help protect shift workers in the hospitality sector. Failure to comply results in steep penalties that may threaten a restaurant's existence—penalties that will dwarf the budgetary hassle of newly increased wages. In short, it's best to educate yourself and play by the rules to avoid adding more challenges to your restaurant's plate.
4. Track inventory and food costs
What gets measured gets managed. Before you can get a handle on your inventory and food costs, you have to know exactly what you're tracking. There are a number of important metrics that you can use to keep track of your inventory and food costs. Here are a few metrics and what they track:
Food cost percentage, the ratio of the cost of food inventory to the amount of revenue it generates.
Inventory Turnover Ratio, which tracks how many times you sell out of your entire inventory over a given period.
Cost of Goods Sold, how much it costs you to produce a menu item. As you add together all of your menu items
These are just a few of the more important numbers you need to know in order to better track and make adjustments. For more important metrics and how to track then, check out this guide on restaurant metrics and calculations.
5. Automate manual processes
Some processes can be automated to save time and avoid easy mistakes. Restaurant inventory management software is the best way to digitally track your kitchen inventory. There's a wide range of options available that take the entire process online. Restaurant inventory management software digitizes your invoice and purchases, allowing you to better compare costs and make more informed purchasing decisions. Many services also allow you to add your recipes in and calculate actual food costs. Some will even make orders for you!
6. Avoid internal and time theft
Unfortunately, sometimes theft can come from within. This can be in the form of straight-up theft of inventory by employees, improper order inputting, or excessive comps. The best way to stop theft is to prevent it at a top level. This starts with paying employees well, providing staff meals, and by creating a team culture of accountability and full of trust. However, this isn't always enough, and modern restaurant tech is here to help. From inventory to sales, modern software helps keep track of everything in your restaurant and keep a close watch.
Frequently Asked Questions
What are the limitations with cost controls?
You can take all of the due diligence and manage costs like a hawk, but ultimately, there are going to be things beyond your control. Food costs will rise, the labor market changes, and unexpected costs will come your way. By managing your controllable costs, you can mitigate the damage of unexpected ones and give your business a healthy advantage.
Who is responsible for cost control in a restaurant?
This depends on the restaurant's structure, but usually this falls into the lap of a general manager. Food costs controls are the responsibility of the executive or head chef. In multi-location businesses, it is usually under the purview of the director of operations.
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D. J. Costantino
Hi! I'm D.J., 7shifts' resident Content Writer. I come from a family of chefs and have a background in food journalism. I'm always looking for ways to help make the restaurant industry better!