3 Ways to Establish Restaurant Cost Control Amid Rising Labor Costs

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.

After nine years of with federal minimum wage stagnant at $7.25/hour, 2018 brought about the opportunity for states to introduce new, higher pay rates. While most states observe regular minimum wage increases to accommodate the cost of living, the new, higher wage floor allows states to write their own rules. 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.

How to Establish Restaurant Cost Control

First, you’ll want to ensure that your 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.

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.
• 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.

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.

• Put your scheduling software’s auto-scheduling 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.
• 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. (Curious about how Overtime Alerts can work for your restaurant? Book a free, personalized demo today!)

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.

• 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.
• 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 the minimum wage hikes.

The challenge of an increased minimum wage rate is not an easy one. It takes creative thinking and strategic approaches to ensure that the small ripples of change don’t turn into an unmanageable tidal wave. There are ways to easily adjust in order to keep your restaurant operating smoothly, and to keep your staff and customers happy at the same time.

Note: The spread of minimum wage increases is showing no sign of stopping. Among the North American notables is the province of British Columbia, which is currently paying one of the lowest minimum wages in Canada and will see increases come into effect in the summer. Stay tuned—we’ll share an overview on changes heading to beautiful BC in a forthcoming 7shifts blog post!