How to Cope with Higher Wage Rates
The fact that the minimum wage rates are on the rise is a situation that cannot be ignored. Within the next few years, the minimum wage in California and New York will be $15 per hour. Other cities and states follow close behind. This means that those who run businesses in the restaurant industry will have to manage these higher labor costs with a certain amount of dexterity, to prevent them having an overall negative impact. Feedback from the industry indicates that many operators will have to raise menu prices, or even cut jobs.
However, there are other methods to cover the cost of higher wages, without having to reduce staff or inflate menu prices. Even though independent restaurants are faced with the same demands as chains, the larger operators can spread their extra costs across the system, a facility that many independents are unable to employ. Compared to chains, independent operators have the advantage of being more flexible, as they have the freedom to be more creative when compiling a more efficient menu.
To accommodate rising labor costs, the first step would be to give the menu an overhaul. This would include adjusting the ingredients, recipes and presentations. It may be possible to reduce expenses in a way that is unnoticeable to customers. Simplify the menu without compromising on quality. This assists with the reduction of costs.
Tweak menu prices gradually over a period of time instead of all in one hit. Cost of living expenses are on the increase, therefore altering prices in smaller increments is less painful on the pocket. For quick-service operators, covering an increase in labor costs requires a 1 to 2 percent increase in menu prices for every dollar rise in the minimum wage. Customers are unlikely to ignore these sudden leaps in prices, which can affect the frequency of their visits. If a competitor is applying mark-ups of 2 percent, those working on 5 percent are bound to lose out.
In both chains and independent restaurants, there is a limit as to how much people will pay for a product. For example, the ceiling price for a burger is around $10. Depending on the ingredients, customers usually have a benchmark price to gauge what an item should cost. If for instance, pasta and chicken in a cream sauce is being offered, they will have some idea of what they should be paying for it. But by being more creative with items on the menu and using ingredients that are not as well known, diners are unlikely to have a frame of reference for price and will probably not even flinch at any price rises.
Do your calculations to see if the operational activity of the restaurant can be improved or made more efficient. The way some dishes are prepared could be having an impact on profitability. Certain items slow down service and kitchen activities because of the amount of space required for preparation and cooking. Identify and eliminate any obstacles having a negative impact on the running of a restaurant.
To help with running costs, a restaurant should consider changing its operating hours. This is where independent operators have the advantage of flexibility. If a restaurant is open for breakfast, lunch and dinner, it may not be necessary to remain open between 3 and 5 in the afternoon. Independents also need to learn how to recognize and hold onto their loyal customers via social media or point-of-sale data. They need to provide incentives to entice them back for return visits. Meal discounts encourage guests to visit a restaurant during its quiet periods.
It is also advisable not to cut staff as this can have an influence on the overall restaurant experience. Coping with a minimum number of employees will have an impact on the level of service delivered. If it is not up to standards, the general image of the restaurant is damaged.