Fight the hourly battle
Texas Roadhouse’s margin decrease of 128 basis points came from increases in cost of sales and labor. The first lifted 7 basis points compared to the prior-year period and the benefit of a higher check average was more than offset by the impact of about 1.8 percent commodity inflation and the shift to higher priced, but lower-gross margin menu items.
The labor issue was larger. Labor as a percentage of total sales hiked 118 basis points to 32.7 percent, and labor dollars per store week rose 8.2 percent compared to the prior-year period. That came from wage and inflation of about 5.2 percent and growth in hours of roughly 3.1 percent.
The growth in labor hours was greater than the growth in traffic during Q1.
Let’s zero in on the turnover issue. Colosi said Texas Roadhouse is in the “high 120s” right now. But here’s the question: Could it be worse?
Colosi said Texas Roadhouse constantly talks about culture, treating employees right, and paying market-level rates in the front and back of house. “We’re talking about hire right,” he said.
That’s a challenge, Colosi added, because of the massive volumes in Texas Roadhouse’s restaurants. Over the last decade, Texas Roadhouse has moved from about $3.6 million per restaurant to $5.2 million on average. And it’s tracking toward $6 million.
While that’s great for the balance sheet, it creates an interesting dilemma for staffing. “You throw on top of that the Amazons of the world or anybody else, offering very high hourly wage rates or high from a historical perspective,” Colosi said. “And there’s a lot of even non-restaurant competition out there just fighting for good folks.”
“So we don’t know if our turnover would’ve been 140 percent if we weren’t doing some of these things with staffing to enable us to have more scheduling flexibility,” he added. “Talking to our folks more about what they need to do a better job. All those kinds of things.”
What Colosi is saying is a realistic take from the trenches of the restaurant industry. Even a top-notch organization, one that pays attention to benefits and quality of life, is going to be saddled by triple-digit turnover rates at the hourly level. It’s an accomplishment to stay closer to 100 than 200 percent.