A tough figure
Harri’s data showed that 45 percent of operators said labor costs rose from 3 to 9 percent this past year. Twenty-six percent saw labor increase from 9 to 15 percent. Twelve percent had labor costs hike more than 15 percent. This has been a pretty universal issue lately. How do you offset labor costs to guard margins, but also not cripple your customer service?
Restaurants responded in the following ways:
- 71 percent raised menu prices
Let’s circle that last note for a moment. TDn2K’s recent Black Box data found that growth in average check was 3 percent, year-over-year, during March across the chain industry. The pace at which guest checks are growing has also been accelerating, year-over-year. On average, guest checks grew 3 percent since the fourth quarter of 2018. For perspective, the average was 2.4 percent for the first three quarters of last year.
Currently, this is proving an effective remedy for many restaurants. And it’s not only offsetting rising costs—it’s making up for, to a large extent, the reality that is declining guest counts.
Customers are simply willing to pay more right now, making upselling a smarter strategy than ever. Confidence is high. Some of that is actually tied to accelerating wage growth.
Given recent increases in minimum wage rates, and more to come, Joel Naroff, president of Naroff Economic Advisors, expects income growth to keep fueling check. “The outlook is for continued good income growth the rest of the year, which should translate into solid retail sales and restaurant spending,” he said.
So it appears, for now at least, that raising menu prices is a forgivable offense. Texas Roadhouse is a good example. The steakhouse chain planned to take an additional 1.5 percent price increase in Q2 of 2019 on top of last November’s 1.7 percent uptick to offset most of the margin pressure. This past quarter (Q4 of 2018), Texas Roadhouse saw an 8.8 percent growth in labor dollars per store week thanks to wage and inflation of about 5 percent and growth in hours of 3.2 percent.
The steakhouse also managed to boost guest counts 3.2 percent. In the 555-unit brand’s experience, higher prices didn’t hurt traffic. And that’s something to consider, although it’s always going to be a balancing game.
Here were the other results:
- 45 percent reworked food & beverage offerings
- 23 percent made no changes
- 9 percent closed locations
- 64 percent reduced employee hours
- 43 percent eliminated jobs
- 32 percent made no changes
- 2 percent eliminated tipping
Sometimes the easy answer is the only answer. As much as nobody wants to cut labor, it can be the obvious option. But restaurants find it to be a riskier proposition than most. Guest-facing hospitality companies don’t have the luxury some offices do. Your weaknesses are on full display. Cut five servers from a staff of 10 and people will notice. Have that one veteran leave and regulars will ask questions.
For restaurants, this issue is a serious Catch-22, and one hard to rival in any sector. The key to winning, especially in sit-down dining, remains customer service. How you get there: through knowledgeable, effective, engaged, and dedicated employees. Yet it’s historically tough to retain high performers. Now, it’s almost equally difficult to simply find and hire them. Not to mention afford them out of the gate. So you might write an operations manual on day one with all the right buzzwords, like company culture, hospitality, and pillars of excellence. But if a restaurant’s staff flips over quicker than pancakes, it’s nearly impossible to live those ideals. Stats show that it costs a restaurant $1,902 to replace an hourly back-of-house worker; $2,000 for an hourly front-of-house employee; and $14,036 for a manager.