While the wage hike may initially seem like a burden, it can also be a blessing in disguise.

In the ever-evolving landscape of the restaurant industry, change is inevitable. The recent decision by the Chicago City Council to increase the minimum wage for tipped employees from $9 to $15.80 per hour is just one example of the ongoing labor-related transformations impacting our businesses. As this wage hike becomes a reality, it is essential for restaurant owners to assess the situation and adapt proactively.

As a seasoned expert in the restaurant industry, I firmly believe that we need to view this wage increase as a catalyst for innovation rather than a burden. Here are some key considerations to keep in mind as you navigate this new era:

1. Labor Costs are Rising: Prepare for the Inevitable

Labor costs are indeed on the rise, and restaurant owners must accept this reality. While the immediate impact may appear daunting, viewing it as an opportunity to reassess your business model is crucial. Begin by conducting a comprehensive cost analysis and identifying areas where you can make adjustments. Consider:

Scheduling Optimization: Ensure that your staff schedules are efficient. Implement flexible scheduling, consider where employees work when the demand is highest, and reduce overstaffing during slow hours. Using technology to project guest counts and layering in the proper staffing ensures optimum results for the customer, the staff and the bottom line. Employees do not benefit from being overstaffed any more than operators do.

Cross-Training: Cross-train your employees to perform multiple roles. This can enhance productivity and help you manage labor costs by reducing the need for excessive staffing. When employees are not cross-trained, they cut the productivity of the operation, which equals higher labor costs.

Performance Metrics: Invest in systems to track employee performance and customer feedback. This data can help you identify areas for improvement and ensure that your staff is delivering the best possible service.

2. Adaptation is Essential: Embrace Technology

The restaurant industry has seen a significant technological shift in recent years, and the Chicago wage hike only underscores the need to embrace these advancements. Implementing technology is a smart move, from streamlining order processing to enhancing customer service through digital solutions. Here are a few ways you can adapt:

Digital Ordering and Payment Systems: Implement self-service kiosks, mobile apps, and online ordering platforms to reduce the need for front-of-house staff and improve efficiency. Technology such as this ensures all sales are captured without mistakes by employees.

Inventory Management Software: Utilize inventory management software to minimize food waste, automatically reorder supplies and optimize your purchasing process.

Data Analytics: Leverage data analytics to understand customer preferences, peak hours and market trends, enabling you to make informed decisions regarding menu offerings and pricing.

3. Offsetting Costs: Menu Engineering

A well-designed menu can be a powerful tool for maintaining profitability in the face of increased labor costs. Menu engineering involves optimizing your menu to promote items with higher profit margins while balancing execution and representing brand integrity. Consider these steps:

Menu Analysis: Evaluate each menu item’s profitability and popularity. Identify high-margin and low-margin items. Ensure these menu items are not too cumbersome to execute and also represent the quality of your brand.

Menu Layout: Use design and placement to draw attention to high-margin dishes. For instance, you can highlight them with images or attractive descriptions.

Pricing Strategy: Adjust pricing based on item profitability. You may need to raise prices on low-margin items and offer special promotions on high-margin dishes to balance the menu. You should also look for opportunities to add on additional sales such as “making it a combo” or adding a protein. These additional add-ons act as a vehicle to drive profit.

4. Curbing Turnover: Employee Retention is Key

High employee turnover is a significant challenge in the restaurant industry. It’s not just about wage costs but also about the efficiency and consistency of your team. Productivity often declines with new hires, leading to an overall reduction in service quality. Here’s how to address turnover:

Training and Development: Invest in comprehensive training programs to ensure that your staff is well-equipped to excel in their roles. This investment pays off in reduced turnover and enhanced customer service.

Employee Engagement: Create a positive and inclusive work environment that fosters employee loyalty. Engaged employees are more likely to stay with your restaurant.

Competitive Benefits: In addition to the minimum wage, consider offering competitive benefits such as healthcare, retirement plans and paid time off. These perks can attract and retain top talent. Make sure the benefits added fulfill the needs of your staff – adding benefits that your staff can’t use is as detrimental to employee morale as having little to no benefits.

5. Consider Employee Morale: The Silver Lining of Wage Hikes

While the wage hike may initially seem like a burden, it can also be a blessing in disguise. With increased wages, employees can make a comfortable living without constantly seeking new job opportunities for raises. This can lead to improved morale, loyalty and better service. Consider the following points:

Morale and Productivity: Employees who feel financially secure and valued are more likely to take pride in their work and provide exceptional customer service.

Reduced Recruitment Costs: A stable, motivated workforce reduces the need for frequent hiring and training, saving time and money.

Enhanced Reputation: A reputation as an employer that values and rewards its staff can attract top talent and loyal customers.

6. The California Precedent: Lessons from the West Coast

California has already implemented similar wage policies, primarily in the fast-food sector. The Chicago decision is poised to force independent operators to reevaluate their wage structures. Employees might flock to fast food if restaurant owners don’t raise pay rates. This demonstrates the importance of staying ahead of the curve and making proactive wage adjustments.

7. Finding the Money: Efficiency and AI

The restaurant industry has an opportunity to find the necessary funds to cover increased labor costs without drastically affecting the bottom line. Consider these strategies:

Reducing Food Waste: Implement waste reduction strategies and composting programs to minimize losses. Analyze food usage data to fine-tune your ordering process.

AI for Assistance: AI can assist in various operational aspects, from predicting customer demand to optimizing employee schedules for maximum efficiency.

8. A Widespread Impact: Preparing for the Future

The Chicago wage hike is not an isolated case. California was the trailblazer, and it’s expected that similar measures will roll out in other markets. It’s not a matter of if but when. To stay competitive, restaurant owners should start considering these changes as permanent and make plans accordingly.

9. Independent Owners’ Dilemma: Raising Wages for Retention

Independent restaurant owners, in particular, should be prepared to raise wages to remain competitive. If independent operators do not offer competitive wages, they risk losing talented staff to fast-food chains, which can offer more attractive compensation packages.

The recent decision by the Chicago City Council to increase the minimum wage for tipped employees may seem like a challenge, but it also presents an opportunity for the restaurant industry to evolve and thrive. By embracing technology, optimizing menus, focusing on employee morale and preparing for wider industry changes, restaurants can navigate this new era successfully. It’s time to adapt, innovate, and ensure that your restaurant not only survives but thrives in the face of changing labor dynamics.

Russ Spencer is the senior director of restaurant success at Craftable, a cutting-edge technology company that empowers restaurants, bars, hotels, and hospitality businesses, both big and small. Bringing over 30 years of experience as an accomplished multi-unit operator working in day-to-day hospitality operations, Russ has a strong understanding of the benchmarks needed for a restaurant’s financial success. 

Expert Takes, Feature, Finance, Labor & Employees