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Restaurant wages appear to be steadying, creating an opportunity for restaurant leaders to drive up profitability.
Fall and winter mean many things to restaurants. Chief among them is the onset of the busiest times of the year. As the cooler months (such is the hope for many parts of the U.S.) approach, so does the final opportunity to end the year on a high note. However, with increased traffic comes the need for increased staffing, and given the rising cost of labor over the last two years, that opportunity, if not well managed, couldn’t be as much a boost to the bottom as many operators might expect. There is, however, reason to hope.
The good news is that the pace of wage growth in many areas of the country appears to be slowing. Let’s dive into the numbers:
Restaurant365 looked at the five states in five areas of the country with the highest number of food and hospitality businesses, according to the U.S. Bureau of Labor Statistics’s Quarterly Census of Employment & Wages. Those include New York, California, Illinois, Texas, Colorado, and Pennsylvania. BLS data is for the first quarter of 2023, the latest available.
How to calculate employee turnover
The upward pressure on wages during and after the height of the Covid-19 pandemic and the subsequent “Great Resignation” appears to be tapering off as employment nears pre-pandemic levels.
Recent minimum wage increases around the country pushed the average hourly rate for US restaurant workers up by 20% between 2020 and 2022, rising from $16.65 to $18.71, according to data compiled by Tasting Table.
The greater economic forces that pushed most operators to offer compensations well beyond the once hotly debated $15 per hour mark has been enough to draw job seekers back into the labor market while turnover, according to Black Box Intelligence, has been robust enough to keep wages at those levels.
Both 2021 and 2022 reported record turnover, according to Black Box. In 2022, full-service saw a 14% jump over 2019 while limited-service establishments reported a 24% spike.
While the plateauing of wages is certainly welcome news for restaurant leaders, hurdles remain. The food service industry is expected to hit $997 billion in sales in 2023, according to the National Restaurant Association. Yet as in 2021 and 2022, that record number will be driven by higher menu prices as operators try to make up for higher costs. Even though nominal F&B sales this year should exceed pre-pandemic levels, they won’t on an inflation-adjusted basis. Simply put, as restaurants begin to see the light at the end of the tunnel, they can’t let up. Owners and operators must use every weapon in their arsenal to control labor costs to preserve margins and to be in as strong a position as possible to take advantage of any opportunity that arises.
Step one is ensuring operators and location managers have complete, real-time visibility into all labor costs and metrics. The first piece is integrating a restaurant-specific accounting platform with a point-of-sale (POS) system to track labor punches and sales. With this connection and the ability to poll labor costs and sales figures in real-time, managers can make cost-effective schedules that accurately pair staff levels to sales. Accounting teams can take cost control a step further with the ability to quickly analyze the data and produce a variety of forward and backward-looking reports to guide everyone toward success. These include:
Sales Per Labor Hour (SPLH)
This is a key indicator of labor productivity that tracks which service times are the most profitable and which need improvement.
Labor Actual versus Theoretical (Avt) Analysis
Like your AvT food cost report, your labor AvT analysis identifies any unexpected labor cost variance. If there’s a significant variance, you can drill down into the data, like the job titles, dates, and employee names to identify and correct any issues.
Customers Served Per Labor Hour
This metric may shift by part of the day or day of the week but having a customers-served goal can help identify under or over-staffing, helping maximize labor allocation.
Labor Cost Per Staff Role
Examine labor cost by staff roles for even deeper insight into your labor costs. Categorize front-of-house (FOH) staff, back-of-house (BOH) staff, management, and hourly or salaried staff to get a detailed picture. Then, you can create custom strategies for optimizing your labor cost in each area of your restaurant.
Sales Per Server Hour
Sales per server hour illustrates your servers’ efficiency. If there’s room for improvement, consider store-level training, such as a refresher course on upselling. Training servers on suggesting food and drink pairings can help maximize sales.
Overtime Warning
Flag potential overtime and notify managers about employees that have hit overtime. Restaurants can control labor costs by setting overtime goals and holding store-level managers accountable.
With an all-in-one restaurant management system, restaurants can, firstly, automate the creation and distribution of many of the previously mentioned reports. Next, schedules based on previous sales, forecasts, budgets, and labor targets are automatically generated for managers, eliminating the age-old guessing game of how many to have on the floor or behind the line. Automating accounting functions also frees those vital yet often lean teams of data entry and management and empowers them to become advisers to the business.
When accountants no longer need to spend hours on intercompany transactions, bank reconciliation, or downloading, merging, reviewing, and uploading data to various systems, they can point their detail-oriented eyes at the big picture and find ways to boost the bottom and top lines, including with the following strategies.
After your labor needs are forecast, leaders can further control labor costs with consistent, real-time analysis to address any excess cost or unexpected issues. Checking labor on a monthly or quarterly basis allows for costly overruns that can quickly add up.
For instance, if you know your SPLH goals and your current labor costs, you can arm your store-level managers with up-to-date data from your POS so they can make informed decisions about breaks, cuts, and call ins.
Your most effective employees are essential for making the most out of your labor budget. Strategically schedule your high-value employees to leverage the strengths they bring to the team. For instance, you can also schedule your servers with the highest average sales during the peak sales times to increase your revenue and margins.
Tracking labor metrics at the granular level empowers leaders to understand which areas of a location contribute the most to total labor cost. Use this data to schedule the different areas of your restaurant for efficiency depending on each’s particular needs. Applying tools like smart employee scheduling based on SPLH percentage goals to your management, FOH, and BOH teams individually helps you optimize each part of your labor cost.
While restaurant labor costs are flattening, and even in some cases cooling a bit, the new numbers remain significantly higher than where they were even one year ago. Now, more than ever, restaurant leaders must have a strategic, reliable system and method of managing labor to ensure that increased sales during the final months of the year can contribute to the bottom line in the way they’re expected to.
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