New Wage Reality – How to Enhance Profitability

The media has brought the idea of higher wages to the forefront. We all now have heard that the next wage level is $15 an hour. Now what should I do? Well, the first step is to factor in your proforma the financial impact of these increase in wages. By the way, be sure to factor in some health insurance and possibly sick pay into the cost.

Once you have done this, you now see what the impact is going to be on your bottom line so what is next? You are going to need to find ways to compensate for this loss of profit:

  1. Pricing – You are going to need to raise your pricing incrementally and plan on doing so every 6 months. Most companies think they have raised prices recently when in fact, this is not the case. I’ve seen several companies who had not raised prices in 3 years. Remember, grocery stores raise prices “weekly” without much complaint from their customers.
    *Note: With higher prices it will take less labor to achieve the same level of sales, subsequently adding to the profitability even if guest counts drop.
  2. Food Cost – You need to look at your cost of goods. Evaluate each plate for portion size, appearance, value, etc.
  3. Operating Expenses – Who is in charge of maximizing each operating expense in the operating statement?
  4. Labor Retention – We’ve already looked at the wage levels and will need to make adjustments. It is a foregone conclusion. And by the way, did you notice it is becoming increasingly harder to find new employees? So, pay attention to the ones you have and do have a plan to make them better and to hold onto them longer. It is the smart thing to do.
  5. Labor Efficiency – I’d look to see how labor efficient my menu is. Is there a lot of prep and does the menu take a lot of production hours? Most businesses have scaled both prep and production because the “new” labor reality has set in and these owners have had to move the efficiency levels. Also, “when calculating labor keep two things in mind: (1) if there are over 50 FTE and or you are anticipating growth, think about your new labor model; and (2) be sure to factor in the ACA Healthcare requirements not just MW”. (Anthony Anton, President of the WRA)
  6. Technology is finally positioned to assist the restaurant operator. How can you use technology to offset higher costs”? (Anthony Anton, President of the WRA)

We are aware this evolutionary process can be painful and can be arduous but one must go through it to keep profitability levels up to your desired level. Interestingly, I’ve worked with companies in assisting on the evaluation and implementation of these 6 elements and have found profits to go up significantly. We might visit for a bit and have the discussion on “how to enhance your profits.”

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