Give Me Labor Economics or Give Me Death!

Labor costs usually represent the highest, or second highest, expense as a percent of sales for a restaurant. As such, proper labor management plays a critical role in driving better unit economics for a foodservice concept. If you buy into this principle, continue to read, and if you don’t then it is more important for you to continue to read on.

Why do I continue to write on this topic as if there was nothing else to discuss in the restaurant industry? Why do I run the risk of sounding like a nagging parent? It’s simple: Concepts without the right labor management system in place run the risk of failing, no matter how wonderful their food product. In other words, to effectively manage a concept’s financial performance making the most effective and efficient use of labor is critical.

Keep in mind that labor impacts both sides of the unit economics equation. In terms of sales, the correct deployment of labor management can result in higher sales during both peak- and non-peak periods, by giving the guests a much better hospitality experience. Labor deployment also impacts the expense side of the equation because it is a cost and failure to manage it properly and erodes profits unnecessarily.

So what is the key to ensure optimum management of labor? There are no shortcuts: a concept must have the right labor in the right place at the right time.

First things first. Foodservice operators across all industry segments, not just restaurants, need to determine labor requirements as they relate to the actual work being done, not on financial metrics. I realize that money talks and people walk, as the old saying goes. And while few can disregard the importance of financial metrics, knowing how long it takes to perform each task will enable the concept to consistently deliver customer service and product quality, a much more important metric, since without it, providing the right level of service will be a challenge.

The reality of managing labor by financial metrics is that typically restaurants with high volumes get more labor than they need, eroding additional profits. In contrast, restaurants with lower volumes typically get less labor than they require thus limiting the potential to drive sales. This, too, erodes profits. Remember my prior post: profits equal unit economics.

When it comes to labor management begin by developing a design that minimizes the number of employees the foodservice operation needs during peak sales periods. Doing this can have a positive impact because with higher labor levels the restaurant would likely need to carry the additional staff before and after the peak periods to provide shifts long enough for the job to make financial sense for the employees. Foodservice operators can achieve the right staffing levels by objectively analyzing what the concept requires to deliver on its brand promise during peak sales periods. Then look for ways to introduce efficiencies that can reduce the labor requirements.

Some concepts will achieve this by just cutting hours during peak periods, but such a short-sighted approach can negatively impact the business. A general rule of thumb, during peak periods, is to have all hands on deck, so to speak, providing direct labor for the guests. This leads operations to figure out how to eliminate all prep tasks during peak performance periods and deploy all labor to guest service tasks.

Often non-peak periods are more damaging to the concept's labor costs, driving a bigger negative impact on unit economics. So conducting the same diligent analysis to drive efficiency during slower parts of the day can be equally as important. Keep in mind that most of the hours of the day are spent by restaurants in these lower sales periods. To help with this challenge restaurants need to develop designs that minimize the minimum staffing levels. Additionally, the timing of the prep schedule represents an important aspect of labor management. For example, perhaps you shift some prep labor from the morning, before the lunch rush, to after the lunch rush. The result of such an approach is that the shift would start later, reducing the labor costs for the store, and you maximize the use of the shoulders of the peaks.

And there are many other ways that labor deployment and utilization can be optimized.  As I have previously written, applying the principles of industrial engineering can help with this endeavor.

Summary:

  1. Schedule guest service labor based on sales demands, to make sure you have the right staffing to drive the right overall customer hospitality levels and sales.
  2. Minimize the labor needed to provide for guest service tasks, to reduce the peak requirements.
  3. Minimize the labor needed to provide for non-guest service tasks to reduce labor costs.
  4. Schedule non-guest service tasks in the shoulders of the peaks to drive a more efficient schedule and provide longer shifts for employees.
  5. Develop labor guidelines based on the time it takes employees to do tasks, not just a financial metric.

In my next post I will touch on the last item in this summary a bit more and discuss the benefits of a “work content” and “activity-based” labor management plan to provide the stores the right labor economics that support the optimum unit economics.

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