Is the Minimum Wage Good for Your Business?

How can foodservice operators address rising labor costs? Consultant Juan Martinez offers some food for thought.

The ongoing debate about minimum wage increases remains fertile ground for debate and interpretation. Like many of you, I am left to wonder how this will impact my business and others in the foodservice industry.

My guess is that in the short term, foodservice operators from all industry segments will be sensitive to rising wages, healthcare costs and more. As a result, they will be open to any ideas that will introduce greater efficiencies.

The long-term impact of the looming minimum wage increases on the economy and, subsequently, the foodservice industry, remains much less clear. But it won’t be long before some of this starts to bubble to the surface.

While foregoing forecasting, I feel certain that if restaurants get pushed hard enough, they will have no choice but to take action to reduce the labor requirements, and/or increase pricing. Both of these are already happening. The latter option carries significant risk given consumers’ price sensitive nature. Take, for example, comments made by the Dunkin’ Brands CEO, who attributes some of the chain’s lower sales due to higher prices that came about to offset the rising cost of labor.

Recently we worked with a concept on a new labor program, which included process reengineering and the development of activity-based labor guidelines. What started as a project that could potentially enhance profits by reducing labor costs by more than 100 basis points turned out to be an exercise in margin preservation as the hourly labor costs increased while the work was in progress. Ouch!

So what should foodservice operators do?

Don’t just stand there idly waiting for this issue to get resolved. Start by assuming the minimum wage will go up to the levels being discussed and take the necessary action.

This includes process re-engineering, developing labor guidelines, considering equipment platforms that could help drive labor efficiency in addition to outsourcing some prep activities to suppliers. At a minimum, take these steps to protect your profits and to keep from having to increases prices as a purely reactionary step.

Some concepts and suppliers are already looking at how tasks get automated, either by a machine or the customers do it themselves. For example, concepts across all categories of the foodservice industry now use self-serve ordering kiosks. Others are emphasizing web-based ordering and payment systems. When you consider that for a quick-serve concept around 25 percent of the guest service labor gets allocated to order processing, you can quickly see the impact of such technologies could be very large. In addition, if done right, these types of technologies can elevate the experience of the guests by how the order and payment process is done. Technology never comes with a bad attitude to work, while employees sometimes do. The most notable example of this is Panera 2.0, which gives customers three options to order: online, via an in-store kiosk and the traditional way with a cashier.

Another way to attack rising labor costs is to make your buildings a little smaller. A smaller footprint can offer savings across multiple areas, including construction costs, utilities, maintenance and, yes, even labor. Take Maureen’s Slocum’s idea and start your next kitchen design with the “small footprint” of a mobile truck, and then grow it from there.  As you do, consider the objective value of any addition to the kitchen to aid in the design.   

When re-engineering a design, start by taking a look at what you do, how you do it and why you do it.  Apply innovative techniques to help you develop a concept that has better “unit economics”, better service and better operating cost, including labor and food, at the same time.

So is the minimum wage increase good for my business? In the short term yes, since it provides fertile ground for the application of Industrial Engineering in foodservice to drive more efficiency and better “unit economics” for concepts. But long term, I am not so sure.  Time will tell.

Is the minimum wage good for your businesses? Perhaps we should just interpret your silence on this issue.

 

Related Articles
  • A Caring Culture
    A bout ten years ago our company, Taziki’s Mediterranean Café —  ...