Managing Labor to Drive Growth in Foodservice

Labor represents a cost all foodservice operators must address and political and social unrest can inadvertently affect this are. In this blog post, consultant Juan Martinez explores the way operators can react to the issues of the day and the potential positive and negative affects these steps can have on their businesses.

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Ask a restaurant operator to list the biggest challenges they face and I would bet that labor is a key part of their list. That's because a number of factors go into labor, such as cost, retention, training, and quality of the work force, among many others. And nowadays, the developments in Washington, D.C., and the uncertainties business owners face as a result of the Affordable Care Act and other forms of government gridlock just exacerbate this issue.

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No matter your political stance on the issues, the fact remains that all of these factors have costs tethered to them and that can affect profitability and growth of the concept. Yes, challenges such as managing food costs and generating new sales remain important, too, but the multi-faceted nature of labor keeps it front and center, even during the best of times.

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Developments such as California's recent minimum wage hike and the minimum wage increase demonstrations clearly show that managing labor to generate the best possible return for a restaurant will remain of the utmost importance for quite some time.

As labor pressures continue to mount, unintended consequences can boil over, affecting other areas of a given restaurant. For example, raising menu prices is one step many foodservice operators may consider. In fact, earlier this month Chipotle announced plans to increase prices next year. In the current economic environment, raising prices can be risky. Many restaurants are looking at their competitors and saying "go ahead, you raise prices first, and we will right behind you," because they fear the affect this can have on traffic and sales.

Another option operators may consider is reducing labor hours. This action can impact product quality, speed of service and overall hospitality, including the cleanliness of the space, not to mention employee turnover, since those that are left behind may have to work harder and that may prompt them to seek other employment.

While these challenges do have a downside, they can generate a positive influence, too. This includes serving as a catalyst for:

  1. Value-added product innovation
  2. New technology implementation
  3. Re-engineering facility design efforts

In order to reduce the need to have high labor deployment levels in the restaurants, operators can opt to reduce or eliminate prep on some of the items by buying value-added products, ranging from ingredients to equipment, that take the burden off of the staff.

A third area could be to re-engineer the concept, applying this effort to the existing base of restaurants and to a new prototype. The goal of such an effort would be to increase the efficiency of the labor, resulting in a reduction in the labor necessary to deliver the brand promise. A big area of opportunity within such an initiative is to develop ways to reduce the peak labor requirements. In most restaurant concepts, the peak labor may only be necessary for one to two hours, yet nobody wants to work such short shifts and the restaurants end up either wasting hours in the shoulders of the peak, or more typically short staffing the location during the busier times, resulting in many of the unintended consequences I previously mentioned.

Clearly all of these good consequences have costs associated with them, be they in the form of food, capital expenditures, or development, but labor cost increases create a fertile ground that can facilitate a return-on-investment for these types of initiatives — another unintended good consequence. Most brand executives are more than willing to invest in technology and equipment innovation as long as it has a return on investment that meets their expectations.

So what are you doing to contain labor costs? Whether you are an operator, a supplier, a consultant, or other industry service provider, now is the time for critical and clear thinking and action in this area, leaving the emotions out of it.

Keep thinking about and driving the efficiency of labor in the operations, but make sure that you are looking at both sides of the "efficiency equation", the sales and throughput impact (top side of the equation) and the cost impact (bottom side of the equation), for this is the best way to drive growth in the brand.

Give me labor, or give me death!

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