How Restaurants Can Still Profit with Increasing Minimum Wage

Labor costs must be on everyone’s radar and game plan if you are running a profitable operation. The federal minimum wage is $7.25, but many cities and states are proposing much higher rates, like Los Angeles and Seattle, which will see a $15 minimum wage within the coming years. As many states and cities are heading towards a $15 minimum wage, the fight is all over the map with union leaders, government heads, business owners and more arguing their reasoning for and against it.

Most, if not all, restaurant owners know that this will affect their bottom line, as many of front of the house workers receive minimum wage, while other services used (such as cooks, drivers, payroll tax and more) will begin to increase as a result, as the pay gap must stay within a similar ratio. For example, your highly skilled grill cook at $16/hr will want/need a raise when your new, less skilled grill cook is starting at $15/hr fresh off the fryer.  

We will not discuss the outcome or reasoning for the increases at this time, as there are numerous differing opinions and current data seems to be biased, or is in its early stage of results. What we can say, is that it is obvious, the more green we pay, the more we must save in some other way.

Most restaurants will find labor cost control most difficult when it comes to lowering costs while still producing outstanding service and dishes, but you must not give up! 

Here are 5 Ways to Beat the Minimum Wage Game

1. Know your labor costs during the daily dining slots. “What is this that,” you may ask? Many times, you may look at your payroll vs sales and think, “hey, we didn’t do well on that day?” But, you must cut it up into breakfast, lunch and dinner. What you need to do is calculate your sales during all your dining periods of the day in order to understand what times slots are bleeding your labor dollars. Once you have a better sense of the slow times, you can work with your staff and prep times accordingly. Many times you will see overstaffing and understaffing during the wrong times. 

2. Focus on reducing food prep. Yes, raw uncut potatoes are cheap as chips, but the LABOR can be painful! Find your most labor costing items and research ways to cut it out or alternatives that will save you on prep time. Understand what is winning your customers over on your menu. Some customers love seeing house made bread on the menu, but others could care less. This is the time where understanding your customer base will payoff greatly. 

3. Seek tipping alternatives. This has been catching on in the East Coast and West Coast, as many successful restaurateurs have been adopting a no tip alternative, aka “zero-gratuity” model, like Danny Meyer. How does it work? Eliminating all tipping, the restaurant includes the tip to the increased price of its food & beverage (12%-15%), which is split between the staff to cover the increasing minimum wage. Other models include:

Service charge: adding a service charge and removing the tip line, which is added to a check to cover service when dining in (15%-20%). 

Hybrid Model: you may want to use a mix of service charge and traditional tipping by just adding a bit of a service charge to cover benefits for your staff like health care (2%-5%).  

4. Tech is your friend. It is almost on the daily that I see new technology for us to use in hospitality to reduce labor and gain sales. Although most seem a bit gimmicky, some should definitely be taken into consideration. A key point is that millennials love tech and are willing to use it 24/7. Many of the bigger chains are moving along with this trend of tableside self-service and so should some of us in QSR.  Yes, you can’t make a robot to replace fine dine service, but seek items to speed up your service so they may take on more tables and still give the best service with less labor. Keep your eyes open—an investment in tech for your restaurant that will pay off in labor savings is a no brainer. Now, which one to choose is another story to come... 

5. Know what your food & dishes cost you. Many times, I step in a restaurant and owners tell me their dishes only cost 15%-20%, but as soon as I am done with costing out the menu, I reveal they are close to 40%-45%! You have to know what makes you the most profit and how you will be able to market those items the best on your menu. It takes knowing how to do food cost and menu layout to truly build a profit making menu.