What is in this article?:
- Restaurant operators must plan for minimum wage hikes, other costs
- Absorbing the loss vs. raising prices
George Rice is vice chairman of Revenue Management Solutions, a pioneer in data-based solutions to pricing for restaurants and retailers. Clients have included McDonald’s, Checkers and Rally’s, and Famous Dave’s. This article does not necessarily reflect the opinions of the editors or management of Nation’s Restaurant News.
The pressure is mounting around the country to raise the minimum wage, which would have a profound impact on the restaurant industry. That, combined with higher costs for beef and transportation, means restaurant owners need to start thinking now about how increased overall costs may affect their businesses heading into 2015, and what they should do to plan ahead.
First, let’s look at wage numbers. Right now, an $8-per-hour minimum wage, full-time worker costs operators $16,000 per year. The proposed move to a minimum wage of $10 an hour would raise most entry-level salaries by about $2 an hour, resulting in a pre-tax cost increase of $4,000 a year for employers.
There is also the potentially high cost of turnover in training new employees and maintaining consumer acceptance, which directly impacts repeat purchase behavior and brand profitability.
Therefore, smart restaurant owners are keenly aware that developing and maintaining good employees is critical to their financial success, and that paying a competitive lower-level wage, even if it’s significantly higher, will be the right thing to do.
Most restaurants pay minimum wage only for entry-level workers and then provide an annual hourly increase over time. There is a strong incentive for employers to increase wage rates to keep good employees, so they don’t leave for better pay elsewhere.
So as you prepare for the possibility of a higher minimum wage, here are five points to consider:
1. It’s important to have the right levels of staffing every hour the restaurant is open.
Restaurant businesses have heavy and light periods of customer traffic, for breakfast, lunch or dinner, depending on the concept design. Well-managed businesses track the average number of customers per hour and know the number of customers that can be handled by one good employee.
To manage customer satisfaction and also control costs, it is important to properly staff the restaurant to insure good service during peak hours and not over-staff during slow hours. This means the most efficient scheduling involves many two- to four-hour part-time shifts and not all eight-hour shifts.
2. Understand that if the minimum wage is raised, there will be an impact on other non-management salaries.
An increase in the minimum wage won’t only affect those who are at that level — typically new employees or part-timers — but potentially all non-management staff, each of whom started at the minimum before receiving increases over time.
Workers who are making more than the minimum will also expect their wage to be increased by an equivalent amount to keep them "in pace" with the entry-level folks.