How business savvy restaurateurs are turning a profit in the highly competitive food service industry
The economy as a whole has been undergoing a massive shift due to the widespread adoption of technology and automation. The restaurant industry is no different. The reshaping of our modern day economy has created a huge deficit in the workforce of the food service industry. The shortage of workers along with an increasing minimum wage, has created a costly dilemma for restaurant owners.
Cost of Business
The labor costs in the restaurant business can vary depending on the nature of the locale. When operating a fast food style restaurant, one can expect a margin of 25% on labor costs of total revenue. On the other hand, fine dining and table service restaurants typically operate with a margin of 30-40% on labor costs of total revenue.
Restaurant owners are obliged to get creative with their resources in order to keep labor costs down and gross profits up. The last resort of cost cutting in the restaurant business is to pass on the rising costs back on to the consumer; this, can alienate your loyal clientele and negatively impact overall sales. And, it is much harder to push on other substantive operating costs, such as lease costs, as prime locations usually have a waiting list of people behind the current tenant, who are more than willing to pay the rate.
Help Wanted
The process of hiring new staff is costly and time consuming. It involves vetting, interviewing, training, and managing personnel on the job along with all of the other unexpected contingencies. Thorough training and scheduling of staff can help workers maximize their productivity on the job and minimize unnecessary costs such as overtime pay.
Although the federal minimum wage has plateaued at $7.25 since 1991, some states have successfully pushed for higher wages, such as in the state of California, where the minimum wage is currently set at $12 an hour. At the state and federal level, there is the ever-present, looming push for higher minimum wage hikes, which is another pressure point to the bottom line for restaurant owners. Time will tell how operators will handle the inevitable rise in wages for hospitality workers, but we suspect, that particularly in the lower priced point concepts, automation will continue to take on repetitive and mundane tasks to attempt to keep overhead down. The payback period on a $10,000 piece of equipment can easily be less than one year and much less in a rising wage environment.