Rising labor costs are presenting a significant challenge for chain restaurants committed to controlling operating costs. A Harri study presented at the recent New York City Hospitality Alliance conference revealed that labor costs jumped between 3% and 9% in two-thirds of the areas where the minimum wage increased. The data also disclosed that 82% of the 4,000 restaurants surveyed raised the pay of employees that were already earning more than the mandated minimum wage. They did this, presumably, to retain desirable employees. The raises ranged from 5% to 15% for three out of the five employees who were earning more than minimum wage.
The Harri study also reported:
73% of the restaurants raised prices. Price increases ranged from 5% (46% of restaurants surveyed) and between 6% and 10% (37% of restaurants surveyed).
Some operators (9%) indicated they were forced by rising labor costs to close at least one location.
Three out of five (59%) cut staff hours, while 31% eliminated positions.
How do You Curb Labor Costs?
Increased labor costs will continue to be an ongoing challenge for operators in the food-away-from-home channel. So what are operators doing to offset the increases?
Raising menu prices. This is an immediate short-term solution that may push price-sensitive customers away, however.
Investing in technology such as self-serve ordering systems. This can help reduce labor headcount and operating costs, or it can provide an opportunity to retrain team members for roles that enhance hospitality and the overall customer experience.
Labor Pains (and Trends)
According to a “Post-Millennials” Pew Research Center study, employment among people under 22 years of age has plummeted. Details of these trends include:
Almost 50% of 15-to-17-year-olds were employed in 1968 compared to 19% in 2018.
80% of 18-to-21-year-olds were employed in 1968 compared to 58% in 2018.
Long-term, operators need to develop labor retention strategies to better compete for the pool of low-skilled, younger workers.
Today’s strategy for restaurant operators? Retention. By focusing on developing a robust labor retention strategy, operators could reduce the risk of high turnover so prevalent in Quick Serve and Fast Casual.
Will you be recruiting low-cost labor in the coming year? Here are some recruiting tips leading operators are currently employing.
Throw a Hiring Party – Taco Bell uses text automation to connect with potential employees. The text messages are blasted on a regular basis linking prospects to Taco Bell’s career page, and often offer food freebies (e.g., nacho fries).
Implement a Bonus Program – To lure inexpensive labor, some restaurants are offering hiring bonuses (up to $1000) for key roles such as shift leaders and assistant managers.
Deploy an Employee Mobile App – Hamburger chain White Castle has developed an employee mobile app that enables hourly staff to swap shifts at the last minute when the need arises. Other chains are experimenting with apps that deliver employee training and open up the communication lines by providing a way for employees to give comments and feedback.
Rely on Social Media – Twitter and YouTube are two social media platforms operators are leveraging to connect with younger workers. Starbucks has experienced success with YouTube as a recruiting tool.
What’s the Right Solution Mix for Your Chain?
Operators are at a critical inflection point with regard to finding the right mix of solutions for their ongoing labor challenges. Raising menu prices, implementing labor-saving technologies, and giving out employee incentives are all options on the table. The best long-term option, however, is devising and implementing a labor retention strategy. This will enable operators to stabilize their labor costs, long-term.