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Restaurant Profit Coach

Q: Minimum wage is set to increase again. I feel the squeeze of financial obligations already. How can I overcome another increase in expenses without any foreseeable benefit?

Washington boasts the highest statewide minimum wage in the nation and, because of a voter approved measure, is one of only 10 states where minimum wage can increase annually based on the federal Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). As a result, minimum wage will normally increase each year. Over the last five years Washington state’s minimum wage has increased nearly $1.00 per hours and approximately $0.50 in the last two years.

The financial impact in undeniable. For every $1 million in sales, restaurant operators will lose about $2,000 to the increase the minimum wage.

To combat these increases in cost, consider the following:

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Renegotiate Your Lease – Communicate With Your landlord

Industry same store sales are down for full service restaurants. Technomic reports 51% of consumers are cutting back and 14% are eliminating restaurant visits. In an industry where 60-80% of restaurant sales are contributed by frequent guests it’s no wonder many restaurants are experiencing severe sales decreases. So what is one to do? Beyond what you may be working on, renegotiate your lease.

Rent is one of your highest fixed expenses. For years it was assumed rent was non-negotiable once a lease was signed. Like everything else, times have changed. According to Moody’s Investors Service commercial real estate values have dropped 22.8% through March versus the October 2007 peak, 21% versus prior year (May 2009), and further declines are expected. reports Starbucks began in January seeking 20-25% rent reductions from its landlords. In that same report, Quiznos reported as many as 90 stores received a reduction of 15-20% in rent. By combining declining market rents and declining sales your landlord is expecting to hear from you regarding your rent structure. Click here to read more »

Making Price Increases in a Down Economy

Q: The cost of food has been increasing over the last year. Times have been tough but it’s time for me to take a price increase on my menu. What is the best way to go about increasing our menu pricing?

A: The National Restaurant Association is forecasting an increase in wholesale food prices of 3.3% over 2010 while the USDA projects a 2.0-3.0% increase for all foods. Meats, pork, dairy, fats and oils are projected to have the highest increases. Click here to read more »

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