Q: With minimum wage ready to increase by one of the largest amounts in history, how are companies planning to offset the increase? 

A: Minimum wage is continuing north for another year, this year substantially in several cities and states. Companies have been planning for months as large increases will have serious financial impact. The challenge is to profit from the increase and improve the business at the same time. The most important starting point in combating the raise is to know how much it is. The Washington Hospitality Association provides a calculator on its online HUB to get started. Once the raise amount is known for minimum wage and non-minimum wage earners, several companies are putting one or more tactics in place:

Increase prices – start with the most popular items by capturing the number of sales of each higher mover and moving them up. For example, if a bacon cheeseburger is $13.95, the next logical step would be $14.50. Multiply the price increase against the number sold annually. Keep a running list of those increases, add them up and ensure they meet or exceed inflated costs while increasing profit. Take half of that increase as soon as possible and the remainder around the turn of the year.

Menu engineering for speed of services – strategically reduce menu size +/-20%. This will produce tremendous benefits on several fronts. It’s simple math. The larger the number of items on the menu the longer it takes the guest to order, the slower the server will be at finding an item on the POS, the kitchen is slowed by preparation of more ingredients, a larger number of stations are in play at execution, and so on. Ultimately, the menu becomes a choke point and a constraint for smooth, flawless execution of the guest experience. If a guest can depend on a restaurant to get them in and out at the guest’s pace, repeat business will increase, the largest driver of sales.

Increase bundling – focus on food and beverage spend individually and build menus to increase the spend on one or both. The reason promotions such as restaurant week tend to work well is the prefix price for food is often above the average spend on food. Adding a wine or drink pairing elevates sales in most cases. There is also an opportunity to decrease portion size on some items when bundling. Most importantly increase spend where it is least obvious, and the guest experience perceives more value.

Optimize hours of operation – generally the first and last 30 minutes are the least productive of the day. Opening 30 minutes later and or closing 30 minutes earlier will save labor. Be sure to move prep to cross over busy times, bring the crew in later and coach productivity. If hours or days aren’t profitable consider closing them.

Increase tip pool to kitchen – while minimum wage and higher prices producing higher tips have continued to benefit front-of-house, kitchen staff haven’t seen increases keeping up with the front. Some are addressing this by increasing more of the tip pool percentage to the kitchen working to raise wages by $2-3 per hours in combination with wage increases. Simply chart out the increase to the front from higher minimum wage and tips and show the gap between front and back increasing and the front-of-house staff – not to them.

Use one or more of this potpourri – other common approaches being used are commission or revenue sharing models and adding a small percentage surcharge to the check. All these models take planning and thought and need to be researched. Others are reducing portion size or increasing prices with larger portions. Some companies are reducing head count with automation.

While change is difficult and not always healthy, the restaurant model is changing. Minimum wage will continue to climb rapidly. The opportunity to improve or change the model is now. There will be casualties, but the strong will survive as the hospitality industry is a collection of survivors who learn to thrive in challenging times. 

 

For more  information on improving profitability and driving performance, contact AMP Services at rbraa@ampservices.com. Rick Braa is the co-founder of AMP Services, an accounting and consulting firm specializing in helping companies grow profitability.