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?
A: Washington State boasts the highest 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 hour and approximately $0.50 in the last two years [Exhibit 1]. Effective January 1, 2013 minimum wage will once again increase to, gulp, $9.19.

The financial impact is undeniable. For every $1 million in sales restaurant operators will lose about $2,000 to the increase in minimum wage in 2013 after losing about $5,000 in 2012. Since 2007 the financial impact exceeds $20,000 cumulative per million in sales.
To combat these increases in cost consider the following:

  • Eliminate or minimize support positions. With the high cost of minimum wage, revenue generation is key. Eliminate support positions such as bussers and runners and replace those bodies with servers in reduced sized sections. Create an environment of teamwork where servers are required to bus and reset each other’s tables, deliver food and engage the guest. Additionally, set sales goals for each server daily. Challenge your team to sell an extra five drinks and five desserts per day. This would generate at least an extra $50/day, or over $18,000 in added sales per year. Reduce the front desk position to one superstar per shift and supplement seating with the additional servers on the floor. Rotate servers through the front desk position and train them well on the functions of phones, making reservations, greeting, seating, and thanking the guest. Evaluate the kitchen staff as well. If there is slow time, push prep and/or dishwashing into those slots. Make sure you have enough dishes that the restaurant can run without the dish machine operator (DMO) if needed without running out of supplies and bring in a DMO only after the restaurant is full of guests. Cooks in the morning can wash their own dishes or leave them for the DMO.
  • Manage labor aggressively. Start with great forecasting. Study sales data and trends and schedule precisely-by the minute-to forecasted business levels. Stagger scheduled in times. When reviewing restaurants I often find that labor management is better on Thursday than it is on Friday. This is usually caused by overstaffing Fridays at the beginning and end of shifts. Watch in and out times with a vengeance. At $9.19/hour every minute equals $0.15 per person. If two people are scheduled to start just 15 minutes later as business levels increase, and are cut from the floor 15 minutes earlier as business levels taper off, the labor savings is $9.19/day and nearly $3,300 per year. In the kitchen, most restaurants hire prep cooks then forget about process improvement to reduce or eliminate those hours. There is opportunity in every kitchen to improve labor cost and increase efficiencies.
  • Build a sense of urgency. Every team member should start every shift ready to go and in high gear. If they’re not in high gear, they should not be clocked in. Teach managers to work every area of the restaurant including the kitchen, the front desk, and the server station, and keep the staff motivated and moving with a sense of urgency. Build the mentality that every minute of the day is the rush not just when the orders are coming in from guests.

Minimum wage increases are a way of life in Washington State. Nearly every year there will be an increase eating away precious margin. Be proactive by taking a fresh look at operations and challenging the prior ways of doing business. Stay aggressive with labor management and use only what the business needs to generate maximum sales. Managing your restaurant with a sense of urgency and building that sense of urgency into every person working in the restaurant will ensure an offset to wage increases while creating a more productive work environment.

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