Jeremy Julian

How Minimum Wage Increases Affect Your Restaurant – And What to Do About It

August 4, 2015

Minimum Wage IncreasesMinimum wage increases are all the rage today in places like Seattle and Los Angeles, where local governments are phasing in a $15-an-hour minimum for labor over the next few years. While some can look forward to a slightly bigger paycheck, restaurant owners and employees alike are concerned about what these increases will do to their industry.

In June, the Wall Street Journal estimated that profit margins for restaurants in cities or states with rising minimum wages could shrink by one to four percentage points, based on a study by Moody’s Investors Service.

Now, minimum wage staff typically don’t make up most of a restaurant’s team. So why the lost profits? Moody’s says that employers will probably introduce across-the-board raises to keep veteran workers happy and maintain the salary gap between experienced and entry-level employees. This could end up being the biggest cost of a minimum wage increase.

From WSJ:

“Casual dining chains such as Olive Garden or Applebee’s, which provide table service, are likely to feel the biggest impact because they generally require more servers than fast-food restaurants. For casual dining companies with 20% of their labor pool affected by the minimum wage, for example, Moody’s said operating margins could narrow by 2.3 percentage points, to an average of 9.7% from 12%, if the [federal] minimum wage rose to $10.10…

“The restaurant industry is already struggling with soft sales as consumers choose to eat at home, so restaurants risk losing more customers if they raise menu prices too much in an effort to offset higher labor costs.”

Read the whole article here.

Moody’s analysis was based on President Obama’s proposal to raise the federal minimum wage to from $7.25 to $10.10 per hour, which failed to pass Congress. If more local governments follow Los Angeles and Seattle’s lead, however, restaurant companies could face even larger declines in profit.

Whatever your opinion is on the minimum wage (and we’re sure you have one), lawmakers are expected to continue pushing for increases. To preserve the bottom line, restaurateurs will either raise prices for customers or find ways to make their operations more efficient, if not both.

Preserve Your Bottom Line with Efficient Operations

While we can’t tell you what the price du jour should be for your soup du jour, the Restaurant Technology Guys know a thing or two about making restaurants more efficient. These tips and “hacks” can provide a little more breathing room for your restaurant’s profit margins.

Raise Your Technology Game

Upgrading your restaurant with interactive tabletop menus or a mobile ordering system can work wonders, and not just because customers typically order more when given digital opportunities to do so. Linking each table directly to the kitchen via app-based orders also reduces the workload for servers, who can focus on improving customer experience and other tasks.

The initial cost might be intimidating, but by adding these improvements now, you’ll be able to move your restaurant toward more efficient operations, including quicker turnover times and a better customer experience. Also, you’ll have a head start when your competition eventually does the same.

Staff For the Business You Have, Not the Business You Want

Software based labor management programs like HotSchedules and POSitouch help restaurants manage employee hours by staffing based on budgets and historical data for a particular day and time, and by making it easy to trade shifts.

The software also monitors hours to keep part-time employees under 30 hours a week, so your restaurant doesn’t violate rules that would classify those workers as full-time and eligible for health benefits.

Innovations like a cloud-based POS, real-time labor reporting and analysis, and enhanced video systems can also help managers operate more efficiently. Restaurateurs in areas affected by minimum wage increases can also use these programs to prepare and model operations in the future.

How Minimum Wage Increases Affect Your Restaurant | Restaurant Technology Guys

For more tips on improving employee efficiency, check out our Saving Money & Cutting Costs blog on labor.


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