How Do You Combat Roadblocks In Sales and Profit Margins?

Stressful - The Perfect Way To Describe the Restaurant Industry

Working in the restaurant industry is not for the faint of heart, we understand that it can be incredibly overwhelming. One of the main issues that restaurant owners endure is decreasing sales and profit margins across the board.

For the restaurant industry, average profit margins lie between 2% and 5%. This means that for every dollar spent, restaurant owners only collect 2 to 5 cents. Since margins are already razor thin, there is no room to lower food or beverage margins. The major question restaurant owners have to ask themselves is, "how do we overcome these low margins so that we can be successful in the overly competitive market?".

Rising Labor Costs Hurt Your Wallet Big Time

Restaurant owners spend roughly 1/3 of their money on labor costs, and in the United State, there will be an increase in the minimum wage starting December 31, 2018. Below is the breakdown of the wage changes that will impact employees in the restaurant industry in New York.

Businesses not in NYC, Nassau, Suffolk, or Westchester Counties:
  • Non-tipped employees: $11.10 minimum wage, $16.65 overtime rate
  • Service workers: $9.25 cash wage, $1.85 tip credit, $2.40 tip threshold, $14.80 overtime rate
  • Food service workers: $7.50 cash wage
  • Minimum weekly salary for exempt employees: $832.00
Fast food employees:
  • NYC: $15.00 minimum wage, $22.50 overtime rate
  • The rest of the state: $12.75 minimum wage, $19.13 overtime rate

Labor costs are increasing with the push for a higher minimum wage, and the competition to acquire top talent is at an all-time high. Owners want to have the best employees, but it's difficult to acquire top talent when the market is over-saturated with other owners vying for the same talent.

The Effects Of Rising Wages At Your Restaurant

Earlier this year, the Harvard Business School conducted a study that looked at the relationship between raising the minimum wage and how it will affect the profitability of restaurants.

The results found that restaurants that have a relatively average Yelp rating are 14% more likely to close if the minimum wage for employees increases by a single dollar. In order to pay for the increase in wages, restaurants will either have to cut staff or potentially close if they can't support the payroll increase.t

This conclusion was arrived at because roughly 1/3 of expenses go toward labor costs, so profits will be reduced by 2% if the minimum wage were to increase by 10%. This is a major concern for restaurant owners because they are the ones who are eating these costs while not necessarily making more money to cover them.

Turnover Rates Are Incredibly Dreadful

The restaurant industry faces very high turnover rates, and according to the Bureau of Labor Statistics, the food service industry had a turnover rate of 72.5% in 2017.

When employees leave, restaurant owners have to spend time and money looking for replacements. Resources are also spent on training and onboarding these new employees which can be very expensive.

Restaurant owners should implement regular training for their employees along with engaging them more to combat turnover.

The Importance of Training Your Employees

Training employees and making sure that they're engaged at work is a way to combat turnover. Engaged employees are happier and more invested into their jobs. They also tend to stay longer at the current positions, and this would lead to less resources being put toward finding new employees.

Using video is the best way to train employees, it is the #1 coaching and engagement tool because visuals improve comprehension by close to 400%.

Implementing video for training will increase:

  • Comprehension
  • Engagement
  • Processing of information

Restaurant owners cannot control the wage increase that will go into effect at the end of the year, but they can control the amount of training they provide to their employees. They also have the power to cultivate a culture of engagement at their restaurant which will entice their employees to stay longer as well.