Rising Labor Costs: How Restaurants Can Take Action

The rise in labor costs, minimum wage, and high-tech advancements put operators in a bind to keep the business profitable.

2 years ago   •   2 min read

By Maeve Cloherty

As restaurants keep up with the demand of speedy service and winning guest experiences, the rise in labor costs, minimum wage, and high-tech advancements put operators in a bind to keep the business profitable.

Our recent Industry Insights Report with Nation’s Restaurant News shows three-fourths of respondents are either very concerned or extremely concerned over rising labor costs. Luckily, with the right approach, operators can take back control of their business to keep revenue at an incline and margins cost-effective.

What’s causing labor costs to rise in restaurants?

The rise in labor costs has a direct correlation with the minimum wage increases throughout the country. Research shows that implementing a $15 federal minimum wage in 2020 would reduce employment by roughly 2 million jobs. This would disproportionately impact entry-level positions where unemployment rates are the highest, making a large impact on the restaurant industry.

The necessary actions restaurants should take.

The first step is to determine the costliest areas in your restaurant. Labor costs include all labor-related categories like employee wages and salaries, payroll, overtime, healthcare, bonuses, and more. Your next step is to calculate your labor cost percentage which tells you how much money is spent on labor to produce revenue. The target percentage for labor costs is 20-30%. Once you’ve determined if your labor costs are cutting into your revenue, it’s time to take action.

It’s imperative for businesses to take an approach that makes the biggest impact. Most restaurants look to reducing wages or raising menu prices, but big changes in restaurant processes will make the most difference.  The right point-of-sale system in your establishment can bring ample labor opportunities to your establishment without cutting corners.

The correlation between your point-of-sale system and labor costs.

Your point-of-sale system should have the functionality to keep labor costs stable with robust reporting and analytics, inventory, and staff management. Businesses that invest in a point-of-sale system that offers omnichannel ordering will help combat staffing and lengthy staff training with more self-service ordering solutions.

For enterprise restaurants, kiosks give guests the option to make orders and process payments on their own, providing operators the ability to cut back on staffing. Kiosks, POS terminals, handheld devices, and more modernized point-of -ale technologies are now designed to make staff training simple and effective, which leads to a leaner workforce.

As minimum wage continues to rise, labor has become a significant restaurant cost. Moving forward, businesses must look at their operations from all angles to ensure health and success to stay competitive in the ever-changing market.

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