Why an Improving Economy is Killing Your Restaurant’s Labor Costs

The restaurant industry is killing it in more ways than one.

You could say it’s killing it when it comes to sales… they’ve shot up 3.8% from last year.

That’s pretty good.

And restaurant-industry employment is now 14 million employees strong, adding jobs at a 3.5% rate last year.

But the restaurant industry is also killing it in another way.

Turnover rates are staggering and labor costs are eating operators’ dollars. The overall turnover rate in the industry was 66.3% in 2014, and 72.1% in 2015.

Although an improving economy means more business for restaurants, here are 6 reasons it also means high labor costs.

#1 Fewer Job Applicants

An improved economy means more jobs.

And more jobs means fewer applicants all around.

In other words, an expanding economy leads directly to a contracting restaurant workforce. There are fewer people looking for work, especially lower wage or part-time work.

With more jobs available, people now have the option of being choosy when it comes to the type of place and management they work for.

According to a Society for Human Resource Management survey, employees value respect, trust, benefits, pay and job security the most.

#2 Competition for the Best Talent

An expanding economy naturally leads to a boom in small businesses, including independent restaurants.

Trendy, gourmet eateries are popping up everywhere.

The competition for not only customers but top-level talent is intense.

If you’ve identified what makes your restaurant stand out from the pack, then use this unique selling point to attract talent.

And help current employees grasp your differentiators so they’ll feel inspired.

One way to do this is to continuously train them and to offer them modern restaurant technology for communication with you and guests.

The stronger the community you build among your staff… the less likely they are to fall apart.

#3 Higher Wage Requirements

With fewer job applicants and increased competition for talented staff, you’ll have to offer higher wages to attract hard-working employees.

And if the free market economy doesn’t impact you, the increase in minimum wage will.

What if you can’t afford to pay higher wages?

Experiment with offering incentives when staff members reach goals.

For example, if a staff member sells a set dollar amount of your special, he or she will receive a bonus.

You can also cut costs somewhere else.

Many restaurants don’t know they’re losing money in certain areas, but identifying this waste means keeping talented staff.

Saving money on food costs, negotiating prices with vendors on bulk items, knowing if certain items are going bad faster than you can use them by taking regular inventory

These are all ways you can save money to pay your staff more.

#4 Increased Healthcare Costs

Something employees value most is access to benefits.

People want and expect good healthcare, and those in the restaurant industry who are stepping up are getting the best talent.

They’re also significantly increasing their labor costs to provide those benefits.

#5 Higher Turnover Rate

The turnover rate is only growing.

With a better economy, people feel more comfortable switching jobs if they feel it meets their needs better.

A better economy allows staff to make decisions about where and how they are employed instead of worrying if they are employed.

#6 Unqualified Workforce

If you can’t or won’t raise your wages and meet the needs of a talented workforce, you’ll be left to hire unqualified employees.

This typically untrained, lower quality workforce results in more errors, customer satisfaction issues, and higher costs due to waste and other issues.

In this case, it’s imperative you invest time and energy into training your staff.

Lay out clear expectations, and show employees how tasks should be done.

What Can You Do?

Although these 6 reasons point undeniably at the challenges of rising labor costs, there’s no reason to bemoan a better economy.

There are practical ways to combat these challenges.

First, consider how you can improve employee happiness and create a sense of community.

Through training and incentives, empower your staff members so they develop a sense of ownership. Not only will you foster loyalty and retention in your current employees… they’ll recommend you to their network as an employer.

Next, offer free perks to attract and retain employees.

Create career paths so employees feel they have a future at your restaurant. Listen to feedback from your employees so you can reduce frustrations and improve retention.

Keep a tight watch on your shift schedules to avoid overstaffing.

Study your shifts compared to profits over several weeks, looking for patterns where you can cut hours due to slow times. Employees’ time won’t be wasted sitting around when it’s slow, and you’ll save money at the same time.

Finally, standardize processes and leverage technology to simplify your employees’ jobs.

Using technology can free up your managers from manual tasks so they have more time to interact with and meet the needs of your staff.

Labor costs might feel like they’re out of control… but controlling them is really just a matter of improving operational efficiency



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