How to Offset Minimum Wage Increases with these Tips

Retail businesses, like restaurants who employ dozens of hourly wage workers, face tremendous pressure as the city and state minimum wage increases. With labor a huge portion of expenses, how can a restaurateur deal with rising labor costs?

You’ve seen other eateries deal with this a few different ways. Some have increased menu prices; it costs more to get the food to the table, so this is a traditional way of maintaining profitability. Others have specifically added a clearly identified percentage to guest totals so that guests realize the increased cost legislation that dictates pay levels. And some businesses simply make do with fewer employees at the risk of reducing the quality of customer service.

There are other options, though, that won’t have a negative impact on your customers. Restaurants operate in a highly competitive industry. So, what else can you do to offset the costs of rising minimum wages? Here are some practical strategies to consider.

1. Restructure Your Operating Hours.  Fewer hours mean lower labor costs. We so often think that being available to a customer is important in order to increase revenue, but it is not always helpful in increasing profit. Keep profit the goal while maintaining retail hours that reduce labor costs while maximizing profitability.
2. Change How You Price. Quick increases won’t make the customer happy, so balance what you provide. Maybe take-out portions get a little smaller. Perhaps offering a lunch and dinner menu with the most popular items can streamline each shift to reduce kitchen staff. Review the most profitable items–the higher-margin items are often drinks whose prices can increase without being noticed.
3. Think Seasonally. Every retail business has some seasonality: holidays, local events, and time of year. Trim staff to match your business levels so you pay for what you need. Or ask your current staff to work more shifts during the busy season.
4. Invest in IT. Implementing most of these strategies means investing in helpful technology. As a retail business, you must understand labor costs and utilize efficient scheduling. Employee scheduling software and all the data it provides can mean a return on investment that outpaces the rising cost of hourly employees.
5. Make Menus Work for You. Increased average tickets come with attention to ways that increase purchases. People tend to read in a particular order that includes the middle and top of the pages. Put the more profitable items there to increase the number of orders. And limit each category of food to fewer choices so that side orders are more likely and easier to suggest.
6. Value Those Pricey Employees. Hiring and training are costly and time-consuming endeavors. In the restaurant business, turnover is especially high. Keeping labor costs down over the long term makes minimum wage increases a bit more manageable.

Rising minimum wages will continue its downward pressure on profitability, but we need to absorb these costs somehow. Refining the operation with a strategic approach will help improve the negative impact of imposed cost increases.

Author Profile Jon Forknell is the Vice President and General Manager of Atlas Business Solutions, Inc., a software marketing company specializing in employee scheduling software, including ScheduleBase employee scheduling software, and other business software solutions. In the past, Jon has been recognized by the U.S. Small Business Administration as a SBA Young Entrepreneur of the Year. Atlas Business Solutions was named as one of Software Magazine’s Top 500 Software Companies in 2004 through 2007, and 2010, 2013, 2014, 2016, 2017, and 2018.