Keeping wage costs under control requires flexible thinking

Required reading for business owners who need to reduce wage costs.

Wage cost control seems to be more of an issue than it normally is at present. Almost all of our clients are battling with high wage costs — especially in their kitchens. In the past we have been used to seeing infrequent problems in one department or another, but at the higher market levels— particularly in restaurants — the prevalence of unsustainably high wage costs appears to be universal.

The root cause of this is rapidly changing economics. There has been an explosion in the number of restaurants and similar hospitality businesses in most of our major cities and this competition is giving the dining public plenty of alternatives if they perceive your prices are too high. In recent years declining margins have caused many operators to drive the price of entrees, desserts and beverages up to levels that are now causing the dining public to react negatively. A recent article in the Melbourne Age weekend magazine about the ‘outrageous’ margins on wine in restaurants is an example of this.

Is pricing moving away from value-for-money

value for money
Have we priced ourselves into a problem?

My point is that we have reached the end of the road in price gouging in our upper market level restaurants and pushing prices up to where they need to be to ensure comfortable profitability is practically out of the question. Search the Web for John Lethlean’s review in the Australian of Grossi Florentino to see a real life example of what can happen to a restaurateur who pushes pricing beyond the perception of value.

Not only is it getting harder to put a decent margin on food, the expectation for quality and presentation standards are being driven upwards by ‘foodie’ TV shows like Masterchef. The public are expecting the complex food they see featured on TV to be available in their local eateries, at a ‘reasonable price’. The fact that a TV cook takes an hour to produce one demonstration dish seems to be lost on them.

So, we find ourselves in a quandary — we have to produce competitive food to retain market share, but we can’t charge what we really need in order to justify this. You don’t have to be unusually perceptive to realise that something has to give eventually. I fear that without radical change, what gives might be the viability of a lot of restaurants.

We are painfully aware that if you can’t increase your prices and your profitability is suffering, the only options you have to reduce wage costs are to increase customer average spend or to reduce the cost of food production. Both are tricky to achieve and much easier said than done.

Low customer spend is a symptom, not a problem itself

Low customer average spend is not a problem in itself; it is a symptom. The problem lies in a combination of poor recruitment, training and leadership; combined with a reliance on relatively ineffective, traditional marketing tools like the ubiquitous printed menu which is full of impenetrable jargon and culinary terminology. You can talk about increasing customer average spend until you are blue in the face, but the practicality of achieving it may require some fundamental alteration to the way you run your business, particularly regarding the way you recruit and train your staff and merchandise your products.

You can chase symptoms forever - tackle the root problem(s)

Likewise reducing the cost of food production may require a full-on assault on the accepted way of doing things. Do you really need to pick your own herbs; do you really need to portion your own steaks and fillet your own fish?  Doing labour intensive tasks in small quantities is nearly always expensive and inefficient.

Setting targets may not address the problems

Just setting a goal or target for staff isn't enough. Under your current system the target may be unattainable

What I have observed is that setting wage percentage targets is unlikely to get you the result you want. You are far better to force change by issuing strict wage dollar budgets to your FOH managers and Chefs and forcing them to comply. Most leaders will not change the way they do things until there are adverse consequences to failing to react.

The main catalyst that has caused me to write on this subject is the observation that traditional ways of doing things are failing to achieve a satisfactory result for many of the operators we deal with. I am in

a privileged position in that I see the figures from many hospitality businesses and I know the problem is widespread — it’s not just you.

Part of the problem is that we seem to be shackled by the traditional nature of our industry. The accepted way of doing things has proven reliable for many years. We are not used to embracing innovation, except in the artistic areas of our businesses. It’s time to think outside the square. If you don’t change your direction, you’ll end-up where you’re headed.

To learn more about the topics discussed in this article please consider the following courses,

For documentation to support the management systems discussed in this article, please visit our resources website.

If you are not sure where to start, contact us now to speak with a consultant.

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