How to Beat Rising Labor Costs

The restaurant industry has been the largest and fastest growing retail sector since 2015, but labor costs are rising. To keep up with inflation, 19 states hiked up their minimum wage, with other states looking to do the same. Headlines about the rising minimum wage have been filling newspapers nationwide.

And some restaurants have had to close their doors.

Over time, it’s supposed to increase sales by putting more disposable income into customer pockets. In the short term, it’s the biggest menace to thin restaurant profit margins. Many restaurants have reacted by automating, cutting labor hours, cutting jobs, and putting off new hiring, but these actions comes with risks too. Installing ordering kiosks, like McDonald’s, could take years to get a return on investment. That’s way too expensive for smaller restaurants to absorb. Cutting labor could mean a huge hit to your quality of service, killing your sales when news spreads on social media.

A Harvard Business School study of Bay Area restaurants found that an $1 increase in the minimum wage increases the chance of a restaurant closing by 4-10%. If that restaurant has 3.5 stars or lower on Yelp, the chances of them closing increase to 14%. On the upside, restaurants with a five-star rating, were not more likely to close at all, even with a minimum wage hike.

Service is too important to sacrifice.

It’s a good thing cutting labor and installing ipads are not your only options. Here are some solid ideas for how to combat rising labor costs:

Streamline Your Inventory

Food costs are going down. It’s a no-brainer to suggest cutting food waste, but have you considered cutting down your menu? Consider getting rid of one-off ingredients or items that are slowing down other operations. Consumer psychology shows that customers are actually happier with less choice. Not to mention that doing this might not just speed up your back of house, you might turn more tables in front too.

Raise Prices Gradually Over Time

People understand that inflation is a way of life, but guests are more likely to notice a jump in price and it could affect how often they come. A 1-2% increase across the menu could be enough to cover a dollar increase in the minimum wage.

Boost Sales By Standing Out From the Crowd

Taking pictures of your food at a meal used to be strange. Now, restaurants with Instagram-worthy dishes are being followed online and filled with customers. A great way to attract business is to find a way to make a signature dish that grabs eyeballs and attention, and pair that with restaurant lighting and decor made for photo taking. Spotted on Instagram: rainbow bagels, fruity pebble ice cream sandwiches (pictured above), and perfectly poached eggs perched on fresh avocado toasts.

Make Sales Beyond Your Store’s Walls

New technology helps restaurants drive sales, even in their downtime, as our CEO, Mike Wior, spoke about at a New York Restaurant Tech Meetup about How Apps Are Innovating Restaurant’s Downtime. Mobile payments and delivery are helping restaurants sell food to customers that haven’t even set foot in the store. Plus, customers love convenience. Also mentioned at the meetup were ItsOnMe, an app that helps you easily promote and sell restaurant gift cards anywhere online and SpotLuck, an app that motivates diners to try your food outside of peak hours.

The key takeaway is that rising labor costs don’t have to push you out of business. If anything, they can be a huge motivator to increase sales and push your restaurant to be better than the competition.

Now there’s a way to streamline all the restaurant tech you need into your existing POS. Interested? Sign up for our marketplace.