Defeat wage inflation in four easy steps

Defeat wage inflation in four easy steps

By Rick Braa, CHAE

Q: We’re beginning to prepare for the upcoming year. In our plan, we need to specifically address the increase in wages and impact of minimum wage. What are some ideas to address wage inflation?

A: Minimum wage increases annually in Washington state. Seattle jumped into the discussion as a major city highlighting its progressive politics. After several months of discussions, the mayor’s office mandated a series of increases triggered at the beginning of each year, eventually phasing out after minimum wage hits over $18 per hour, in 2025, when the state minimum wage is expected to hit just above $12 per hour. 2016 marks the next major jump for large employers (more than 500 employees) to a minimum wage level of $12.50 and at least $13 per hour minimum compensation providing a medical benefits credit of $0.50 per hour. Small employers must meet $12 per hour minimum compensation and may include a credit of $1.50 per hour for tips and/or medical benefits, but must pay at least $10.50 per hour. While the increase is not insignificant, small employers are not going need to make major adjustment, this year, to cover higher wages to the same extent as large employers. Whether a company is large or small, the important practice is to be proactive with labor management. Consider the following to help ease the pain:

Increase expectations of knowledge—Line ups need to be replaced with pre-preparation on behalf of the service and cooking staff; it starts the day before, not minutes before the shift. Be sure to plan ahead for menu and impart knowledge prior to the staff leaving the prior day to give the staff time to think about their shift the following day. Use email as a tool to send highlights about the restaurant and what’s happening so it can be read by staff prior to arriving to the restaurant. Higher wages carry increased responsibility on behalf of the staff. Test staff individually on their way into the shift whether it’s bar knowledge, food knowledge or an area of service focus.

Increase the service level—Guests come the first time for the food, and come back for service. Guests are five times more likely to return to a restaurant if they had a memorable experience with an employee. In a time of wage inflation, driving frequency of guest visits must be the focus since it has the highest impact on sales. By increasing focus and providing outstanding service, guests will return more often. If a restaurant serves 50,000 guests per year, capturing 3,600 more visits (10 guests per day) will yield more than enough to offset increases in wages. Service is the avenue.

Manage the number of employees— Each member of the team carries taxes, perhaps benefits, a need for management and ultimately hours. In any organization, there are 20 percent of the employees that are non-engaged, working in the opposite direction of where the restaurant needs to go. That’s two out of 10 people that underperform and provide 50 percent of a day’s work for a full day’s pay. Evaluate the staff and use overtime as a tool for improvement; employees that work overtime and know the value of what they provide will produce at a higher level for their OT 50 percent increase in base wage than having a non-engaged employee. Fewer, more engaged and productive employees will save money and increase guest satisfaction.

Take timely price increases—Wholesale prices increase every year, and so does payroll cost. Be smart and increase item pricing on items of high volume that aren’t easily compared to other items in the market. Analyze the top sellers over one year. Increase prices on the top sellers and multiply the amount of the increase against the yearly totals. Reserve large price increases for future years when wages increase at a much higher rate. A five percent increase in pricing will pay the increase in inflation.

Pressure on wages is not going to subside without a major recession. The number of employees available is too small a pool to keep wages from inflating. Driving return visits with highly engaged employees that feel valued and appreciated with higher check average will take the sting out of wage inflation.

For a more information on improving profitability and driving performance, contact AMP Services at rbraa@ampservices.com. Rick Braa is the co-founder of AMP Services, an accounting and consulting firm specializing in helping companies grow profitability.

(Source: Washington Restaurant Magazine, October 2015)