Four Financial Trends Offer Restaurants a Rare Opportunity

Four Financial Trends Offer Restaurants a Rare Opportunity

By Rick Braa, CHAE

Q: This year I’m looking at new trends in many different areas. I’m curious, what are the major issues in the financial areas?

A: Every year starts fresh with new ideas, energy, hope, interest and challenges. This is especially true in 2017, and the restaurant industry has a rare opportunity to address and fix some significant issues.

Wages will continue to increase, and restaurants will address this in three ways.

The average impact on restaurants statewide of an increasing minimum wage is an estimated $20,000 per million in sales. Automatic service charges may take the place of the traditional tipping model, and there has been an abundance of press coverage regarding service charges. Early data suggests this model is being accepted, but only in certain geographical areas. Secondly, surcharges are finding their way onto guest checks. This is typically a small percentage charge applied to the overall guest check with the option to tip kept in place. While some operators have had success, others have not. Success depends on the guest base’s sensitivity to price point. Lastly, increased menu prices are being introduced to combat higher wages. This is a simple way to improve the bottom line by offsetting higher costs. The important thing to remember is that the public voted for higher wages, and you can respond to this.

Staffing will be more difficult, and kitchen wages are going to continue to grow.

The labor market for kitchen employees is tight. This will continue in 2017. Expect hourly wages in the kitchen to be in the upper teens or low twenties for cooks, assuming cooks can be found. To combat this, work with your vendors to find competitively-priced product that uses less prep labor. Blend excess prep labor with line cook labor, and work with fewer bodies. With the ability to find kitchen employees continuing to be challenging, a great strategy is to use fewer bodies and to make sure that they make you more money. Provide overtime where appropriate, and be the employer of choice.

Sales building will be managed more aggressively, and non-revenue producing staff will be reduced.

Restaurateurs have traditionally used hosts, bussers and bar backs to support revenue-producing positions such as servers and bartenders. It is important in 2017 that each position in the front of the house produces revenue or has the ability to do so. Increasing check average while increasing the speed of table turns is imperative to generating revenue and reducing labor cost. Emphasize sales building and speed at the same time. Check with your POS providers about solutions for pay at the table to assist with closing tickets, becoming chip compliant and reducing those few minutes of wasted time per table.

Food cost will continue to trend lower, and more value to the guest will be offered with higher menu prices.

The Consumer Price Index forecast for 2017 anticipates food will increase a nominal 1.0 percent in 2017, following what is expected to have been an equally low increase in 2016. While this appears to be good news on the surface, the gap between food-at-home pricing and food away from home will widen. To manage the pricing gap, add more value to each plate while increasing prices to match consumer price/value quotient.

With every new year comes new opportunity: Although labor costs are increasing, 2017 offers a rare opportunity to reinvent price/value perception while increasing pricing—as expected by voters—to address both increasing wages and higher profitability.

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

(Source: Washington Hospitality Magazine, March 2017)

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