Rising Employee Costs? Don’t Cut Your Way Out
With more cities adopting higher minimum wages across the country, and talk of a nationwide wage increase, franchisors and franchisees of restaurant brands have some real decisions to make. Primarily, where does the money come from to pay employees wages that are much higher in some municipalities?
At a panel called Top CFOs Discuss the Battle for Share, Technology Solutions and Cost Control at this year’s Restaurant Finance & Development Conference, five industry experts shared strategies for how their brands have weathered these P&L-shifting changes.
The panelists included Allen Arroyo from Blaze Pizza, Steve Brake from Del Taco, Mike Mravle from Wingstop and Claudia San Pedro from Sonic, each opening up their playbooks for adapting to higher employee costs. The theme was universal: blindly cutting costs was the wrong strategy.
At Blaze Pizza, Arroyo said their strategy was a focus on employee retention to reduce employee turnover. Aside from reducing HR costs, improving employee engagement and retention has the dual benefit of improved customer service while helping the fast-growing brand reduce its labor costs.
At Del Taco, Brake emphasized that the company’s heavy California presence has made rising labor costs particularly challenging. Rather than cutting employee hours, he said the company’s plan was “playing offense” to overcome it. In reality, that has meant growing sales through a “barbell approach” that has driven traffic with $1 menu items, but also adding more premium offerings. Aside from menu changes, Blaze has also implemented labor scheduling software to control back of the house labor costs in a scientific manner.
For Wingstop, Mravle said many of the company’s fundamentals—smaller units, a relatively small number of employees and cheaper real estate by exploiting sub-prime locations—has helped the newly public company withstand rising labor costs and also volatile wing costs.
One of Wingstop’s specific responses has been rolling out a new point-of-sale system that helps the company’s operators reduce waste in the business and protect against rising labor costs.
At Sonic, a large drive-thru chain that sees itself as part of the QSR+ category, San Pedro laid out a farther reaching plan that has included driving higher volumes, reduce employee turnover and incentivizing employees to align compensation plans with reducing employee turnover.
Additional changes include a new inventory control system, a more careful focus on labor scheduling and, like the others, driving topline sales rather than making broad cuts to staffing.
Panelists were unanimous that cutting was not the solution for brands focused on growing sales and continuously improving customer improvement.
“It’s easy to get frustrated when you think about defensive tactics,” Brake said. “That’s not at all what we’re doing—it’s going to take a very holistic approach to overcome these labor issues.”