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How Should A Restaurant Deal With Payroll Costs?

There may definitely be some places where labor costs can be reduced, such as cutting back employee hours or eliminating underperforming staff. All businesses look to their human resources department for cost cuts in tough times. But be careful here, because cutting labor is a task best left to a scalpel rather than an axe.That’s because the one thing you need now more than anything else is good customer service. Actually, you need stellar customer service. When consumers start cutting back, their expectations of service go up, and the only way to get them to spend at all is to take care of them in every way possible.Your staff is the best tool you have to make sure every hungry customer that walks through your doors leaves satisfied and full. If you start cutting back on staff to save money, you could start hurting your chances at increasing future revenue. Overall morale goes down when people are let go because of hard times rather than performance. And no matter what, customer service will suffer when you lose experienced staff.Now is the time to focus on fulfilling the needs of your customers even better than before. If some staff have been a drag on your operation, by all means cut them now. But look for other ways to reduce costs before you start cutting quality staff. Your best customers will appreciate the attention, and hopefully maintain their regular visits to your restaurant. And new customers will be blown away by your commitment to quality service and hopefully come back, even if times are hard.While Circuit City isn’t in the food service industry, a lesson can be drawn from their experience. When sales started declining, Circuit City decided to cut staff as a way to reduce costs and boost profits. It worked for a while. But then customers stopped coming in altogether. Circuit City’s rival Best Buy refused to cut back on customer service, and soon customers were flocking to their stores, not because Best Buy’s prices are better or because they have a better selection, but because Best Buy staff were always there to help.Circuit City has since declared bankruptcy. Best Buy may not be breaking any profit records, but they’re still in business, and their customers are happy. Things could be a lot worse.What do you think about this issue? Leave a comment below!

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  • I have spent a number of years assisting companies (in and out of the restaurant industry) controlling costs. Even though I am an accountant (by education) I hate cost cutting. To me cutting costs that a company was stupid before they decided to reduce their labor costs, or stupid afterwords.

    Costs must be controlled, not cut. You need to identify what your optimal cost structure is to meet the quality of service you are marketing. Most large companies have cut their labor costs to the detrement of their longevity and or revenue. I saw that with Ritz Carlton. Many of their hotels were built in the late 80's/early 90's and designed to operate at a $350-$400 ADR. Unfortunately they were selling the rooms at less than $100 and the quality of their service suffered. They subsequently sold out to Marriott.

    Remember optimize your variable cost structure, don't cut it.

    Regards,

    Richard Allen
  • I really feel in the end as a business owner, if you're not paying your staff what they deserve it's only a matter of time before they wise up and move on - which increases costs.. interviews, training, HR setup, form i9, payroll processing, etc.

    I was pretty impressed at Circuit city's downfall.. under trained staff ignoring customers (I went there often, and for the most part was completely ignored by sales people even when I sought one out). In my experience, paying a well trained employee what they deserve gives them a sense of pride in ownership, even though they don't own... respect can go a long way towards trust, and those happy employees generally work their way towards upper level jobs in the company.

    I'm amazed when companies withhold money from their vendors/employees or hold it over their head like some sort of reward - it's a transaction and they deserve their payment, just like you deserve the quality service or product. When both parties put in a positive effort it's more difficult to screw up unless you're simply overpaying for the position/service.
  • In tough times, you can't help scrutinizing one of your biggest expense. However, I believe there's no need to layoff -- we just need to have our staff get more involved in our business. For example, encouraging their participation in cost cutting -- take unpaid leaves, reducing hours etc.

    Losing highly skilled workers can inflict long-term damage on a business, making it hard to bounce back.
  • "Staff is always there to help" I dont think cutting staff is the key, boasting advertisement might be were its at. I know that it might cost more money, but it will pay off. Twofers, couple specials, children eat free on certian night and add dinner specials for adults, coupons,etc, etc. The list goes on. Open mike nite. At lot of brain storming, Managment might have to start bussing some tables and taking orders. Hence" working manger :)" Please keep staff on because in the end customers suffer and they know it as soon as they walk in the door.
  • This is an excellent post and great timing. I would just like to comment on the idea of using the scalpel rather than the sword when it comes to cutting back. One of the techniques we use at Ted's to trim labor is to schedule on 15 minute intervals vs the standard half/hour / hour start time methods. In other words, we look at our daily sales and guest counts in 15 minute intervals and schedule staff accordingly. So shift start times are :15 :30 :45 or on the hour. So for instance, if we look at lunch and we see that between 11:00 and 11:15 when we open we see an average of 3 - 5 guests, we only really need 1 - 2 servers to start at 11:00, then at 11:16 to 11:30 we see an additional 3 - 5 guests, we add a server, and this continues until we see a rush at noon where we need the full staff on and so we might bring them in at 11:45 (You do want them in place and ready for the rush). And on the other end of the shift we evaluate the same :15 clockout intervals to save time at both ends of the shift. Now it may not seem like much but saving these 15 minutes here and there adds up over 2 shifts a day 365 days a year across 56 restaurants. So rather than cut staff, we look at right sizing and right timing the staff each day based on appropriate sales and guest count forecasts. One note, doing this for FOH is easier and simpler to implement than HOH. With HOH staff it all depends on your prep requirements, but you can filter folks in for the rush in the kitchen as well depending on your operation.
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