Cost ReductionStaff

How Restaurants are Evolving to Combat Rising Labor Costs

In the past, good service has been a staple of having an enjoyable restaurant experience. You imagine a hostess seating you at a table, a server promptly greeting you and taking your order. As you are enjoying your appetizer, you see a bus-boy clearing away a nearby table. What many of us fail to consider is how expensive all this labor can become for the restaurant management. Like most businesses, labor takes up a large percentage of the restaurant industry’s revenue. In combination with other rising costs, how does the increasing strain of labor impact the restaurant business? Let’s briefly examine this dilemma and assess how restaurants are evolving in creative ways to combat this issue. 

Why Labor Costs are Rising

There are many expenses that a restaurant must endure. According to a recent Restaurant News article, food costs went down by 0.6% to an average of 29.1% in 2016 which sounds like great news. But these savings are offset by the ever-rising cost of labor, which in 2016 rose by 0.8% to a record high of 30.5%. With the minimum wage increases and the demand for healthcare, labor costs were guaranteed to rise. Likewise, when we think about populous, urban regions, there is an increased demand for real estate. Less space, higher rent, is the reality that businesses and citizens both face. When the cost of housing increases, there is an increased demand on the population to be able to afford to live there. This can be an issue for businesses that rely on a low-income workforce because if the staff cannot afford to live nearby, they find it difficult to work in that region. To compensate for this, businesses try to pay their staff more which raises the labor costs. Research shows that when the costs of housing rise by 10%, the prices of local services including that of restaurants increases by 6%. Restaurants may try to offset their labor costs by raising prices. Although the correlation between housing rates and service rates makes sense, there is a limit to how much even the wealthiest of patrons are willing to spend on a sandwich. 

How Restaurants are Evolving

Restaurants need a few things to operate. They need tables, food, customers, and staff to prepare the meals. What they are discovering is that the rest are merely extras. Cafeteria style restaurants are not a new concept but they are becoming a popular option within fine dining eateries. Condensed menus with a more efficient game plan is a strategy that has a few benefits. It lowers food costs by guaranteeing less waste and it also increases operational efficiency. The chefs can prepare the food more quickly, refine their techniques and have a higher turnover rate to serve more guests. High turnover means that they do not necessarily need as much space so some restaurants are moving into smaller locations.

Another interesting tactic that restaurants are employing is by using the diners as labor. It sounds strange but many patrons are willing to get their own glass of water or to drop off their dishes at bus stations in order to pay less for their meal. Eateries are turning to technological innovations like kiosks so that people can type in their order which helps with having less staff.

Restaurants are also being more scrutinizing over the staff they do choose to employ. A high turnover rate means more training, less experience which can add up quickly. By having a well-trained, happy staff with a diverse skillset, utilizing one employee to multitask seems like a great way to lower costs. Paying one employee well that is able to accomplish a few tasks is less expensive than paying a couple of employees who may end up growing bored in between their selective job requirements.

 Even as the cost of living rises, there is one constant. People still enjoy going out to a restaurant for a date or a good time with friends. As eateries scramble to cover their labor costs, they will be forced to evolve and experiment. Quality of food and efficiency are something that will always remain on the menu.


Cost ReductionStaff
  • Subscribe to our latest insights


Are you capital raise ready?