MANAGEMENT: Waging a living in the hospitality industry

Many of the hospitality businesses we deal with are battling to keep their wage costs down to appropriate levels at the moment.

Before I continue, it is worth mentioning that when I refer to wage costs, I am referring to wages paid plus on costs: annual leave, sick leave, long service leave, superannuation, workcover insurance and payroll tax. Depending on your mix of permanent and casual staff these combined on costs normally fall in the range of 15 to 25 per cent above base wages paid. It is important to include these costs when you are accounting for wage costs because they are a part of the cost of employing staff.

When your monthly profit and loss indicates you have high wage costs, the normal reaction of most business owners and managers is to try to cut back the rostered hours of their staff in order to reduce the expense. Often this exacerbates the problem – rather than dealing with it – which may sound counter-intuitive.

In many of the businesses we have had dealings with the main cause of high wage costs is staff turnover, rather than rostered hours. If you are constantly recruiting, inducting and training new staff you are incurring non-productive wages – that is, wages that are not directly related to the production of food or the provision of service. If you don’t recognise this and then cut your rosters, you are going to shoot yourself in the foot by reducing your ability to produce and serve in an appropriate manner.

An inappropriate reduction in kitchen staff will often slow down food production or negatively affect food quality, or worse still, cause staff to quit, who will then need to be replaced at considerable cost. This can easily plunge you into a negative spiral of short staffing that can take months and months to rectify.

In your front of house, an inappropriate reduction in staff will inevitably reduce service standards and possibly lose repeat customers. Worse still, it will most certainly reduce your customer average spend which will lead to a reduction in sales that increases your wage percentage, which is the exact opposite of what you intended.

Dealing with a wage cost problem requires a thoughtful and measured response by managers. It is far better to increase sales to make a wage cost problem go away than to go into cost cutting mode. If you succumb to the temptation to go on a cost cutting program you will rapidly run afoul of the Law of Diminishing Returns where the cost of making the saving exceeds the savings made.

There are only three ways you can increase the sales of your business. You can: increase prices, increase customer numbers or you can increase customer average spend.

Increasing prices must be approached with extreme caution. It is very easy to price yourself out of your market by charging more than your customers’ perception of value. This will damage your business very quickly.

Increasing customer numbers usually takes time and money and comes with a proportional increase in labour cost. The more customers you have the more time is needed to produce product and serve them.

Increasing customer average spend is the most desirable way to deal with a wage cost problem. You already have a base of customers; are you making the most of the opportunity? How much money goes out your exit doors intact in wallets and purses that would have been left there if somebody had made the right noises? Many of our clients spend considerable resources trying to attract new customers while ignoring the potential that resides in their existing customers.

Increasing average spend can be achieved by either merchandising or selling. Merchandising is the art of using visual means like revamping your menus to include photos, placing tent cards on tables etc. Selling is the process of using human interaction to assess what customers want and recommending products that will enhance their experience. If you have cut front of house rosters to the bone, your staff will not have the time necessary to maximise customer spend. It’s that extra drink or add-on sale that will give you the income to balance out your wage costs.

Following on, in the past I have resolved wage cost problems by adding front of house staff, not removing them. If you identify your best sellers and split your team into runners and sales staff, then keep your good sales people out on the floor, you can often take much more from the average customer than if it is hard for them to get a drink or more food.

Tony Eldred operates Eldred Hospitality Pty Ltd, ‘The Hospitality Specialists’. Contact him on (03) 9813 3311 or at