Labor is a key driver to guest satisfaction and is the largest single cost in the restaurant industry.
These two factors appear to put guests and owners in opposite corners and create challenges that unit-level managers experience day in and day out. Standing between them is the front-line employee with their own needs and experiences.
However, in actuality it is much more complicated than that. Employees have interests that have to be balanced, and those interests are as varied as the employees themselves. They have lives outside work. Conflicts with child care, transportation, family demands, financial pressures, and other obligations must be taken into consideration when scheduling and managing labor.
To top it all off, restaurant traffic (i.e. guests), and therefore revenues, are notoriously inconsistent. The unpredictability of the consumer is a hallmark of the industry. Trends and fads come and go; consumers follow them, lose interest and are distracted by other options and opportunities.
Almost all metrics involved in the industry are expressed as a ratio of some measure of input (labor cost, hours, etc,) and some measure of output (guest counts, entrees, covers, revenue, etc.). As a result, the amount of labor needed must change when there are changes in traffic. These changes can result in conflict. Most employees value consistency in scheduling, because they rely on their paychecks. Managers are under tremendous pressure from employees NOT to change schedules due to changes in traffic. But, if they don’t, unit managers may fail to hit their metrics. Failure to hit metrics puts their own job at risk. Pressure!
Employees in the FOH, who depend on taking their earnings in the form of tips, see changes in traffic as immediate changes in their livelihood. A sustained downturn in traffic encourages employees (often the better ones) to seek work elsewhere, where they perceive a better opportunity to earn a living. Managers who are content with losing a couple of servers because it is “slow anyway” will find themselves short-handed and working with the less-skilled employees, if, and when, traffic returns. It is unlikely remaining staff will be able to meet the demands of the increased level of traffic. More pressure!
Historically, restaurant and retail companies left these conflicts to be managed by unit level managers. With the advent of scheduling software, managing labor has become less time consuming, easier to supervise and yet, more difficult to provide optimum results to the guest and the owner. As we saw above, the more highly skilled, “tipped” employees can usually find employment elsewhere, with minimal interruption in their stream of earnings. With jobs that are more highly skilled (e.g. Chef), managers often defer their scheduling to these employees. These employees are generally given the highest levels of deference to personal requirements in scheduling, and they are generally given higher levels of compensation, as well.
In casual dining restaurants, this generally mean that there are more fixed shifts, and set schedules in the “Back of House” (BOH), than in the “Front of House” (FOH). Back of House skill levels and tenure often advance to the point where management often ceases to impact BOH operations beyond line checks and critique of food from an expo position. There may be a designated “kitchen manager” who takes responsibility for scheduling in the back of the house. Often, the kitchen manager may actually spend more time on shift in the FOH, if for no reason than that is where the less-tenured staff requires more assistance.
These adaptations to the conflicts between interests of various stakeholders of any particular organization become accepted practice, and define a significant part of the culture of that organization. As long as revenues remain strong, this culture is rewarded and strengthened. But over time, differences between business units can erode consistency of guest experience, and ultimately, the Brand itself. And when the inevitable economic downturn, or life cycle of the Brand, results in periodic traffic erosion, or worse, a permanent decline in traffic, these differences become glaring inefficiencies.
Labor is among the most variable of restaurant costs. The structure of labor costs contain pieces that when taken together are like an iceberg, with most of the costs hidden below the surface. There is the fixed portion of labor costs that is allocated to opening the doors; preparation and production. Over time these fixed costs tend to bloat. Then there are the variable costs of service. This variable cost of services is where the inefficiencies are created. Too much labor when sales and traffic are slow; too little labor when sales and traffic are high.
Schedules are developed to provide the consistency that employees need, to deliver the expected level of service that our guests require, and to meet the financial expectations of Owners. It becomes difficult to schedule efficiently when consumer’s loyalties appear to become more random. We believe that better scheduling through better “forecasting” is the solution.
Our firm, National Retail Concept Partners (NRCP), works with scheduling and forecasting firms to help integrate their software into the operations of many restaurant and retail chains. These software companies have developed an array of products that only a few years ago, were dreams of senior managers. These products, when used effectively, can not only help control labor costs, but also retain the effectiveness of their employees and keep the guest experience satisfactory. The forecasting module attached to these scheduling programs is becoming internally more complex, while the interface is becoming more and more user-friendly. Even as the amount of data analyzed grows, these successful software programs permit the average user to understand its output, without needing to know the permutations within.
The challenge is that the scheduling function is generic; the output does not take into account the unique requirements of your concept, your team, or your guests. The generic output will generate some savings because it is used to hold managers accountable. To work with this output, the user still needs to find utility in the output. How does it help them? Does it help save time, or money, or better still, both?
In our experience, a scheduling program utilizing a forecasting module can do both when implemented properly. The forecasting engines of these software firms are very flexible and are simple enough to use by unit level managers improving effectiveness. A strict forecasting regimen may not work for a specific store, or even a concept, but needs to be heuristically (or iteratively) learned by the unit manager with the guidance and support of the organization’s leaders. Our help in determining optimal staffing levels matching the span of business should help generate efficient schedules for both the guest and the owner. The optimal staffing levels that we determine are specific to your organization and are well worth the incremental time and money required.
The key is cultural. Human nature naturally rejects inhuman change. People push back against being seen as mere “data points”. Increased use of online media has begun to mitigate some of these difficulties. Familiarity is starting to breed content rather than contempt. In a culture where expectations are achievable, coherent, and clearly communicated these challenges can be met. When rewards are visible and measureable by all employees, not just senior management, you find growth in teamwork, leading to increased job satisfaction, and lower turnover, leading to higher sales, lower costs and increased profitability.
Developing and setting effective expectations for our clients requires trust. We, at NRCP, team up with a variety of software companies. We customize a solution for the unique culture at each of our various clients. What works for client A, may not or more likely, will not work for client B. To do this, our first step of a client’s business is to evaluate and understand the culture. Culture implies the existing structure of command and control, response and reward. The historic data set of each company only outlines the expectations and behaviors of their unique past.
We need to know who, what and how those expectations were set, how they were measured, managed and whether they were achieved. Our team uses our 75 years of combined operating experience in owning, promoting and managing restaurant concepts. We take the time to interview managers at all levels; asking tough questions, and getting the answers that are often missed in internal surveys. Our third party status and the guarantee of anonymity permit managers to open up about the process, so we are able to reveal the actual environment. All of these factors add up to credibility, acceptability and ultimately the effectiveness of the product rollout.
Then, and only then, do we add the data analysis. Looking through the lens of the concept’s culture, we evaluate the validity and variability of the data. Evaluating in a multiple regression analysis process, we generate a window into the components of the labor cost structure as it existed historically. Looking forward, we create an optimum schedule combining appropriate levels of fixed labor, adding variable labor in suitable increments, against the output metric. Then, we develop the algorithms necessary to fit the optimum schedule and the software platform acquired. These algorithms are “unique” to the company’s concept, its culture, and its goals.
Labor costs have always grown in terms of minimum wage rates, higher taxes, and health care expenditures. Measured against the constraints of menu price increases, control of rising labor costs becomes paramount. Your software provider can provide labor scheduling and forecasting modules, but they will be the same for you as for your competition. We take these software applications and build a labor solution unique to your business from the front office to the front of the house. We look forward to helping.
The preceding information is the work of NRCP. It cannot be copied, or reproduced without the express written consent of NRCP.
National Retail Concept Partners, LLC is a full-service consultancy based in Denver, CO. working with a variety of industries, including the automotive, retail, restaurant and hospitality industries. Partners Larry DeVries and Dean Haskell wrote the preceding post. These recurring posts can be accessed at their LinkedIn profiles. NRCP recently shared its labor optimization success at the Restaurant Finance Conference. The partners can be reached by email at email@example.com and firstname.lastname@example.org. Mr. DeVries is based in Denver, Colorado and Mr. Haskell is based in Nashville, Tennessee.