Chef preparing a plate in a gourmet restaurant

How labor shortages are affecting your restaurant’s profits

The pandemic brought with it a myriad of challenges to the restaurant industry. Extended restaurant closures were one of the most significant. And the fallout from those closures still impacts the industry today.

Many restaurants were forced to close or curtail operations during the pandemic and lay off staff, many employees sought positions in other industries. Managers, chefs, bartenders and servers pursued new career opportunities. Post-pandemic, many of those that left the restaurant industry never returned. A few of the reasons they stayed away have been lower wages, long hours, lack of benefits and often the lack of advancement opportunities they encountered in the restaurant industry. This, accompanied by today’s revitalized economy and low unemployment numbers, has caused a chronic staff shortage that is particularly acute in the restaurant industry.

So how has this labor shortage impacted restaurant profits? The most obvious impact of the labor shortage on profits has been the higher wages needed to attract and retain staff. An operator only has to look at their prime costs to see that the higher average wages have driven overall labor costs higher and negatively impacted profitability. Finding it necessary to close all day or close early on certain days due to staff shortages means reduced revenue and less profit. These are the easily identifiable effects of the labor shortage.

But we can’t forget the not so obvious factors that are negatively impacting profit:
  • When your restaurant is short-staffed in the kitchen, it can result in longer ticket times. This, in turn, results in slower table turns. Longer waits for food means less revenue and an increased number of unhappy guests.
  • Being short-staffed in the front-of-the-house often results in servers being forced to take more tables than they can adequately handle. The impact of this situation is that your servers end up becoming “order takers” instead of “salespeople.” The result? Lower appetizer, drink and dessert sales as well as a drop in guest service levels. And even worse, more unhappy guests.
  • The increased need to call in staff on their days off to cover when your restaurant is already at a critically low staffing level for that shift. This in turn results in increased overtime and higher labor costs, as well as unhappy staff members.
  • When you are running a skeleton crew, the result can often translate into an overworked staff. This leads to lower performance and an even more unhappy crew. And an unhappy crew leads to higher turnover rates resulting in more staff shortages and higher new employee training costs.

These scenarios have a domino effect – one situation causes others to occur in an ever downward spiral. These combined challenges have a cumulative impact that further syphons away revenue and profit.

So, what is the solution to this chronic labor shortage problem?

Restaurant operators are all working to create a positive brand image for guests. This is important given the constant competition with other restaurants to attract guests.

But what if you worked equally hard to create a positive brand image for staff and potential new hires? After all, aren’t you also competing with other restaurants for great employees? What if you strive to be THE restaurant brand where everyone WANTS to work?

How can this be accomplished?

Create a positive culture. What does that mean and how do you do it? Higher wages and increased benefits are the obvious starting points. While this may attract candidates, it is not enough to retain talent once they are hired. There are other, more subtle but critically important steps to take to create a culture that makes people want to work with your restaurant. Some of the components necessary to create a great restaurant culture that will attract and keep managers and crew include:

  • LISTEN to staff ideas. Encourage team members to bring their ideas and suggestions for improvement to management. Give your staff a voice that is HEARD by managers and owners. We learn best when we listen to the concerns and ideas of our frontline staff.
  • EMPOWER staff to make decisions on the spot to correct any issues with your guests. There is an art to handling guest complaints and resolving issues, and it is often overlooked by owners and managers when it comes to training.
  • TRAIN, TRAIN AND TRAIN SOME MORE. Training should be a never-ending process. The better the training, the lower the turnover rate. Set your crew up to succeed.
  • PRAISE IN PUBLIC, COUNSEL IN PRIVATE. Everyone makes mistakes. Train your management team to be more of a coach than a policeman.
  • CELEBRATE crew successes. Plan and execute crew celebrations. A huge key to employee retention is making each employee feel appreciated.
  • TURN CURRENT STAFF INTO YOUR MOST IMPACTFUL RECRUITERS. Offer staff a meaningful reward for bringing in new team members.
  • BE TRANSPARENT, BE CONSISTENT, BE FAIR, AND BE REALISTIC in your expectations. Enforce your standards. Don’t hire “warm bodies” out of desperation. A mediocre or poor employee that you keep severely damages the moral of your better-performing team members. Measure performance and reward good performance. For example, evaluate your servers and give those with the highest check averages the best shifts and best sections.
  • ENGAGE your staff in building your culture and RECOGNIZE staff for great performance.

There is no easy answer or magic fix to industry-wide staff shortages. But taking a few key steps to build a positive success culture for your employees can help position your restaurant or franchise for greater success too.

For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Brian Campbell
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