The restaurant industry is notoriously difficult to succeed in, especially for newcomers.
An oft-repeated stat claims that 90 percent of restaurants will close within the first 12 months. While that figure may be greatly exaggerated - other estimates put year-one failure rates more in the neighborhood of 60 percent or even as low as 17 percent - there's no question that maintaining a profitable restaurant year in and year out is tough.
That inherent difficulty continues to be ramped up with ever-increasing operational costs, such as labor and food expenses. With no relief on the horizon, how can restaurants cope with rising costs in 2019?
Keeping payrolls in check
Labor costs represent one of the biggest expenses affecting restaurants' bottom lines. With both front-of-house (servers, busboys, bartenders, hostesses, etc.) and back-of-house (line cooks, dishwashers, sous-chefs, etc.) staff needed for any restaurant to function, employee payroll can add up, fast. Current restaurant industry trends continue to push for higher minimum wages in markets across the U.S., shifting employee compensation away from the traditional tip-based payment model and toward a living-wage system.
When you factor in high industrywide turnover rates and the expense of training new personnel, staffing expenses become an even larger concern for restaurant chains and owners.
A September 2018 BDO report revealed that labor costs once again rose during the second quarter of 2018, increasing 0.4 percent. While that may seem like an insignificant amount, consider that this is part of ongoing restaurant industry trends and that payroll expenses have steadily crept up year over year for some time now.
For some restaurant chains, labor costs significantly cut into their profit margins. According to Restaurant Business Online, Texas Roadhouse's payroll costs represent 32 percent of its total sales.
BDO recommends investing in restaurant tech to help ease the strain created by increasing wages and staff turnover rates. Providing diners with the option of placing their order through kiosks and table-side touchscreen devices can enable restaurants to operate with a small waitstaff while also ensuring that orders are 100-percent accurate at all times.
Self-service models are another option for restaurants looking to scale back their labor costs. Many bars, for instance, have been successful offering self-pour taps, which both allows customers to fill up their glasses whenever they like and reduces the need for a large staff. Thinking outside the box a little bit can curb your labor woes.
Food costs on the rise
Along with labor and rent, food costs are among the biggest expenses that could hurt a restaurant's profitability in 2019. According to the United States Department of Agriculture's latest reports, the Consumer Price Index for all food costs rose 1.4 percent between September 2017 and September 2018.
Depending on a restaurant's cuisine, environmental factors could put an even bigger dent in its budget. As the Food News Feed noted, natural disasters like hurricanes can cut off the supply of regional food sources and significantly raise prices around the industry.
How should restaurants respond? Food News Feed recommends digging into your inventory costs and menu prices at a granular level. Take a look at how much each one of your recipes actually costs to prepare and continually refine processes to ensure you're making money off of them. Food costs often fluctuate throughout the year, so it's important to revisit your inventory and menu to accurately reflect those changes in overhead expenses.
Another strategy is to cut down on food waste, whether it's from throwing out improperly cooked dishes, creating outsized portions, having food sent back or employee theft. The more value you can get out of your inventory, the smaller impact that rising food costs will have on your bottom line.
To address increasing operational costs, restaurants need to evolve and become leaner and more efficient than ever before. That all starts by knowing exactly where your unnecessary expenses are and where you may be losing revenue. With more granular visibility into every one of their operations, restaurants can maintain healthy profit margins even in the face of rising food and labor costs.