The cost of doing business is always fluctuating — and that has never been truer for the restaurant industry than now with changes going into effect that impact restaurateurs directly. This week, we look at a few recent or impending cost increases affecting your bottom line, and what you can do to offset their effects.
Minimum Wage Increases
It’s one of the most controversial topic for businesses at the moment, inspiring anger and worry on both sides of the issue across all industries, especially restaurants. But the truth is, a proposed increase in minimum wage is largely out of the business sector’s control. What a lot of restaurant operators are rightly concerned about, however, is the extent to which a change could impact profits.
A raise in the federal minimum wage from $7.25 to $10.10 could have a cascading effect, not just increasing costs for the lowest-paid employees, but leading to an expectation for wage increases among longer-term, higher-paid employees, as well. And the casual dining segment could be hit hardest, with operating margins expected to fall two points, from 12 percent to 10 percent, in a short period.
Chains, too, will feel the pinch as minimum wage goes up in key metropolitan areas. New York City has joined Seattle and Los Angeles in proposing large minimum wage increases for quick-service employees, in this case $15.00 per hour for chains with 30 or more locations.
Whereas the Congressional Budget Office expects only a 0.3 percent dip in employment with an increase to $10.10, economists speculate that a more dramatic adjustment could affect job numbers exponentially because, for the quick-service sector, it may become less expensive to invest in technology than in more employees. And if that trends up to the fast casual and casual dining segments, we could see that limiting of high-touch service affect customer experience — the number one driver of repeat business for the restaurant industry as a whole.
Rise of Protein Costs
Unless you manage a restaurant serving only vegan cuisine, you’ve undoubtedly noticed the rising cost of proteins over the past 6 to 12 months — particularly for beef, eggs, and chicken wings. By January of this year, the price of beef had already climbed 19 percent over the previous year — due largely to drought — but the real issue on the back half of the year is availability.
Beef supplies decreased 6 percent in the second half of last year, and have sank about another 4 percent since January. The expectation is that this trend will turn around with beef production back on the upswing, but it may take some time to see that filter down to restaurant suppliers and butcher shops.
The avian flu is also taking its toll, deflating the egg-laying population of hens by 40 percent and doubling egg prices over last year. As it can take up to 12 months to raise enough egg-laying chickens to replace those lost, prices are not expected to decrease any time soon. Likewise, we’re seeing some chicken meat prices fluctuate — although not to the same degree as eggs, except in one particular area.
Chicken wings — a popular appetizer item for the casual restaurant and bar segment of our industry — have already risen in price by 63 percent over last year. Fluctuations in wing prices are nothing new, but the ever-increasing demand for smaller wings across both the restaurant and grocery sectors (while also meeting demand for larger breasts and whole birds) is keeping the prices high, despite being well out of football season.
EMV Compliance Deadline
American-issued credit and debit cards have long relied on magnetic strip technology to read transaction data, while much of Europe and elsewhere employ something called EMV technology. With the transition to EMV in America, however, credit cards will now store and transmit transaction information via a microprocessor chip, tracking transaction data in real time and enabling card companies to utilize dynamic authentication procedures. Designed to make a number of common fraud and counterfeit techniques obsolete, this EMV chip will be on every card come this fall.
As consumers continue to receive updated EMV-compliant credit and debit cards from their banks, restaurants — like all point-of-sale merchants — are left with a decision to make: upgrade their POS systems (at their own cost) to read the electronic chip and accept a PIN, or face liability in the case of fraud. After October 2015, this financial responsibility, once accepted by the credit card issuers, will shift to the credit card vendor (either the merchant’s acquirer or acquirer/processor) — who may in turn pass this fee back to the merchant — if a chip card is used at a stripe-only terminal.*
*EMV liability shift does not apply to card-not-present transactions, lost and stolen fraud, or certain card technologies such as Visa payWave. For details, contact your payment card processor or visit www.visachip.com.
So, how do you make ends meet when faced with these types of financial demands? Luckily, we have some of the answers.
Reduce employee turnover.
Keeping your employee base happy and secure doesn’t just mean a consistent experience for your diner. It also means your advertising, recruiting, and training costs go down. Plus, the less time you spend getting new staff up to speed, the more time you have to make your business work better in other areas.
Throw away less.
The amount of waste in the restaurant industry is staggering to think about, which is why recent trends in nose-to-tail and stem-to-root cooking are so advantageous to your bottom line. Using more of what you already buy — or even taking advantage of economies of scale on produce and unbutchered meat — can lead to greater profit margins and attract a modern clientele.
Manage your inventory better.
In any business with slim margins, having an inventory control policy and procedure in place is imperative. Keeping your food and labor costs low is a manageable process, and keeps both your diners happy and the health of your business secure.
Consider price changes to your menu.
Most restaurateurs change their menu design or pricing once or twice a year, at most. But there are a variety of pricing conventions that other industries frequently take advantage of — including competitive pricing based on value, not cost — that could benefit your bottom line.
Investigate restaurant funding.
Need rapid access to cash for your business? A merchant cash advance is not a loan, and is a better choice for some restaurants. Experience faster and easier approval — and get marketing to drive more business to you — with the flexibility to pay as you generate sales.