The Recession and the Dirty Little Secret Restaurateurs Can’t or Won’t Talk About
Everyone in the restaurant and hospitality business would agree that having a great staff is key to success. Your kitchen crew is essential to producing a food product guests will crave when the dinner bell rings in their head. Equally important are the people who serve and sell those culinary creations. The wait staff and front of the house support personnel. However, there are big clouds approaching paradise between wait staff and management.
Tipped employees around the country have enjoyed unprecedented hourly wage increases in the last several years. My estimate would be an average increase of 60%. In Florida, the minimum wage for tipped wait staff has gone from $2.13 per hour to $3.67 per hour in just a couple of years. The legislature mandates an annual increase that secures the wait staff’s future annual increases despite the economy, need or other factors that already build in increases.
In addition to the increase in hourly wage, servers have enjoyed the growing tips as soaring food costs forced menu price increases to all time record highs. Tips followed suit. In fact, most Americans that frequently eat out have increased the average percentage of tips to well beyond the 15% that was considered “fair” just a couple of years ago.
When the initial stages of the recession began last year, restaurant owners had to find ways to reduce costs. This forced a detailed look at what was fair compensation for wait staff. Many companies discovered that the costs with not only the wage increases, but social security and other benefits the employer must pay were increasing far beyond the pace of food price increases. Only now, as survival for the casual restaurant segment of the business is at stake are restaurant owners beginning to say what needs to be said.
Tipped employees, in many states, are becoming a burden that restaurants, and consumers, may not be able to afford in the future. Look at the trend towards QSR’s and fast casual segments of the industry. Want to know why it is almost impossible for casual and upscale restaurants to offer better values? The labor costs are making it impossible. Many restaurants, lounges, bars and cafes are looking at ways to serve the guest with fewer tipped employees. Handheld ordering devices, touch screen monitors at tableside and wireless remote methods to communicate with all parts of the restaurant are starting to get a lot of attention.
In Missouri full service restaurants are supporting a bill to cap wages for servers at $3.52 per hour. This cap, however, would not affect the minimum wage requirement in Missouri that provides servers a minimum including tips.
So what is the secret? There are two;
- Restaurants are afraid to speak out against further increases and the impact on the future of the business. They fear alienating employees and the resulting publicity may further harm their business.
- While circumstances vary, it is common knowledge that many, if not most, tipped employees under report cash tips. They pay fewer taxes by telling Uncle Sam they earned a little less than they really did. To fully control cash tips is an impossible task.
The point here is not to blatantly bash wait staffs. The issue is the revival and survival of their livelihood.
In my restaurants, the servers are treated fairly, honestly and respected for their contributions to the success of the restaurants. As a result, we have been fortunate to work with people who care and stay with us for many years. Our annual turnover rate is less than half of the national average for the casual restaurant segment. Studies vary, but average hourly staff turnover for casual and fine dining establishments is around 85%. That means if you have 50 employees, the average restaurant in this segment will lose 42 people annually that must be replaced.
In the Missouri reference cited above, an opponent of the bill to cap server hourly wages wrote:
“That means Missouri restaurant owners are going to have to look elsewhere to cut costs and increase revenues. And in the end, looking to cut costs in staff first is probably not the best option on the table. After all, wait and kitchen staff are what make every restaurant tick, and in the long run, well paid staff means better sales and reduced turnover, both of which translate into more profits.”
This guy may have written the business plan for General Motors and Chrysler. There is a limit the consumer will tolerate when pricing full service menus. Just as there is a limit to what customers will pay for an American car versus a foreign car with a lower price tag for a comparable product. The theory that the more you pay people, the more they produce is broken. At some point, there is a price to be paid by the customer. They ultimately set the rules and glowing, unsupported theories go down the drain.
Restaurateurs have and continue to cut costs in every corner of their establishments. Until now they have been reluctant to address an issue that represents 25 to 35 percent of their costs.
A staff that is fairly compensated is essential for any successful business. However, this is a two way street. The owner must be able to return a profit to grow, weather business pitfalls (like now!) and invest in marketing tools that keep diners coming in the doors under all conditions.
It is time we, as restaurateurs, openly discuss methods to control this growing problem in most of the country.
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Hello All,
I’m that guy who “wrote the business plan for Chrysler and GM.”
I appreciate Larry citing my blog post for his article here, and I am glad that he is addressing the complex issue of weighing the needs of workers to earn a living wage and the needs of business to keep costs down.
However, I just wanted you all to know that it’s not like I’m some rabid pro-unionist or something. This quote is what I wrote, but it is pulled out of context in this article. Please read the previous paragraph for a little reference:
“So servers who claim they’re taking a pay cut aren’t really getting hit that hard since the vast majority of what they make is in tips. And they’re guaranteed a minimum wage if tips aren’t sufficient.
At the same time, restaurant owners who claim they can’t afford the current wage are not going to get the wage cut they were looking for. At best, wages will be capped at their current levels, which does nothing to help restaurateurs who blame the current wages and the recession for their problems.”
With this as context, try re-reading the quote above, and you’ll see a much more balanced approach than what Larry would have you believe.
I don’t mind being quoted. But I do ask that you represent my views accurately.