The 10-Minute Manager's Guide To Managing Labor Costs

By Barbara Sullivan, Special to R&I -- Restaurants & Institutions, 6/1/2004

Controlling labor costs in the foodservice industry is just as critical to the back office as an ice-cold martini or piping hot cheeseburger is to the consumer out front. Including benefits, labor accounts for 33% of total sales in full-service restaurants, and 30% in limited-service establishments, according to the National Restaurant Association (NRA). It’s even higher for hotels offering food and beverage (48.7% of sales), according to San Francisco-based PKF Consulting.

Efforts to keep labor costs under control and, in some cases, to lower them, range from the seemingly contradictory tactic of paying kitchen workers a higher-than-customary hourly wage to using relatively new software to screen job applicants. Todd Foutty, director of foodservice for Cleveland’s The MetroHealth System, has saved a whopping $840,000 a year for the past three years in labor costs by centralizing his production. It can be done.

Language Lessons

Louisville, Ky.-based KFC and San Francisco’s glitzy Jardiniere are very different types of operations, but they have one thing in common: Both make major efforts to raise the English skills of their workers with limited command of the language. Their efforts are paying off in increased productivity, less absenteeism and the opportunity for in-house promotion.

Shawn Brady of Los Altos, Calif.-based Harman Management Corp., the largest KFC franchise with 330 units, is working with Daily Dose, a Utah-based company now in partnership with the NRA. Daily Dose trains facilitators, who then set up customized programs for the units.

“It’s taught-in-kitchen English,” says Brady. “It helps employees do their jobs better and creates a happy environment as workers learn English skills.”

The program has been implemented in about 50 KFC units so far, with students usually meeting in what’s called a “huddle” for about 10 minutes a day, three times a week. Topics include such subjects as hand washing, greeting customers, and preventing sexual harassment.

Jardiniere also holds classes in house, taught by a former waiter, with participants meeting twice a week for two months. Although the students pay $200 (deducted in $30 increments from their paychecks), half the money is refunded if they attend each class and graduate. The balance is refunded if they remain with the restaurant for six months.

When All Else Fails...

Hotel foodservice took a hit after Sept. 11, 2001. And one of the first things to go in an attempt to control all costs—including labor—was a layer of management, says Robert Mandelbaum, director of research information services for PKF Consulting.

“We would see a director [of foodservice], a manager for each [restaurant, cafe and lounge within the hotel] and then supervisors. What we’ve observed in the last two years has been elimination of some of that middle management, using one manager for all outlets.”

Many hotels, he says, have closed some of their food outlets, reduced hours of service or shortened their menus. And some hotel chains have taken the route of no or limited foodservice.

“We’ve seen a proliferation of chains where food is no longer considered a necessary amenity. The role of food and beverage in hotels now is very polarized.”

More Is Less

“Cheapness has a cost,” says Larry Bain, director of operations for San Francisco’s Jardiniere. He’s the same man who brought English classes to the restaurant, and he also was instrumental in 2001 in raising the hourly wage for nontipped workers at the restaurant to $9.25 an hour, about $2 an hour more than they had been making.

The results have been dramatic, he says. In the first year, total wages (for prep cooks) went up 4%, but overtime dropped 30%. “This year we have virtually no overtime,” he says. At the same time, increased productivity—as well as decreased volume—allowed the restaurant to cut the prep-cook payroll by almost $71,000, or 50%. Although no employees were laid off, those who resigned have not been replaced.

Bain says a dozen of his industry colleagues are in the process of giving higher wages and more are talking about it. “Our reduction of overtime has given other managers confidence” in the effectiveness of higher wages, he says.

Hitting the Marks

“If there’s one thing that’s important about [understanding labor costs], it’s benchmarking,” says Todd Foutty, director of foodservice at Cleveland’s The MetroHealth System. “It educates you on costs, on the effectiveness of new systems, on everything.”

Foutty uses reports from the National Society for Healthcare Food Service Management in Washington, D.C. Monthly research lets him compare MetroHealth labor and food costs, productive hours and patient feeding with other systems of similar size. “We’re a public hospital, so we want to be in the 10th [a low] percentile. Benchmarking lets me know just where I am.”

To get in that 10th percentile, Foutty has centralized tray production. The 1,000-bed hospital, which has a main campus and two satellite locations, originally had food production at all three spots. “We shut down the kitchens in two operations, abolishing the positions in an eight-month period of attrition. Now, we produce all the trays in one location.”

Foutty also started advanced meal production in 2000, using the cook/chill system he instituted in 1998. Cook/chill extends shelf life, so, for instance, mashed potatoes can be prepared in volume once a week instead of daily. Lunch is the first meal cooked every day, then dinner, and finally the next morning’s breakfast. It’s a means of providing quality foods while reducing overhead.

“We have significantly cut costs,” he says. “We’re saving $1.2 million a year, and 70% of that is labor.”

And yes. He’s in the 10th percentile and intends to stay there.

Let Your Fingers Do the Talking

Nicole Allison, general manager of Chicago’s Rock Bottom Restaurant & Brewery, sings the praises of the company’s automated hiring system. “It takes the guesswork out of hiring and allows us to eliminate the silly hires,” she says. As a result, turnover is lower, “which is important considering that training someone costs our operation $3,500,” she adds.

Based in Louisville, Colo., Rock Bottom Restaurants Inc. operates 30 Rock Bottom Breweries, four Chop Houses and three Sing Sing nightclubs. The company started working with a provider of workforce-selection systems about two years ago, installing an online application form on its Web site. It takes a job applicant about 45 minutes to fill out the form, and “saves the company a lot of interviewing time,” Allison says.

Overall, the system has led to a marked decrease in hourly turnover at the Chicago unit, which Allison says now boasts one of the lowest turnover rates in the chain. In addition to saving money, the online system also frees managers such as Allison to use their time in other ways.