Increasing costs are a fact of life for businesses and those that take a proactive approach often reap the rewards. Everyone is trying to control and, if possible, reduce business costs and protect margins, however, as Steve Braude and Julia Windsor at AlixPartners argue, more could be done to strike the right balance between making savings and damaging guest experience.

The hospitality sector is now at a point where it’s getting tougher to quickly move the dial to dramatically reduce business costs and protect margins: the big opportunities are less apparent or take longer to show results. Consequently, businesses need to look deeper under the bonnet to find those adjustments that make a material difference, fast.

The income statement of a hospitality business offers up four general areas for reducing costs, most of which do not yield results quickly:

  • Rent and four-walls operating costs cannot be renegotiated quickly.
  • Supplier contract review requires both an individual and holistic approach, which often means the benefit of savings takes time to filter through the income statement.
  • Corporate operating expenses can be examined for efficiencies, but (by and large) people are already doing a reasonable job and tasks have been outsourced where appropriate.
  • Labour costs are left as the most ‘controllable’ cost which, according to figures from UKHospitality and our experience across the industry, account for approximately 30% of the cost of total sales for restaurants. This is about the same as the ratio of food to sales.

Against the background of an increasingly difficult trading environment on the high street and the threat to supply and cost of raw goods brought about by Brexit, the temptation to cut corners for quick wins can be very strong. Instead, we believe operators need to be strategic, thorough and smart, and look to enhance labour cost control as a method of reducing costs.

Accurate scheduling

Staffing is a balancing act. Understaff and you risk losing valuable revenue and impacting guest experience. Overstaff, and labour costs could be greater than sales during certain dayparts. Most operators focus on hourly rates and annual salaries when trying to balance labour costs, however in our experience the highest savings opportunity is where shifts are staffed based on levels of demand, both in the front and back of house, and match staffing levels precisely to customer demand.

By adjusting labour to match dynamic data, an additional tier of savings may be achieved during periods of low volumes and sales. For example, staffing a manager during the post-lunch off-peak shift during the week rather than having the daypart shifts cross over; or delaying the start of prep given low covers in the first hour of opening midweek. Making these decisions without data around customer habits, sales and staff productivity, however, is difficult. This lack of transparency can lead to operators staffing for peaks, rather than flexing to peak, resulting in overstaffing. Addressing this requires both changes to tools and systems, as well as to how staff are motivated and rewarded.

The characteristics of best in class operators that we have worked with focus on the following tools:

  • Demand planning and forecasting systems that are used to schedule both labour and food preparation.
  • Rigorous scheduling and time management processes such as developing a roll-forward planning function that can be optimised a week in advance.
  • Labour tools that support real-time decision making and cost management at the field level.
  • Well-developed operational metrics that are regularly monitored, refined and reinforced and fit the business size and revenue. Examples include: kitchen hours driven by product units; mix and front of house driven by guest count/number of customers/entrees per guest check; and to-go staff hours driven by to-go orders.

An improved labour model, scheduling tool and reports will help increase managers’ ability to build an accurate schedule each week, and spend a shorter amount of time doing it. This will also allow managers to spend more time with customers and their teams and less time manipulating the schedule.

Best in class operators foster the following characteristics within their teams:

  • A flexible workforce both front and back of house.
  • Empowered management who make in-shift labour changes and encourage productivity.
  • The pairing of top performers with peer underperformers for coaching and sharing of best practice.
  • Rewarding managers based on actual performance of their sites.

With these factors in place, our experience is that:

  • Labour optimisation can reduce costs by between 5–12%.
  • Negative controllable profit can be eliminated by small changes such as delaying prep time by 30 minutes where there are minimal covers at opening time or shifting staff close time on weekdays as covers drop off.
  • Guest experience is positively correlated with labour productivity, both on counts of complaints and guest experience scorecards.

Therefore, operators need to establish, maintain and continuously evolve best practices in order to secure these results.

One of the key building blocks in the productivity journey is software. The systems now available to operators can do much of the work that many are still doing manually on spreadsheets. Partnering with a cloud-based cost control solutions specialist, such as Fourth, can be a key weapon in an operator’s armoury. Actionable data is critical to making the right decisions and giving operators a clear picture as to where the opportunities lie.

Spending smarter

To successfully implement a new approach, it’s important to get the buy-in of the whole organisation. Highlighting the positives and incentivising performance is a good way of getting staff to buy into new ways of working and strengthen organisational culture around staff scheduling.

There should be a drive from all to focus on recognising labour hours as a valuable resource and in deploying them more effectively. It should not be about spending less on labour, but about spending smarter to optimise revenue and profit.

Steve Braude is a director and Julia Windsor is a consultant at AlixPartners