The minimum wage increase in Ontario makes me think of the old saying
“The cream always Rises to the top!”
Ontario minimum wage will go up to $14 per hour on January 1st, 2018, and then to $15 per hour by 2019.
The statistics have been released; most experts agree that restaurants and bars, particularly fast casual and fast food restaurants (that depend on 90% minimum wage employees) all will be hit hard.
The Financial Accountability Office reports that the impending wage hike could affect up to 50,000 layoffs in Ontario. This is a big change and it will impact your business. Make sure your ready with a plan.
Over 90-plus percent of restaurants surveyed by the industry association “Restaurants Canada”, say they will have to increase prices(6-10 %), reduce hours, lay off staff and possibly close satellite locations.
Successful Restaurants will plan ahead. Give your business an edge.
These 3 things will to help you navigate the Post-Wage-Hike economy.
1. CUT THE FAT - LAY OFF WHERE NECESSARY
A good look at staffing and where hours are wasted is a good place to start. You may consider eliminating an entire staff member if possible.
I fear that the lowly dishwasher and busboy will be the first to go. We have already seen a decrease in these job positions since the restaurant hey-day of the 1990s. Profitability has been declining and the cuts have to be made somewhere.
I predict and suggest this entry level is the first category to look at, as it may not affect service as directly as other staff cuts. Rather it means people will be working harder, and doing more.
While it may seem necessary to cut more expensive staff in order to keep minimum numbers, one good cook or server is worth their weight in gold. Pay a few extra bucks and keep the right people…but be sure to cut the fat…..but not the good fat!! Keep your omegas…..
That great employee will do a bit more. And that’s why he or she is great. Your service and quality will remain.
2. HOLD ON TO YOUR TALENT, ITS ALREADY IN HIGH DEMAND
While it may seem like a direct contradiction to what I have just recommended, its not, and here’s why.
FACT: We have a labour shortage for quality staff in Ontario.
The current $15 an hour cook is in such high demand at the moment nobody can find her. The old cook is going to be making the same money as the new $15 an hour dishwasher (if you haven’t already taken my advice and laid him off.)
What are we going to do about this? Can we give them a $3/hr raise?
Well for your best cook, yes. This may be a very smart move. Especially if you have a new handle on labour costs after re-structuring. We need to keep this cook because if we lose her we may never be able to hire her again because she is in such high demand. And if you lose her, your quality will suffer.
But it's just not feasible to raise wages across the board. So what’s do about staff retention now that everyone is paying the same?
We are going to have to be smarter and better to keep those key people. Incorporating upgrade training, staff incentives, and God forbid…..employment benefits……will be critical pieces in getting the most from your best talent.
It's not just about raising menu prices and cutting hours. Its about motivating your best to pull through.
3.PROFITS MUST BE GREATER.
Most industry experts agree that a 6 to 10 % increase in menu price will be necessary just to maintain the status quo.
Button down the hatch, profits must be greater than the status quo to succeed in the changing economy. The first step is straightforward; be mathematical and diligent about raising prices based on working out how much more costs are increasing.
Begin now to raise prices, in order to soften the blow. Remember, the first increase went into effect Oct. 1.2017. But… what we also should be doing is looking at our operating procedures to see how they affect profitability. We are going to have to be even better to stay in an even more competitive marketplace.
Let's start with some old-fashioned profit analysis. The average restaurant makes only 3.4% profit per year in Canada. This is where we need to improve if we want to stay in the market.
What makes us money? .......The food. Well, that’s what is supposed to happen.
This wage hike calls smart restaurateurs to intently dissect and analyze their menus. Raising prices is part of the cattle-call, but it won’t differentiate us from the competition.
Refresh yourself with where the money really is in order to make higher profits and a better bottom line. What are your weak dishes that make little and cause higher labour( we all have them)?
Promote the higher profit items on your menu.
Reducing food cost and improving profit is possible! It just takes a little time and logical thinking. Thinking that you may not have taken the time to do. Thinking you can no longer afford to put off.
Just raising prices is not going to cut the mustard.
Other areas to mine for improved profits are recipes, portion control, and waste. Implementing manuals and scales alone can provide marked reduction of food waste which converts directly to dollars.
Is your POS system is in place and being used to its full potential. Are you using it to track labour hours? Do you even have a POS system? Money spent in the right places will serve you well in this new economy.
The writing is on the wall…..the minimum wage increase will close some restaurants for sure. Food businesses will get caught in the crossfire.
What are you going to do to make sure you’re not a casualty? How will you become the cream that rises to the top?
Avoid costly mistakes and pitfalls. Call a consultant. And please share your ideas and experiences in the comments below.
Until next time.....
Tim Halley is an Executive Chef & Restaurant Consultant who has been leading restaurants to excellence for over 30 years. He consults, cooks, and writes with passion, and he lives with his wife and children near Toronto, Canada.
Tim is available to Consult for your business anywhere in North America.