5 tips from Revenue Management Solutions to help operators deal with the rise of the Living Wage

As uncertainty brought by Brexit sets in, the UK finds itself in turbulence.

The implications of the withdrawal from the European Union range from the devaluation of the pound and the resulting increase in operating costs, to securing continued access to qualified and motivated labour. Additionally, operators have to deal with new governmental policies and regulations, which have further impacted the bottom line.

Hospitality human capital advisory firm, AETHOS Consulting Group, sat down with Mark Kuperman, chief operating officer at Revenue Management Solutions (RMS) to understand how the industry can adapt to the changing environment.

Kuperman spoke about how a significant number of employees received their biggest pay rise to date as the National Living Wage leapt to £7.50 an hour on April 6th, 2017. More than two million employees over the age of 25 benefited from the 4% increase. Further to this, 21 to 24 year olds received a rise of 10 pence per hour. However, it’s not just labour costs that will hit operators, planned increases in employer pension contributions from 1% to 3% could elevate the cost to operators to over £109,000 by 2020.

It is quite clear that operators must become smarter in navigating this challenging business environment. Industry operators will be forced to raise menu prices, whilst streamlining their staffing structure. However, Kuperman believes there are other ways to effectively offset rising labour costs without the need to cut staff or dramatically increase prices.

1. Better align staffing needs to optimise labour costs

Cutting staff is not the better solution, as this impacts the overall restaurant experience for customers. The key is to manage the value equation in the eyes of customers and never consider raising prices, whilst cutting service levels. In fact, there’s the saying, “food brings them in and service drives them out.” Operators need to better align staffing needs, with consideration given to peak versus off peak staffing rotas.

2. The importance of taking a demand-based approach to pricing

In order for operators to successfully navigate price barriers, they must firstly understand a customer’s willingness to spend. Therefore, it is important that operators don’t simply go ahead and increase prices, without first analysing customer sensitivity to pricing across all menu items. If done well, an operator can expect higher profits without any signs of customers changing their buying patterns and behaviours.

Multi-site operators can go even further. Reviewing item level data for each restaurant on a site-by-site basis across the estate, will reveal which restaurants could be organised into different price bands based on customers’ reaction to previous price moves. Taking the customer’s willingness to spend into consideration will ensure customers continue to see value for money when visiting the brand.

3. Technology is the most powerful tool to let staff “serve up a storm”

Technology is becoming the driving force within hospitality. Operators are turning to technology not only to get ahead of the competition, but also to deliver on that all-important customer experience such as kitchen automation, delivery, online ordering, digital tablet ordering and mobile payments. The beauty of technology for operators is that it seamlessly steps in as a silent partner to take care of the customer journey, leaving staff to deliver on that all-important experience.

4. Get ahead of the times and have a game plan

In an environment of increasing costs, operators will be in a much stronger position if they make price changes in smaller increments, which are spread over time and not touching the same items in consecutive rounds, rather than implementing them in one hit. The luxury of having time to plan also means that operators can test the water and assess what works best for their business, employees and customers before rolling it out across their entire estate.

5. Profit versus efficiencies – spring clean your menu

Chefs should be looking at the operational impact of specific menu items to see if the way certain dishes are prepared impacts profitability or throughput. Operators need to consider whether they have menu items that are profitable, but actually slow down service. To give you an example, a quesadilla could be a profitable menu item, but the resource needed to prepare it, could in fact be slowing down operations back-of-house. Therefore, operators need to be giving serious consideration to where there are bottlenecks in delivering operational efficiencies.

Mike Williams, people director at Byron, said, “When faced with unprecedented operating cost increases, it can put the squeeze on even the best organisation. In the past, I have seen operations cut labour and cost to such a degree that employee engagement and the customer experience were both negatively impacted, beginning a vicious circle. Cutting costs because of decreased sales and thereby continuing to negatively affect the customer experience, in turn puts further pressure on sales, resulting in a new round of cost cutting.”

“The solution is not so one-dimensional in such a complex and competitive sector. A blend of investment in technology, culture, service and consumer research can give operators the best of chances to take advantage of this shift in the sector. While competitors cut costs and deliver less for more, those who invest and who are proactive will gain market share and continued consumer support,” he added.

Photo credit: Noddle Blog

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