Reducing Labor Costs May Not Be As Hard As You Think!
The rising cost of labor is no longer just a matter of profitability—it’s becoming a matter of survival.
If you’re not faced with serious labor challenges in your bar or restaurant operation right now, let me assure you—they’re on the horizon!
It’s not just for us in the hospitality industry—rising labor costs are at an epidemic proportion across all businesses—large and small.
There was a time in my career when I was part of an organization that needed to find FIFTY MILLION DOLLARS within its own walls, to repurpose to another segment of the business which was in dire need of funding.
During the daunting budgetary process, we slashed and cut everywhere we could think of in search of savings. But try as we might, there were simply no cuts (or efficiencies as we like to say) that we could find to equal the $50M required.
That led us to an incredibly challenging and interesting question, which I pose to you today:
What are your core competencies?
In other words, what are you and your business truly expert at delivering?
What is your purpose?
Why does your business exist?
To solve the $50 million-dollar dilemma I described earlier, we were asked that very question; and when we solved the riddle, we were finally able to find the money we needed.
It really was just that simple!
Simple—but not easy.
In hospitality, I think most of us might answer that question with, “We are in the business of delivering great food and drinks”.
But I would whole-heartedly disagree with that.
Any bar, restaurant or taco truck can simply provide great food and drinks.
The deeper question is why do people want to visit you, in particular, over all the other eating and drinking options available to them?
If you drill down, you’ll understand what the leaders in the food and beverage industry know and do differently:
They’re in the business of consistently delivering exceptional guest experiences.
The operators who are kicking ass are able to deliver perfectly crafted guest experiences because that’s where they focus their attention.
They are remarkable by design.
How to Uncover Your Core Competencies
Before you can focus your attention on what matters most, it helps to sort the myriad of “things you do” into two distinct categories—let’s call them buckets:
Bucket One: Think of all the things that are directly related to delivering exceptional guest experiences; these are our core competencies.
Things that come to mind for me are:
- Food Prep (and all it entails)
These should be the primary focal points of our labor dollar investments.
Bucket Two: Now think of everything you do that isn’t related to Bucket One, such as:
- Social Media
- Ordering, and more
These areas are typically not core competencies of a restaurant or bar; meaning we are not experts in these areas.
The Conundrum: The Mistake Most People Make
Everyone wants more bang for their buck, right?
This isn’t a concept unique to bars and restaurants—most small to medium-sized companies try to squeeze every penny out of their labor dollars.
The mistake so many people make is when they say, “I pay my manager/employee to do that; it’s part of their job.”
I have met very few people who have an expert-level understanding of everything they’re being asked to do.
That means we are paying a lot of money for sub-optimal performance in key areas, which leads to higher labor costs and low-profit outcomes.
It’s like intentionally not using the right tool for the job.
If, on the other hand, we outsource the non-core competency jobs to people who view that work as their core competency, we create more opportunities for our people to do what they love to do—and are experts at.
The Right Tools for the Job: Experts
The use of experts: Outsourcing certain jobs or tasks to experts allows you to free up you and your team to focus more on what you do best—and for less money!
Quick disclaimer: Not all so-called ‘experts’ are created equal. Find the ones that are right for you and who will pay for themselves in saved time and $$! Outsourcing the right jobs to the right people will yield a net financial benefit and if not— find one that does!
The short view:
“I can’t afford that.”
I’m here to tell you, “YES, you can!”
You don’t need to outsource everything we listed, be smart about it.
Where do you spend heavy labor dollars on high-value jobs that generate low outcomes?
If your restrooms are nasty, your floors smell like dirty mop water, and your bar is dingy—outsource cleaning to a company that makes your venue a pleasant place to visit.
If your team hates doing inventory (and doesn’t do it well) and your liquor isn’t optimized— hire experts to do that work.
Do you know how to build budgets and financial plans for yourself? Are you keeping up with them weekly— if not daily— to ensure you’re on the plan?
If not, outsource it.
How about the mountain of invoices stacked on your desk. Is that what you’re in business to do, or is a manager’s time much better spent on the floor focused on your guests?
Are you struggling to run consistent, professional on-message social media campaigns…I bet!
The long view:
“It makes more sense financially and operationally to pay someone else to deal with X, Y, Z, so my team and I can focus on building my business.”
Where to Start?
Run through the items you listed in Bucket #2 – the non-core competencies.
Start with the biggest non-core competency spend or cost-saving initiative and outsource it.
You’ve killed the conundrum!!!
The almost immediate result is reduced labor costs, more time for your team members to focus on what they do best, while simultaneously improving the outcome(s) for that particular job—and improving your margins.
Editor’s Note: A big shout out for another excellent guest post from Dave!
Dave Nitzel is a fan of fast cars, good bourbon, and the occasional bad decision, just not all at the same time. A former Fortune 500 executive, he’s currently a bar and restaurant coach and the owner of Rally5 Consultants.
He is also the co-author of The Bar Shift and public speaker. Dave is a blissfully married father of four who listens to too much Sirius/XM radio.