Commentary

How mismanaging your labor is killing your sales

May 10, 2017 by Juan Martinez — Principal, PLG

Many foodservice operators have trouble managing their labor challenges. If labor is not the concept's highest cost in the P&L, it will soon be. The "never-changing" regulations in this area certainly do not make it any easier.

So what can a concept do to ensure that the labor resource is managed well? That's where the perfect pair of labor management through the application of industrial engineering principles come to play. Applying "activity-based" labor management techniques, a core principle of industrial engineering can help foodservice and retail operators greatly. It ensures the "right labor" in the "right place" at the "right time" to drive optimum customer hospitality.

Everybody knows that driving sales is the best way to resolve labor challenges. What comes first though, the labor or the sales through increased traffic? Here is an interesting argument; without labor there will be no sales; without sales, you cannot afford labor.

Sales can be driven through the right marketing efforts, but often new marketing and product offerings fall short of the intended goal, due to the operators not being able to execute the experience fully by not deploying the labor correctly.

So what can you do? What process could you follow?

As you develop the products, make sure that you streamline the steps to make the product. In other words, create an efficient process. We call this "EFFICIENT MENU INOVATION." It means that you need to consider the impact a new product can have on the employees in terms of the functionality and processes at the store level, in addition to what the menu item is.
Develop the right changes to the facility. This includes the work stations, the small wares used, as well as other miscellaneous aspects of operations. Ergonomics analysis can help with this step.
Determine how much labor is needed based on "activity and work content". It should not matter if you sell a product for $1 or $10; the restaurant has to get the right amount of labor to deliver the optimum hospitality to make it (e.g. service, quality, overall experience, etc.)
Develop projections on sales. These should include attrition (cannibalization) of the products that you will sell less of, as well as the projected sales of the new products.
Adjust during execution. A plan is necessary as you start the program, but it is more important to be ready to adjust as the execution of the program is happening. We all know that guests are unpredictable, so you have to be ready for this.

There are many other benefits of managing labor using an "activity based" process. These include:

Better understanding of labor breakdown by product.
Provide a basis for process re-engineering of inefficiencies.
Guide ideal distribution of labor under financial limitations.
And deeper staffing information for the foodservice operator on all activities done.

By understanding and having a detailed labor breakdown by tasks, companies can create a very specific and accurate cost accounting of the labor needed to deliver each item, including the labor costs associated with each. Not all products need the same labor, so resist assigning labor using empirical data from the performance of other products, and — instead — use the real labor "work content" for the product under consideration.

Concepts are sometimes afraid to analyze labor in a detailed way since they feel that this exercise will lead to knowing that they need more labor. They are behaving like an ostrich. They have an unbalance of labor but decide to stick their head in a hole. Realize that when you do this what is showing is a clear target of your rear end that competitors will likely kick. Knowing labor in a detailed way creates a great foundation for process re-engineering so that the inefficient processes can be made efficient and your head comes out of the hole.

Without detailed labor information, operators tend to assign labor based on sales and volume, resulting in higher-volume locations getting more labor than they need (creating a profit erosion) and lower-volume locations less than they need (impacting service and throughput).

The bottom line is that you cannot afford to not deploy the right labor in the right place at the right time to drive profits and hospitality at the same time. This is the best way to ensure that you optimize the "unit economics" of the concept to support brand growth.

Cover photo: istock

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