As minimum wage continues to rise, so does the anxiety of your average frozen dessert shop owner. What used to be an $8.00 an hour job is now rising to $10.00 per hour this summer in certain areas. It will continue to increase until it reaches $15.00 per hour. It does not matter what side of this argument you may sit upon. Putting politics aside, the fact is this increase in wages has a direct effect on profits and revenue for stores. Frozen dessert shops are not Walmart or Starbucks. A significant increase in labor costs can be the difference between staying open or closing the doors. So how do stores absorb the increase in these labor costs but remain profitable enough to continue to provide product and service for their neighborhoods?
Raise prices
Seems simple enough. You have an increase in the cost of business so your prices to the end user should increase to cover the cost. As labor rates rise, you can raise your prices accordingly. For example, a $250,000 store with a 20% labor rate will spend $50,000 in labor costs. Divided by the current $8.00 per hour and you have 6,250 labor hours per season. With a $2.00 hike that now becomes $62,500 in labor costs. To account for the $12,500 increase you would have to hike prices ($12,500/$250,000) by 5%. Your $4.00 item becomes $4.20, $5.00 becomes $5.25 and so forth. This is simple math but it does help to show how a relatively small price increase can help counteract the added labor. As annual rates keep hiking, so should prices.
Cut Hours
Look at your business and when the business comes. Are there certain points of the day/week/month/season where the business just isn’t there? Can you cut these hours and save labor costs by doing so? In a 200 day season, cutting just one half hour per day saves 100 labor hours. At $10.00 per hour that’s $1,000 in savings. Now if you are creating revenue during these times, do not cut. However, if there is fat to be trimmed than strongly consider it trimming it.
Hire Better
This should be simple. Just hire nothing but great people who can do the work of 2 average employees and you will be fine. Don’t we all wish it was that easy? However, as labor rates increase, so does the expectation for our staff. If we are paying someone $10+ per hour than they should know how to use a mop right? Unfortunately nowhere in the labor legislation does it say the average work ethic increases along with the pay scale. And keep in mind, you are not the only one paying more. Every minimum wage business is on the same playing field and competing for the SAME labor that was there before. So what do we do to hire better? Well first you need to have a place where people want to work. You need to have an atmosphere and culture that not only attracts top talent, but keeps them as well. Understand your advantages as a dessert shop – fun place to work, great tips, no early mornings and no late/late nights. Sell yourself to the top talent and do not settle. Lastly, check out our tips for hiring and training employees.
Analyze Food Costs/Streamline Menu
Let’s go back to our $250,000 example. Saving just 2% in your food cost will save you $5,000 in real profit. That helps offset some labor increases. How do you cut 2%? First analyze your food costs. Are there better portion control methods you can implement? Can you negotiate with vendors or suppliers for better pricing? Are there substitutions you can make in certain areas to save on costs without sacrificing quality? Are there items on the menu that do not drive sales but do drive costs? Streamlining menu items may help maximize efficiency at the window/counter so you can do more with less when needed.
Online Ordering/Delivery Service
Online ordering is a means to increase revenue without having the burden of wait times at the counter or window. Sure someone needs to still make the product, but there is not the pressure of having someone waiting for immediate production. You can structure the online platform to allow enough time to satisfy for pickup while not putting stress on your staff. Again…do more with less. Online specials can also help to create sales in your slower times to maximize the labor hours you are paying. With delivery services such as grub hub and door dash, you can increase revenue without increasing lines and wait times. An employee just producing for online orders and/or delivery orders has much more efficiency than someone taking orders at the window/counter.
As minimum wage continues to increase, you have to look at creative and substantial ways to counteract those costs. Staffing less people is not the answer – eventually longer wait times will negatively affect sales. Ordering kiosks may not be feasible either. The personal interaction between your staff and customers is what separates you and creates an experience for your base. Creating a positive atmosphere that attracts/keeps talent, analyzing costs and portions, streamlining your menu and operating hours, raising prices and implementing technology into ordering and delivery offers some relief.
Let us know if you would like to meet and discuss your operation further. Be proactive in addressing the concerns of rising minimum wage.