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Restaurant bankruptcies are on the rise, with numerous high-profile chains filing for Chapter 11. A combination of rising operational costs, changing consumer habits, and economic uncertainty is squeezing the industry more than we’ve seen since the mortgage crisis of 2007-2009. For HR managers and restaurant business owners, controlling labor costs and optimizing workforce management have become key to survival.
Why are so many restaurants filing for bankruptcy?
Several factors have contributed:
- Inflation and rising costs: Food, rent, and utilities have all become more expensive, putting pressure on restaurant margins and consumer spending.
- Low unemployment and wage increases: Finding and keeping hourly workers has become more expensive, often leading to over-reliance on overtime and the incremental cost of training new employees.
- Shifting consumer behaviors: With more people dining at home or opting for takeout and delivery, traditional dine-in models have been strained.
While these issues might seem out of the control of restaurant owners, there are things you can do to protect margins and maintain a competitive advantage. At Vitaligent, a franchise group of 94 Jamba and 2 Cinnabon locations, we deployed these strategies to offset the impact of minimum wage increases while delivering best-in-class same-store sales growth and guest satisfaction (OSAT).
1. Control labor costs by reducing overtime and penalties
We all know overtime can sneak up on you—especially when your team is stretched thin and you’re trying to maintain service levels. But over time, those extra hours add up to significant costs that cut into your already-tight margins.
Beyond the financial hit, there’s the toll on your team. Burnout from excessive overtime can lead to lower productivity, higher turnover, and mistakes—none of which help when you’re trying to run a smooth operation.
How to fix it: A good workforce management system can help you track employee hours in real time, making it easier to prevent unnecessary overtime. And when you automate your scheduling, you can optimize the number of people on the clock and the number of hours they work. Bonus? It also helps you stay compliant with labor laws and avoid costly payroll mistakes.
2. Avoid overstaffing with smarter scheduling
Scheduling is both art and science, and mastering it is crucial to avoiding overtime. On one hand, you need enough staff to keep up with demand and deliver great customer service. On the other, you don’t want to overstaff and pay for unproductive labor during slow periods. Add in the unpredictability of employee availability, last-minute call-ins, and fluctuating customer traffic, and creating the perfect schedule can feel like a throw of the dice.
Relying on gut instinct or simply copying last week’s schedule doesn’t account for these ups and downs, leaving you either overstaffed and wasting money or understaffed and scrambling to keep up. And when you’re already walking a fine line with profit margins, small missteps in scheduling can have a big financial impact.
How to fix it: Rather than reacting to shifts as they happen, take a proactive approach by analyzing past sales data and identifying your busiest times. By scheduling more staff during those high-traffic hours and fewer during slower periods, you can avoid the panic of being understaffed (and the temptation to keep people on the clock longer than needed).
3. Cross-train your staff for flexibility
The ability to shift employees between roles is key to keeping operations running smoothly, especially when business is unpredictable. Cross-training can reduce dependency on overtime and give you more options when someone calls in sick.
Encouraging your team members to build new skills also serves the added benefit of reducing turnover. When hourly workers see their job as an opportunity to grow, they’re more likely to stay with you.
How to do it: Create a structured cross-training program that encourages employees to learn new roles. This not only boosts flexibility but also enhances employee engagement by giving employees the chance to learn new skills and become leaders as they mentor their peers.
4. Leverage part-time and seasonal workers
Relying only on a full-time workforce might seem convenient, but when business fluctuates—like during seasonal spikes or slower off-peak dayparts—it can drive up costs unnecessarily.
How to fix it: Part-time and seasonal workers provide flexibility, allowing you to scale your workforce up or down based on demand. For example, you can schedule your part-time to cover lunch or dinner peaks or hire seasonal staff for the busiest holiday periods. By blending both full-time and flexible workers, you can reduce labor costs without compromising service quality during peak times.
The right technology can help. With an integrated HR system, you can tag applicants or past employees who would be a good fit for part-time or seasonal work, making it easier to bring them on when you’re ready.
5. Invest in employee retention
Turnover in the restaurant industry is high, and the cost of recruiting and training new staff can pile up. Plus, experienced employees are more efficient, understand your workflow, and require less supervision, which boosts overall productivity. Investing in retention means you’re keeping the knowledge and skills within your business, reducing onboarding costs. Additionally, retaining staff fosters a positive workplace culture, which improves team morale and contributes to better customer service.
How to do it: To improve retention, offer employees opportunities for growth, like promotions or skill development programs. When staff see a clear path for advancement, they’re more likely to stay engaged and grow with you. A workplace culture that values its employees goes a long way to reducing turnover, cutting down on recruitment costs, and fostering a loyal, high-performing team.
6. Optimize time tracking and payroll
Tracking time for hourly workers can be a challenge—especially when employees forget to clock in or out, miss breaks, or punch in early. These seemingly small mistakes can have big consequences for your payroll. If employees are inaccurately recording their hours, you are paying out more than you should, cutting into your profits.
And it’s not just about overpaying—fixing these mistakes is time-consuming, requiring manual adjustments and double-checking. At best, this is a distraction for your management team; at worst, it can leave you exposed to costly compliance issues, like failing to meet labor law requirements around breaks and shift lengths.
How to fix it: Automating time tracking with a system that integrates directly into your payroll is essential for preventing these errors. By using digital time clocks that sync with your payroll software, you can ensure that hours worked are accurately recorded, breaks are tracked, and compliance is maintained. Look for a system that autoflags any suspicious entries so you can more easily catch issues with clock-ins, clock-outs, and overtime. This saves you time and reduces the risk of overpayment and penalties.
Building a resilient future
While the restaurant industry is facing unprecedented challenges, there are steps you can take to make your business more resilient. By focusing on efficient workforce management—reducing overtime and penalties, avoiding overstaffing, and improving retention—you can keep labor costs under control and position your restaurant to thrive in the face of adversity.
