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    Making Wages Work

  • How three brands are getting ahead of minimum wage increases.

    firehouse subs
    Firehouse Subs has used efficient employee scheduling to offset higher labor costs.

    The biggest takeaway from the experience, Iversen says, is realizing the franchise could continue to thrive under seemingly insurmountable wage pressures.

    “A lot of people might be thinking that it could hinder their company’s overall growth if they’re having to increase wages across the board, and the last three years have actually been records for us,” he says. “We’ve more than doubled our store count, and our sales company-wide are up over 70 percent in that three-year time frame. It doesn’t have to slow you down, and for us, we’ve just kept our foot on the gas and continued to open more stores.”

    Profitality founder and principal Juan Martinez believes efficiency is the key to thriving under the constraints of higher wages—whether a restaurant is acting pre-emptively or responding to a mandated increase within a state.

    “Smart businesses are going to get ahead of the curve, or it may drive them out of business,” he says. “Try to fix the problem before it arrives.”

    He suggests operators look at the food prep line and calculate exactly how long it takes to prepare any individual item, an aspect of efficiency he says is easiest to benchmark and monitor.

    “You need to know how much labor any one product is costing you. Then it may help you redesign the way you do products to require less labor, or you may decide some menu items need to be changed up,” Martinez says.

    He adds that when a restaurant is operating at its peak hours, the cost of labor is lower in proportion to sales; knowing exactly what products cost in terms of time allows operators to schedule labor in the most efficient way. For instance, operators could shift some employees’ responsibilities toward prep work within certain day-parts instead of scheduling more people and working on prep all day.

    Above all else, Martinez says, operators should remember that raising prices is a last resort. “As sensitive as operators are to cost increases, consumers are to price increases,” he says. “You can’t reduce costs at the expense of overall sales. In other words, the worst thing an operator can do is provide bad service or a bad deal because he or she is trying to cut costs.”

    Firehouse Subs CEO Don Fox says the company also works on efficiencies in its scheduling to accommodate labor costs. But he acknowledges that making those changes is more difficult in actuality than in theory.

    “A lot of folks will say, ‘Oh, you’ll find a way to pick up efficiency and offset it,’ and I remind them that if there were such obvious ways to improve productivity and improve operation, we’d be doing them already,” Fox says.

    Fox says the biggest struggle with minimum wage increases is trying to stay consistent system-wide when labor costs are dramatically different in different areas. As a national brand, Firehouse Subs has made changes across the board to keep existing locations viable, while franchising efforts have come to a standstill in areas with high labor costs like Seattle, where the minimum wage was recently set to $15 an hour. The first change Fox implemented was increasing company guidance to Firehouse franchisees to help them optimize efficiency and reassess scheduling productivity. As a result, the average number of employees per store has gone from 16 to 15, while some remaining employees have seen their number of hours decrease.

    The next change the company is investigating—integrating more technology—also has Fox worried about unintended consequences.

    “Our success as a brand is first and foremost a function of our people, and the interaction that they have with our customers is a critical point of difference,” he says. “Introducing technology starts to detract from that in some way, which may not be a very good thing for our brand.

    “Without good people, you have nothing,” he adds. “The better, happier, and more productive your staff are, the better your business is going to be. So while there’s immediate pressures on people now, you have to just step back and make sure you provide the best work environment and culture possible.”

    While Moo Cluck Moo, Toppers, and Firehouse Subs have each responded to nationwide changes in labor costs in a different way, each has also managed to achieve continued growth. Overall, integrating wage changes while maintaining the value of products and services is just another piece of the puzzle to remaining viable in a constantly changing economy.

    “Just embrace it,” Iversen says. “Roll with the changes, because you don’t really have a choice. The choice that you do have is to be active, go forward, and don’t let it ruin your business.”