Over the last year, the QSR industry has had a rough time. Prices keep rising, and customers are seeing less of a benefit in eating out. This means business is not booming for many QSRs, and there is no easy solution to rising operating costs and a consumer base with constant sticker shock. However, there are things that QSR owners can do to mitigate these challenges. Here are the biggest barriers preventing QSR owners from profitability and how they can navigate them.
Costs of labor
Ask any restaurant owner about their biggest challenge, and they will discuss labor costs. The cost of hiring an hourly employee is significantly higher than it was pre-2020, and for most restaurant owners, the labor costs have gone up faster than their pricing. An increase in minimum wage law in states such as California increases in union organizing, and competition for labor with other industries is decreasing QSRs’ already tight margins. You need the employees you need, and wages are what the market dictates, but you can proactively reduce labor costs in a few ways. Scheduling efficiently is a big one. You know when you are busy, so bring on more employees during the busiest hours and schedule fewer employees during off hours. This seems obvious, but many QSR owners are not efficient schedulers.
Your staff should be trained to be jacks of all trades. Everyone should know how to do every task regarding prep and working on the line. This means you don’t have to hire extra people since everyone shares similar responsibilities. Remember, hiring fewer people who can do everything is better than a bunch of staff who can only do one thing. Lastly, good scheduling and payroll software should be implemented. This will help you streamline these operations and reduce administrative labor costs.
Cost of labor is a challenge for QSRs, keeping them from profitability, but there are ways you can be a proactive owner.
Cost of goods
We all know that the cost of ingredients has exceeded control over the last three years. Everything from meat, produce, packaging, and napkins is more expensive. If your QSR needs a good to operate, it is almost guaranteed that the good has increased in price. The rule of price elasticity states there is a ceiling to the cost of any good. If your restaurant makes burritos, you can only raise the cost of a burrito so much before customers start saying the price is not worth it. Increasing ingredient costs have pushed many diners to that point. The sticker shock for food is too much, and customers decide to eat at home. It is a challenging position because restaurant owners are used to keeping food costs between 28-35 percent of revenue and not 40 percent. You can try increasing customer volume to make up for increased cost, but if customers are worried about cost, you have to do food deals, which often don’t increase volume enough to offset the increased cost. It is tough to increase profit margins in this industry right now, and the best way QSR owners can overcome the cost of goods is to penny-pinch and learn how to market their business efficiently. An excellent way to combat the increased cost of goods is to simplify your menu. Only included high-selling items or food options that require simple, inexpensive, and easy-to-use ingredients. A simple cheeseburger costs less to make than a gourmet burger with expensive toppings. Identify high-margin food items and focus on selling those. Get rid of low-margin items. Portion control is also crucial. When your margins are razor thin, you have to ensure every customer gets the same amount of food when they order a particular menu item. Lastly, continue to build relationships with suppliers. Prices might not be ideal, but we still live in a market where you can negotiate better pricing or bulk discounts.
Rough retention
Cost of labor and cost of goods relative to QSR margins are two factors contributing to the third reason QSRs face profitability challenges: an inability to find and retain good employees. When you find good employees, it is hard to keep them because other industries with better margins can pay them more. Growth requires keeping good employees, so a lack of retention prevents growth. Workers are hesitant to apply for QSR jobs, and if they do get hired, they will not stay for very long.
QSR owners should focus their efforts on keeping their best people. It is better to keep a few good men than newer employees who require training and don’t usually stay. Keeping your best people means providing employees with incentives and benefits. Something as simple as a 401k plan can keep employees long-term. Providing a retirement plan puts you ahead of most small restaurant owners. You can also start a bonus pool. This pool will take a percentage of the profit your restaurant receives each month, quarter, or year and pay out a bonus to all your established employees. You can even go as far as offering a buy-in program for your best managers. Good managers are likelier to stay if you give them a vested interest in your restaurant.
Restaurant owners are competing for talent with many successful industries. If owners want to keep their employees, they are going to have to step up their benefits game.
QSR owners are dealing with a lot right now. The cost of goods, labor, and employee retention difficulties make profitability a challenge in our industry. However, restaurant owners can find success in the industry today. Market well, get creative, and improve efficiency, and you will overcome a difficult market.
Gary Pryor was the founding partner of notable Phoenix metro area restaurants including Michaels at the Citadel / M Culinary Concepts, Zinc Bistro, and Taphouse Kitchen. Pryor was also Director of New Products at Circle K Stores Inc., where he developed Emily’s Market into a nationally recognized “Home Meal Replacement” concept. Pryor owned and operated two USDA food manufacturing companies in Wisconsin and Connecticut, named Chef Fresh and Festive Foods.
