LABOR COSTS & CONTROLS

1. LABOR COSTS & CONTROLS • FIXED vs VARIABLE LABOR COSTS • HIGH TURNOVER, CAUSES & DETERENTS • SAVING ON LABOR • FORECASTING LABOR COSTS • COMPENSATION TECHNIQUES • LABOR STANDARDS: • QUALITY, QUANTITY, COST • JOB ANALYSIS vs. JOB DESCRIPTION • CORRECTIVE POLICIES

2. LABOR COST CONTROLKnow Your Target Audience Food services and drinking places pay mean average wages that are roughly half the national mean wage--$9.84 vs $20.32 (May 2008). The industry’s low average wage is due to two factors: 1) below-average wage rates for individual occupations and 2) the industry’s occupational mix The main reason is the predominance of low paying and low skilled occupations--97% of industry employment was in occupations with mean wages below the national mean wages. Food preparation & serving workersare 23 percent of industry with a mean hourly wage of $8.07. The waiters and waitresses, are 21 percent of employment with a mean hourly wage of $9.26, including tips. The highest paying positions in the industry are Food Service Mgrs., General Mgr., Operations Mgr. Highly paid non-management occupations comprise a very small portion of the industry— dietitians and nutritionists @ $22.59, about .04 percent of industry sales representatives, services--hourly mean wage of $27.42, about .03%. U. S. Department of Labor Bureau of Labor Statistics, 2008

3. Median Salary by Years Experience Job: Restaurant Manager Restaurant Managers with 5-9 years experience can expect earn between $35-$45,000, roughly $16.80 to $21.60 an hour, calculated on a 40 hour week* *A 40-hr. week is probably unrealistic www.payscale.com

4. Median Salary by Years Experience Job: Executive Chef Executive Chefs with 10-20 years experience can expect to earn between $45-$65,000 a year. Calculated on a 50 hour week, which is standard, they will be earning between $17 and $25 per hour. www.payscale.com

5. Median Salary by Years Experience Job: Sous Chef Sous Chefs with 5-9 years experience will earn about $13.50 to $17 per hour for a 50 hour week. www.payscale.com

6. Median Salary by Years Experience Job: Pastry Chef Pastry Chefs with 5-9 years experience will earn about $13.50 to $17 per hour for a 50 hour week. www.payscale.com

7. Median Salary by Years Experience Job: Line Cook Line cooks will earn an average $15 an hour once they have put in 20 years on the job for a 45 hour week. www.payscale.com

8. LABOR COSTS Labor Cost is generally the inverse of COGS Hi Labor Lo COG Lo COG Hi Labor Tot. Labor Cost% = Tot. Labor (include benefits) $Total Sales

9. Labor Classifications Fixed Labor Costs Salaried employees whose cost doesn’t fluctuate with sales Considered a “non-controllable” cost Variable Labor Costs Hourly employees whose hours/wages can vary with sales

10. PERSONNEL TURNOVER One of the major factors driving labor costs in the foodservice industry is high turnover Improper Training/Communication If personnel don’t know and understand the objectives of the organization, it is difficult to attain them “Advancement in the foodservice industry is slowing all the time because companies don’t train and don’t provide a pathway to advancement.” Cost of Turnover Recruiting & Hiring Training Unemployment Insurance Potential customer dissatisfaction

11. PAYROLL BUDGET Forecast Sales based on available data: Historical data Reservations Past Performance during Special Events Catering Bookings (past and current) Predictions based on expansions/upgrades Per-employee performance # of meals served per cook # of tables served per wait staff # of drinks per bartender Work flow projections based on hours of business Peaks during lunch/dinner Slow hours that still need staffing

12. OVERTIME VS. PART-TIME OVERTIMEPART-TIME Time and ½ No benefits May be after 40 hr. week May be after 8 hr. day Typically less skilled/less pay Benefits required for full-time May not reach the standards set because they may not buy into Applies to some salaried employees the company philosophy if they earn less than $23,660/yr. Have less motivation to show up when needed because they have less to lose

13. LABOR COST & LABOR %ANALYSIS HOUR BY HOUR TO DETERMINE PROFITABILITY • .

14. LABOR ANALYSISCOST OF VARIANCES vs. BUDGET • .

15. LABOR SAVINGS STRATEGIES Technology Labor saving equipment Pre-prepped, pre-cooked, pre-portioned Facility Design Commissary preparation for multi-unit operation Well designed kitchen that allows more work more easily Menu Design Fewer items require fewer employees Limited menu requires less training Simply executed dishes require less skill/experienced workers Style of Service Fine dining requires trained, skilled staff Casual dining requires less skilled staff Self-serve or Cafeteria service requires fewer staff Take out requires no service staff

16. OUTSOURCING Outsourcing is the fastest growing labor cost savings trend in the hospitality industry. HR (recruiters and payroll companies) Advertising Finance Pre-prepared foods Waste Disposal Bakery Services Linens Food service operations Pest Control

17. COMPENSATION Current Compensation--paid within a short timeframe (i.e. pay check) Deferred Compensation—expenses that are shown as current expenses, but are not paid until the employee is eligible (i.e. pensions, stock options) Direct Compensation—money given to the employee in a paycheck Indirect Compensation--payroll taxes, social security (6.2%), medicare (1.45%), health insurance (8-10%), paid vacation, retirement plans , discounts

18. LABOR COST CONTROL Performance & Productivity Standards should be established for each position. Task Analysis What needs to be done? When should it be done? How should it be done?

19. Labor Costs What can be successfully outsourced Cost-Benefit Analysis compares the cost of doing the task in-house vs. buying it from an outside source Specifications should be sent to all potential suppliers so they are bidding on the same job Multiple bids should be obtained to get the best cost Job Specifications are needed for each job Detail all work to be accomplished by the employee The more detail, the better guidance for those hiring

20. “You can get it done fast, cheap and right but you only get two out of three at the same time.” Quality Standards Should relate directly to the target audience—the concept and positioning of the establishment will dictate the level of expertise needed for each employee Quantity Standards Amount of work each employee is expected to manage during a particular timeframe Cost Standard Influenced greatly by local laws, government, labor unions and supply and demand

21. JOB DESCRIPTION Outline the job specifics (i.e. % of time expected to spend cleaning and stocking shelves vs. cooking/prepping) Where and when will each task be executed (i.e. will spend a minimum of 1 hour daily in a freezer at 0 degrees) Provide measurable performance criteria (i.e. expected to learn how to set up the cold station within the first week of employment) Provide information on the company philosophy and mission (i.e. each team member is regarded as an integral part of the decision- making team in his department and will be encouraged to be pro- active in making positive changes)

22. TRAINING Training is an investment. It is key to reducing employee turnover. Company Philosophy Getting employees to “buy in” On-the-Job Training On going training— New technology Changes in policy Changes in Menu Cross training for another position—this is an important way to cut down overtime and to give employees a pathway to advancement

23. MOTIVATION Get employees to “buy in” to the company philosophy and lower turnover will follow. Financial Rewards: Bonuses Comp Time Added Benefits Non-Financial Rewards: Open Door policy with management Positive, Comfortable work environment Flexible Scheduling Respect from Management

24. Productivity Quantitative Measures of Productivity: Count of items completed Covers per shift Sales per Hour Rooms cleaned per shift/per hr. Guests checked in Qualitative Measures of Productivity: Mystery Shoppers Reviews Customer Satisfaction Surveys Industry Recognition Government Reports Correcting Mistakes: 1. Identify the problem 2. Create process to correct it 3. Train staff in the new process 4. Discipline

25. OTHER EXPENSES • Identify controllable & non-controllable costs associated restaurant operation business operation facilities occupancy

26. OTHER EXPENSES Every area of Expense should have standards set for it in order to control costs—Quality, Quantity, Cost. All standards should be customer based. Linens Menus Flatware Music & Entertainment Cleaning Supplies Utilities Franchise Fees Licenses Marketing Product Testing

27. OTHER EXPENSES Every area of Expense needs standards 1. Quality 2. Quantity 3. Cost All standards should be customer based Linens Music & Entertainment Flatware Marketing Cleaning Supplies Licenses Utilities Product Testing Menus Franchise Fees

28. FACILITY COST SAVING STRATEGIESStrategies Furniture, Fixtures and Equipment Used Auctions Rehabed Demo/Floor models Lifetime Costs—may make an expensive purchase more practical Trade-in value Delivery costs Operating costs (consider energy savings) Operating Labor

29. Facility Costs Strategies for Savings: One brand/vendor Equipment free with Ingredient Contract (i.e. coffee and soft drink machines) Maintenance through the vendor

30. OCCUPANCY LEASE vs. OWN Lease/Rent Fixed lease/rent rate vs. Lease + % of Sales Fixed lease rate with an increase over time Own Pros: Property Taxes and Mortgage Interest Write-offs Cons: Maintenance & Upkeep Costs

31. Facility Costs INSURANCE Property & Liability Insurance Flood Insurance Catering Insurance for Off-Site Operation may be incremental but can be added on a “one time only” basis—“riders” BUILDING MAINTENANCE Landscaping—outsourced labor, water costs, etc. Plant maintenance—parking lot, roof, general repair, plumbing & HVAC Lighting and Security Windows Signage

32. TAXES & LEGISLATION 1. Local Smoking Restrictions Entertainment Taxes 2. State Dram Laws Blood Alcohol Levels 3. Federal Minimum Wage Laws Food Standards