It’s no secret that the minimum wage in hospitality is increasing in 2024. But, what does this mean for your business?
It means that your labour costs are going up and your profitability is going down (we have to be blunt).
But the good news is that increasing sales and managing costs will safeguard your operating profits despite this labour cost increase. And the even better news? You’ve come to the right place to find out how to do this.
By the end of this article, you’ll know how to increase your restaurant sales and optimise your operations to offset the impact of the upcoming wage increase.
But first, let’s break down the impact of the increase.
How much is the minimum wage increasing?
Here’s what’s happening with the national minimum wage increase in 2024:
- In Ireland — The minimum wage increases by just over 12% in January.
- In the UK — The minimum wage increases for people aged 21 and over by almost 10% in April. For 16–17 and 18–20 year-olds, it’s up 21% and 15% respectively.
We probably don’t need to tell you that this is hugely significant for the hospitality industry.
This will lead to a minimum 10% increase on your labour cost line n your profit-and-loss statement.
Taking an industry standard 30% labour cost, that’s 3% added on top. 3% of revenue wiped off your bottom line — which can be anywhere from 20–100% of your net profit (based on average industry margins).
Adding to this a lot of restaurants have had to increase menu prices over the last two years to keep up with soaring costs. But as we all know, there are limits. If you keep hiking your prices, you risk losing customers to cheaper alternatives — especially when they’re also trying to control their discretionary spending due to the cost of living crisis.
Bad news out of the way, let’s take a look at ways to counteract the wage increase, safeguard your profits, and get that 3% of revenue back where it belongs — in your bank account!
Drive your topline sales
The best thing to offset rising costs is to focus on boosting revenue first. So, that’s where we will start.
Here are some ways to do this:
Create a sales-driven culture
It’s key to make sure Front of House teams are aware they are in sales roles just as much as service roles. They aren’t order takers, they are front line brand ambassadors who control the guest experience and should have a significant impact on how much each guest spends on a visit.
One of the ways to foster this type of focus is to train restaurant staff to upsell menu items. They can talk about your specials, suggest their favourite sides for each main dish, or offer sharing plates for groups. All of this will increase the average spend per head and increase sales.
Set sales targets
Create a specific weekly sales target for each venue for the next financial year – e.g. a +2-5% increase vs last year is standard practice in restaurants, but you can set whatever target works for your restaurant. This gives your team something to work towards. Gamify it, put it out in the open and track progress to increase motivation and focus.
Pro tip 🚨 – create a sales leaderboard of all venues and reward top performing venues. The added competition will spice things up.
Optimise for the second purchase
Successful operators all carry a similar mindset. They always optimise for repeat customers. Do do what you can to deliver a consistently awesome experience to retain return visitors. Eating out is habitual and once you can deliver on your brand promise your customers will be loyal.
Top this off with an investment in a kick-ass CRM/Loyalty system to supercharge how you reward return visitors and you’re steaks ahead of the majority of your competition.
Implement strategic price increases
A blanket sales increase is likely off the table considering you’ve had a few hikes in the last 18 months (but if you haven’t raised prices in that time period – then now is the time..). But if you have, let’s be pragmatic.
Review your menu item sales and locate items that are high in volume (popularity) but have the lowest gross profit (GP) margins, and up the price accordingly.
It’s also worth considering adding new products at a higher price point – the variance between new launches and your staple menu will offset the optics of price increases.
Whatever you do – we always recommend you throw the kitchen sink at increasing your revenue line before you think of chipping away at product quality to reduce cost.
You got here by offering a great product and don’t forget it.
Review how you deploy labour
Labour optimisation involves scheduling staff as effectively as possible, planning shifts according to peak trading times and quiet periods. As a result, you can avoid under-or-overstaffing, which prevents you from over spending on wages vs budget.
Most restaurants will make their money in 4-5 power hours a day. You need first understand when these times are each day and then plan to have enough staff on at these peak hours to turn tables efficiently. This will not only maintain a great guest experience but drive more sales.
We’d suggest setting min and max headcount and SPLH (sales per labour hour) numbers to determine your scheduling thresholds. Think about it like this, what is the skeleton crew you need to serve 1 customer? Work your way up to your highest average sales in the last 6 months and map out how many staff you need and what roles per $ amount of sales. This will give you a living and breathing labour model that you can flex up and down based on forecasted revenue and budgets for each day/week.
Sounds intense… Is there an easier way to do this?
Anything worth doing is going to be hard! But yes, don’t fret there is an easier way… We suggest using an intelligent workforce management system like Nory (that’s us — howdy 🤠). A system like ours will analyse performance, forecast demand, and automatically schedule rotas to both meet customer demand and your labour budgets.
But don’t just take our word for it — take a look at Josie’s as an example. The family-run group of independent cafes reduced labour costs by 23% and increased sales per labour hour by 20.5% from using Nory.
Weaponise your P&L
It’s time to go CSI on your financials. If you aren’t already you should be running deep dives on your P&L each month. This cadence gives you regular insight into your financial performance and trends in each venue. It gives you an opportunity to analyse changes in your revenue streams, fluctuations in GP and labour, and pinpoint your highest outgoing / most inconsistent costs.
Once you’ve got a handle on your financials, it’s time to set monthly budgets for each venue. Work down the P&L and pick out the biggest impacting line items to be managed. i.e. Sales vs LY, GP%, labour spend and operating profit. If you can, set a ceiling for spending on smaller ticket variable costs like repairs, maintenance, general staff costs, light/heat etc..
Once done, it’s time to weaponize these targets (in a good way!). If you want your team to really own the business’ numbers, they should be both performance managed against these targets and bonused on hitting them.
Pro tip 🚨 Make sure you set P&L targets that are achievable, transparent and accessible. Remember, what gets measured gets managed but what gets paid out on gets owned!
Analyse key P&L metrics
If you’re wondering how to analyse key P&L metrics, Nory could be exactly what you need. In fact, Nory is designed to match your location P&L’s line for line. You’ll get real-time access to your performance, meaning that you can make quick, confident decisions about how to manage costs (say goodbye to month long delays in financial data!)
Urban Greens signed up to Nory for this exact reason. Anna, the Operations Manager at Urban Greens, says:
“For the first time, we have real-time data on purchase trends and price fluctuations, and we can see how that affects our cost of sales. The credit note feature, in particular, ensures we hold our suppliers accountable and makes delivery mistakes and shortages, a common headache, easy to manage.”
Read more about how we helped Urban Greens get a handle on their data and their business performance!
Invest in automation tools
With the right restaurant automation tools in place, you spend less time on manual, repetitive tasks, and more time running your restaurant. With those extra hours to spare, you can be productive in other areas of the restaurant — like finding ways to increase sales, revenue, and profits.
The opportunities are significant and range from scheduling to payroll and procurement automation. Find out more about intelligent automation in hospitality!
Use Nory to optimise your restaurant operations and reduce costs across the board
Warren Buffet once said that it’s wise “to be fearful when others are greedy and to be greedy only when others are fearful.”
We’d have to agree with him on that.
Just because labour costs are going up doesn’t mean you can’t be profitable. With the right cost-management strategies in place and a sales-led team, you can protect your profits
And with Nory on your side? Well, you can track and manage all this vital information in one place. Our AI will guide your teams on how to optimise your processes, reduce labour costs, and pinpoint exactly where to manage costs for the biggest benefit.
Schedule a call with the team to get the ball rolling!
FAQs about minimum wage hospitality
What is the UK minimum wage in 2023?
In 2023, the UK’s national living wage is £10.42. In Ireland, it’s €11.30 per hour.
Will minimum wage go up in 2024?
Yes, the minimum wage is set to increase in 2024. In Ireland, the minimum wage increases by just over 12% in January. In the UK, the minimum wage increases by almost 10% in April.
What will the minimum wage be in 2025 in the UK?
At this point in time, we don’t know. The UK Government aimed to raise the national living wage to 60% of median hourly earnings by 2020. When they hit that target, they set a new goal to reach two-thirds of median hourly earnings by 2024. All this to say that we’re not sure what the minimum wage goals are beyond 2024. We’ll only know for sure when the UK Government announces their plans.
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