How a Restaurant Decreased Labor Cost by 11%
Spice Kit, an Asian fast-casual chain, decreased labor cost by 11% from 27% of sales in 2015 to 24.3% of sales in 2016 using Pared at their San Francisco location.
Everyone in the restaurant industry would kill to shave off even 1 percent from their prime costs (labor and food). Every single basis point added to the bottom line makes a huge difference to an operator considering how thin margins are. Even with increasing competition for labor and rising minimum wages, Spice Kit in San Francisco was able to lower their labor cost by 2.7% in 2016.
According to a quarterly analysis of restaurant industry performance from consulting firm BDO, on average, restaurants’ cost of sales fell 2 percent to 29.1 percent of sales in 2016. But labor as a percent of sales increased 2.7 percent to 30.5 percent in 2016. So climbing labor costs more than offset falling commodities to drive overall prime costs up to 59.6% from 59.4% the previous year.
In fast casual restaurants labor costs were up 4.8%, more than the general average, to 28.4% of sales. Over the past year, restaurants have added 29,300 jobs in June (one out of eight new jobs), increasing total employment in the industry by 2.4%. The added jobs are a sign of growth for the industry, but also increased demand for hiring. Competition for employees, overtime regulations, healthcare costs and increased minimum wages are all contributing to driving up labor costs.
Despite the macro trends in the economy and the industry, Spice Kit, an Asian fast-casual chain, decreased labor cost by 11% from 27% of sales in 2015 to 24.3% of sales in 2016 by using Pared at their San Francisco location. That’s an 11% decrease in labor spending. While sales across fast casual restaurants was down 1.4%, Spice Kit San Francisco had a record year with sales up 11%. Founder Will Pacio said, “Before Pared, our teams and managers were burnt out. We were burning too much money on overtime. And our business was leaving money on the table because we couldn’t accept incoming orders.” They were never understaffed and could handle all of their demand using Pared to fill in their gaps. They also didn’t have to turn away catering business, so catering sales were also up 12%.
“We’ve completely eliminated OT from our P&L because now we can just plug in a Pared Pro whenever we need extra help. We’re also having our best year ever in sales because we can take on extra orders — whether it’s from corporate catering, Caviar, Zesty or Uber Eats. Whenever we need a set of extra hands, we just use Pared.”
With Pared, Spice Kit was able to save 90% on overtime costs in addition to saving on the overhead of payroll taxes, workers compensation, etc. of hiring additional employees (Pared Pros handle their own taxes and purchase insurance coverage as contractors). This doesn’t include the $3,100 savings on Craigslist postings and countless hours of management time spent interviewing, training and dealing with constant turnover. Spice Kit San Francisco recognized an increase of 10% in net income for the year. “We’re having our most profitable year ever. Pared has allowed us to increase our top-line, while also saving on costs,” says Pacio.
Many restaurants are lamenting the current challenging environment for hiring and increasing wages. Some are responding by throwing their hands up and shutting down. Others are looking to automation or technology such as kiosks or smartphone apps to ease the pain of staffing. Unfortunately neither solution will ease their headaches of needing skilled staff to work the line or wash their dishes. Realistically, most independents will never be able to afford the CAPEX of a robot dishwasher or pizza maker. The status quo for hiring is posting an ad on Craigslist and hoping one out of ten candidates shows up to an interview. Pared removes uncertainty by sending vetted and reliable temporary staff who can get the job done. By gathering work history and reference checks as well as having actual data from completed gigs, Pared has built a powerful database of verified and proven hospitality professionals. Pared has made an inefficient and opaque process of traditionally staffing restaurants more efficient and transparent.
Hundreds of restaurants, catering companies, and commissary kitchens in the San Francisco Bay Area are using Pared to staff positions today. These operators are now able to focus on growing and operating their businesses instead of feeling like they’re running a staffing agency. They are no longer being held hostage by bad employees because now they have options. Andrew Chau, CEO of Boba Guys and Pared customer said, “Pared gives you just-in-time labor so you can reduce excess labor, since most scheduling happens one to two weeks out. Sometimes you just need a helping hand instead of a full shift.”
Labor costs will continue to rise in the foreseeable future. Restaurants are looking for a staffing solution that is more efficient and cost-effective. Robots aren’t the only technology that can be leveraged to help ease the pain for operators. Restaurateurs will need to experiment with new models of work in order to keep the lights on.
Dave is the co-founder of Pared, a restaurant staffing marketplace based in San Francisco. He has worked in technology for over 18 years at Yahoo, Apple, eBay and Cisco and was co-founder and CEO of Fanpop before starting Pared. Learn more about Pared at pared.com.