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Good Examples of Cutting Operation Costs

Julie Jargon at The Wall Street Journal reported that restaurants are facing two threats --- “sharply rising food prices and looming changes in the healthy-care law that will mandate expanded employee coverage.” Restaurants are already in the business of low profit margins. If food costs and labor costs go up, profits will definitely suffer. To help restaurant owners cut operation costs, Julie Jargon listed some good examples in the case of Chili’s Restaurants.

Tactics Used in the Kitchen
  • Replace the skillet and the smoker with a new combination oven, which can smoke ribs and cook bacon three times faster.
  • Introduce the conveyor-belt-like oven that was used in fast-food restaurants in the kitchen. Cooks no longer need to turn over burgers or quesadillas to cook both sides.
  • Prep cooks wash and chop vegetables in the morning while line cooks only need to focus on cooking.
 HR Tactics Used in the Front of the House
  • Eliminate bussers so that the restaurants do not need to provide wage and health insurance to this group --- under the new law that will take effect in 2014, “employers with 50 or more full-time workers would have to provide affordable health insurance to those who work more than 30 hours per week.”
  • Waiters work in pairs in zones --- they no longer share tips with bussers and have an incentive to turn over tables faster.
What are the results of these changes? Even though the traffic at Chili’s fell 7.1% and the same store sales dropped 4.9% in the quarter, Brinker’s (Chili’s mother company) earnings more than doubled, partially because of the cost-cutting efforts. What other threads is the restaurant industry facing? What are tactics or strategies that a restaurant can take in responding to those threads?

References:
Jargon, J. (2011, January 28). Chili’s feels heat to pare costs: Restaurant chain looks for savings in kitchens ahead of expected change from health overhaul. The Wall Street Journal, B8. Online access via: http://on.wsj.com/e21sHk
Picture was downloaded from: http://okceats.net/restaurants/chilis

Comments

  1. This increase in costs as far as labor for health insurance I feel will greatly negatively impact the hospitality business. Health insurance is very expensive, and for restaurants that have more than 50 employees, many know that an employee can easily work more than 30 hours in one week. Therefore, the hospitality business will be a very interesting segment to watch as far as profit and loss in the year of 2014. I feel there are other technologies that can improve a restaurants profits and decrease losses. For example, the beer dispenser from the bottom up is a good example of standardizing a product while decreasing a margin for error. I feel that if many more businesses were to increase the standardization of their products such as those of fast food giants like Taco Bell, Burger King and McDonalds; businesses may be able to cut unnecessary costs in order to keep their heads above water, and stay in the black with profits.

    -Carrie Strout

    ReplyDelete
  2. I definitely agree with the suggestions made by Ms Strout as well as Jargons tips. As far as the front of the house, the busser position is not necessarily an easy one to cut in some cases. Removing this position puts a lot more stress and work load on the servers and could lead to slower service during busy hours.
    To the back of the house, while all of the technologies adapted by fast food restaurants certainly increase productivity and efficiency, they compromise integrity of the food product. One thing that sets most restaurants apart from the fast food chains, or the bad name of franchises, is the individuality of the chefs or different dishes they prepare.
    However, one cant argue with the need to cut costs for the sake of profits, especially in the restaurant business where such is not as easy to come by as in other businesses.

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