Hospitality Begins at Home

The subject of employee benefits can be a touchy one in the food and beverage industry. To some, it’s synonymous with costly outlays such as bonuses, profit sharing and, worst of all, health care. The mere mention of the ‘b’ word has been known to cause otherwise fearless hospitality entrepreneurs to shake in their boots.

Especially in the current economy, benefits likely is one of the first “extra” item many operators may consider cuttings from budgets, if they offer them at all.

Perhaps this is why so many owners and operators who should know better still take the ostrich approach and bury their heads in the sand rather than dealing head-on with what is widely viewed as the antidote to one of the greatest challenges facing bars, clubs and restaurants today.

Back in the good old days, when the F&B industry could draw on a seemingly endless pool of labor to staff house positions, from manager to maitre d’ to bartender to cocktail waitress, chains and independent operations could get by without offering employee benefits packages. But with employee turnover rates currently exceeding 100 percent — and with projections that future demands for labor in the hospitality field will outstrip supply significantly — hospitality management experts across the spectrum agree that employee benefits now have become vital to any operation finding itself on the treadmill of labor turnover costs.

The High Cost of Employee Turnover
Rather than viewing employee benefits as something that an operator offers to help the staff, the Restaurant Marketing Group’s (RMG) Ron Wilkinson and Terry Morey say that it’s better to look at them as a means to further one’s own self-interest.

“The key reason for offering benefits packages is to eliminate turnover,” says Wilkinson, the founder and president of RMG, an Orem, Utah-based firm specializing in marketing strategies for foodservice businesses. To Morey, senior vice president of marketing for RMG and a veteran owner/manager of a number of independent and chain food and beverage operations in his extensive career in hospitality, the outlay for replacing an employee extends well beyond the cost of a newspaper ad or the time it takes to conduct interviews and check references. 

“There are a lot of costs involved, beginning with the training itself,” he says. “Every single employee that you hire is being trained. Owners and managers may do the training, or it may be delegated to customers. Either way, it comes at a tremendous cost in lost efficiency. It slows down other employees, and it results in wasted product.”

Yet another factor is the cost resultant from offending customers, Morey says.

“The cost is tremendous here. It varies, depending on how bad a job you are doing, but anytime you have a new employee, customers are at risk.”

People Report, the Dallas-based human resources benchmarking firm, pegs the cost of replacing an hourly hospitality employee at $1,707. That figure, taken from the firm’s 2008 Survey of Unit Level Employment Practices, includes separation costs, replacement costs, training costs and lost opportunities. The cost of replacing a manager is $19,129, according to the survey.

Even when suitable replacements for lost employees are found, and they are retrained in an effective and timely manner, there is still a hidden price to be paid, says Brian Russell, senior director of operations for the BarFly Group, a restaurant consultancy and creative agency in Charlotte, N.C. What many hospitality owners and operators fail to take into account in ignoring the problem of high employee turnover is the role that employees play in keeping customers happy and bringing them back.

“Customers have loyalty to more than just the business,” Russell says. “They have loyalty to neighborhood bartenders. It’s like on the television show ‘Cheers.’”

When all of the costs are added and multiplied by the number of employees lost over a period of time, Wilkinson says the price can make an employee benefits program look inexpensive by comparison.

Laugh All the Way to the Bank
Whether they take the form of employee meals before a shift, vacation pay, the recognition of a staff member on his or her birthday or something more substantial such as regular bonuses based on sales results, profit sharing or paid insurance, Morey says benefits programs work for the house in two important ways.

“They help in both attracting the best applicants and in keeping them once they have been hired,” he says.

Although providing health insurance is considered to be one of the most attractive and effective benefits that any hospitality enterprise can offer, less ambitious benefits plans also can go a long way toward retaining employees over time.

“Health insurance is not always the right answer,” Morey says. “You might have young people who are living at home and are covered under their parents. I know of some creative operations that allow employees to apply what would normally go to health insurance to car insurance. You need to find out what it is that is going to be attractive to the demographic that you have. For young people and seniors, this could be very different.”

Since longevity is a universal measuring stick for the accruing of benefits, Morey says it makes sense for venues to offer a two-tier benefit program.

“You could offer a basic benefits plan for new employees and something more aggressive for people who have been working there longer,” he says.

One benefit that almost any establishment can afford is the offering of employee meals before a shift, Wilkinson says.

“Many establishments offer free meals to employees,” he says. “It’s a great benefit. In most cases, the employee has to work a four-hour shift to qualify. The only thing you are paying for is food, and you are operating on a cost of goods of 28 cents on the dollar.”
At one high-volume restaurant that he managed, Morey offered employees a benefit in the form of a food budget that ranged between $20 and $100 each month, depending on the employee’s position.

“They could come in and eat and bring guests. Not only did this help keep employees happy, but it also brought new customers to the restaurant.”

Russell, whose BarFly Group recently made its first foray into the ownership of a food and beverage venue with Spinner’s Baitshop & Bar in Appleton, Wisc., says there are a number of ways to implement an employee benefits program without breaking the bank.

“Some larger bar and restaurant groups offer tuition reimbursement to employees, especially if they are going to school to earn a degree in a hospitality-related field,” he says.

Another benefit that can be an affordable option for owners and operators is disability insurance, Russell says.

“If an employee is disabled or gets hurt, it is a way of providing some income, and it can be provided through a company health plan.”
There also are viable options for venues in the health-related area short of providing full health coverage, Russell says.

“It’s important to recognize that many operations are in the cold beer and hot hamburger business, not in the insurance business,” he says. “But often, state restaurant associations provide insurance brokers, and they can help owners to provide coverage.”

Whatever goes into a given venue’s employee benefits plan, Morey says it’s important to keep it real.

“Lots of employers talk about benefits programs, but in reality, they are structured in such a way that very few people qualify,” he says. “It is used as a hook to bring people in, but it is not going to have any long-term results when employees have to work 32 hours per week to qualify for health benefits.”

In many cases, Morey says, schedules and hours are formulated to ensure that most employees do not meet the minimum requirement to qualify for benefits –– something that he considers to be a big mistake.

“You should structure all of these programs so that people will take advantage of them. In doing so, you are benefiting your restaurant or bar as well,” he says. “You should laugh all the way to the bank, because everyone is winning and benefiting. Most owners never get to this stage where everyone wins.”NCB

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