Hospitality Begins at HomeApril 1, 2009 By: Michael Harrelson Night Club and Bar Magazine
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.