Last week, I attended the HotSchedules Spark conference – an event that brought together restaurant operators and innovators for a couple of days to discuss what’s next in the industry. I was grateful to be invited to speak about becoming a Talent Magnet for today’s jobseekers.
The most interesting presentation was given by TDN2K, a research firm that collects financial and employment data from thousands of restaurant locations and shares this data with their subscribers. The theme of their presentation was based on the book (and subsequent movie) Moneyball – an in-depth look at how the Oakland A’s baseball team took a data-driven approach to building their team around an overlooked statistic (on-base percentage) that they determined to be the key driver to winning games. This approach helped win them the championship, and data-driven recruiting/management is now a standard practice in baseball.
TDN2K’s question was: What’s the Moneyball stat that separates the best from the rest in the restaurant industry?
Stakes are High in the Current Environment
This information is timely for restaurants, as they are operating in a difficult environment. Here are some of the main challenges that they are facing:
- Declining customer traffic – There have been 7 straight quarters of negative comp store sales. TDN2K attributes this to an oversupply of restaurants in many markets, as well as an increase in competition from grocery stores, food delivery services, and meal kits.
- Increasing employee turnover – Turnover is at a 10-year high, with counter service turnover at 143.5% and table service turnover at 100.4% and 110.1% for front of the house and back of the house, respectively. Manager turnover is at 49.9% for counter service and 38.4% for table service restaurants. Turnover has an inverse relationship with unemployment, which is currently at a low of 4%.
- Increased wage pressure – Competition is pushing up the wages that need to be offered to attract and retain talent. Additionally, many cities and states have instituted new minimum wage laws, which are as high as $13/hour in markets such as Seattle.
The Moneyball Stat
After evaluating several potential statistics, they identified employee turnover as the key driver to success in restaurants. Here is some of the data they used to support this:
- Comp Store Sales – Top performing restaurants have 5% and 6% lower than average management and hourly turnover, respectively, while the lowest performing restaurants have 7% and 15% higher than average management and hourly turnover.
- Customer Satisfaction – Brands with the highest Yelp review scores have 5.5% and 12.9% lower than average management and hourly turnover.
- Cost Savings – TDN2K listed the cost of turnover at $2K and $15K for hourly and management staff, respectively. Even a small improvement in turnover and can result in tens of thousands of dollars in savings for restaurant operators.
Start at the Top – The GM
Above all else, TDN2K sees the biggest opportunity with retaining general managers. This makes total sense to me since the GM is the core of that store’s operations. If you are able to retain high-performing GMs across your locations, then that will have a huge impact on overall turnover since “people leave their managers, not their jobs.” Plus familiar faces drive familiarity and a stronger bond with guests, which leads to more repeat business.
Here are the five suggestions that TDN2K has for driving higher retention:
- Pay Competitively – The top quartile of restaurant operators pay managers 112% of the median salary, while the bottom quartile only pays 97% of the median. Higher compensation was the number one reason listed by managers who left their positions voluntarily. Here’s how I see this one: You are going to be paying for it either way – either as higher wages to keep them, or $15K per manager to replace them – so why not make the investment upfront and build a top-performing organization?
- Give More Upside – Top performing restaurant operators pay a higher percentage of total compensation as a bonus. Managers, at least the good ones, love to have higher incentives to perform at the highest level. This keeps them motivated and gives them more control over their earnings.
- Provide More Support – Work/Life balance was number two reason listed by managers who left their positions voluntarily. Managers typically move from hourly to salary when they get promoted. While this provides more income stability, it also opens the door to them getting overworked. Restaurant operators who try to squeeze as much as possible from each of their managers drive higher burnout and ultimately turnover. TDN2K shared that the top quartile of counter service restaurants had an average of 3.9 managers per location, while the bottom quartile only had 2.6. For table service restaurants, the top quartile averaged 5.6 managers vs 4.1 for the bottom quartile. The idea of having to pay one fewer manager per location looks good on paper, but this is short-sighted thinking that does not lead to long-term success.
- Invest More in Training – Restaurant operators whose managers spend more time in training have consistently lower management turnover. Job satisfaction was number three reason listed by managers who left their positions voluntarily. People often leave their jobs when they stop growing and feel stagnant. It’s easy to fall into the trap of taking a great manager and driving him/her to do more of the same – execute, execute, execute. But if you don’t make the time for your managers to develop and grow, then you will lose them. TDN2K shared that restaurants whose managers spend more than 5% of their time on training have management turnover of 20%. Managers who spend 1%-5% of their time on training average 29% for turnover and managers who spend virtually no time on training have 39% turnover. These stats will more than likely trickle down to the hourly level as well. If managers are not spending any time on training, how are they going to have anything new to teach their employees?
- Spend More Time on Orientation – I referenced this statistic in my last blog post – What’s Your Bread and Butter? Restaurant operators who invest more time in orientation for their team members have a significantly lower turnover. TDN2K shared that restaurants that spend at least four hours on orientation have 96.4% in hourly turnover, while those that spend fewer than four hours have a turnover of 106.3%. When you consider the $2K per hourly employee cost of turnover, the investment of a few extra hours upfront is minimal. Plus you are investing that much more into ensuring that your employees provide the best possible experience for your guests. This puts managers in a better position to succeed, and that will keep them around longer.
The Bottom Line – When Do You Want to Pay for It?
When I put myself in a restaurant operators shoes, I can see where this message can be tough to swallow. Pay managers more. Give them higher bonus potential. Hire more managers to support them. Invest more in training. Spend more time on orientation. It sounds like a lot of money – because it is. But this is what it takes to win in the restaurant industry. If you don’t do these things, then you will probably end up paying just as much (or more) in the form of turnover costs and lower sales performance. You get to choose.
When I relate this back to the Moneyball book, it makes me wonder about what other lessons the restaurant operators can learn. Baseball teams cannot have it all. The Oakland A’s focused their investments on players with a high on-base percentage. With this focus, they also had to pass up on “shiny objects” such as players with a high number of home runs. This discipline and focus on the essential helped the A’s build an unlikely team that won the championship.
I am actually understating this. The Oakland A’s did more with much less. They won the championship with a team salary of about $40M, the third lowest total in the league – and about 1/3 of the team salary spent by the New York Yankees!
Are there “shiny objects” that you are spending money on that don’t drive success in the same way? Can you reallocate those funds to invest in retaining your managers?
This discipline can be tough to adopt (and tougher to maintain), but it’s what separates the winners from the losers. It also reminds me of one of my favorite quotes:
We must all suffer from one of two pains: the pain of discipline or the pain of regret. The difference is discipline weighs ounces while regret weighs tons.
– Jim Rohn
For more information:
- Check out the resources on TDN2K and consider subscribing to their services, including Black Box Intelligence (financial data) and People Report (employee data). I was impressed with the level of data they shared, and I know that there is much more available to their subscribers.
- Learn more about Moneyball and how the Oakland A’s won it all. You can read the book, watch the movie, or just read Wikipedia.