Controlling Foodservice Labor

C-stores have offered foodservice to their customers since the first store sold coffee or fountain drinks to a customer. Like many of the categories now carried, the initial offers were very basic and the importance to the bottom line was minimal.

To say that is no longer true is an understatement. During the recent NACS/CSP SOI Meeting, foodservice was the number three category based on sales, trailing only packaged beverages and cigarettes. In fact, when all three reported sub-categories (foodservice prepared on site, hot dispensed beverages, and cold dispensed beverages) gross margin dollar contributions were totaled, the category contributed more than cigarettes (20.5% vs. 18.5% of total GM$). Or looked at another way, one out of every five gross margin dollars is now generated from foodservice!

That’s the good news. The bad news is that while the category generates great gross margin, it also has a dark side. To generate those GM$ requires additional investment in land, building, equipment, etc. It also requires lots of labor.

Every c-store operator knows that labor is their largest expense and successful operators have developed internal measures and processes to control it. Unfortunately, the industry has not yet developed a reporting mechanism that allows the reporting of foodservice labor as separate and distinct from total labor.

This may be because of the many ways foodservice labor is handled. Some retailers choose to just avoid breaking out foodservice labor (or all costs for that matter) from overall store labor. More on this in a minute. Others have a dedicated foodservice staff and operational systems in place to track labor, inventory, spoilage, sales and margins generated from foodservice

In most cases this is due to their approach to foodservice. Retailers that operate QSR’s are often required to have dedicated foodservice personnel. Those that operate proprietary systems may utilize the same personnel for both foodservice and convenience store operations. In some cases, retailers have a limited number of foodservice personnel, but augment it with c-store labor during peak times or to handle Hot/Cold dispensed beverages.

Another factor that impacts labor tracking is the manner in which the profitability of foodservice is handled. Retailers that utilize a separate P&L for the category are more likely (as are those that operate QSR’s) to track foodservice labor separately. One thing is certain, if you don’t track it, you cannot control it, and after COG’s, labor is the retailer’s largest expense.

How much labor is right? There is no easy answer. Naturally you can use the conventional wisdom that the right amount of labor is what is needed to meet or exceed customers’ expectations. However, foodservice labor costs are impacted by a wide variety of environmental issues including, but not limited to, the following:

• concept (some are more labor intensive than others, and as noted above, may require a dedicated labor force)
• in-store production, commissary or DSD
• complexity of recipes and menu
• order/delivery mechanism (grab and go, made to order, combination of both)
• utilization of a drive up window
• dayparts covered – breakfast, lunch, dinner, snack
• space inside the store required of the foodservice offer
• foodservice layout
• relationship of foodservice area to rest of the facility
• equipment utilized
• food production equipment / space required
• storage area layout
• seating – yes/no?
• information systems employed
• accounting methodology (retail, cost, combination)
• how training hours are accounted for
• how sales are recorded (separate designated POS for foodservice or central system for all in-store and fuel sales, retail or cost accounting)
• number and type of vendors utilized
• government regulations (ServSafe requirements, minimum hours after being scheduled for a shift, etc.)
• management’s expectations (is foodservice central to the offer or just another category)
• organizational structure (separate foodservice manager, etc., or is foodservice handled by assistant store manager)
• will the foodservice offer be customized to fit each location’s demographics or remain consistent throughout the chain

The good news is that there are various systems today to help retailers control foodservice labor. Some come as part of your information systems provider’s menu of options. Others are designed to be stand-alone. However, rather than start by determining which metric you prefer to control labor costs, first determine the amount of labor required given the environmental issues listed above.

This requires that the retailer analyze what needs to be done, which may vary significantly from what is being done. For example, I have seen cases where employees were not taking the correct steps to ensure that a fresh chicken program was being properly instituted. Measuring the production process would have yielded a lower labor requirement than was needed (not to mention eliminate the possibilities for disaster).

Information gathered via this process can then be utilized to determine a base labor hour number. Certainly other factors influence the amount of labor needed.
Two major ones are:

• number of customers served per day
• average check per customer

The best retailers probably take this a step further. They track sales and customer counts by daypart or even by time-of-day. Further, they analyze the various products being sold off the menu – understanding the time required to produce and deliver each foodservice item to the customer.

While dollars is a handy way of measuring labor, hours (given the variation in hourly rates) may be a better measure. With this information in hand, retailers can elect to use a variety of metrics to measure and control labor beyond labor as a percentage of sales or gross margin generated. These include the following:

• sales per labor hour
• labor per guest served
• guest per labor hour

Our competitors within the foodservice industry have had years to develop processes and metrics to measure and control labor. In fact, most fast feeders refer to food, beverage and labor expenses as prime cost. If c-store retailers want to compete for their foodservice customers, we need to undertake the same effort.