Labor Costs at Sandwich/Prepared Food Shop

Discussion in 'Professional Chefs' started by maxs, Nov 25, 2018.

  1. maxs

    maxs

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    Hi all,
    I am looking to buy a sandwich/prepared food shop in Massachusetts and the numbers look good, but I'm concerned about my labor projections as well as estimated food cost.

    I will be working full time: prepping, working the line, and working the register (all depending on the amount of business and staffing on any particular shift), and with two other employees during slow times and up to 4 other employees on the busiest shifts. Minimum wage in Mass is $11/hr and slated to increase 75 cents every year until it reaches $15/hr. There is a serious qualified labor shortage here so wages can be pretty high. The current owner mainly uses high school students who get paid between $11-$13/hr...plus a shift manager at $17/hr. I'm hoping to do the same and make the menu as idiot proof as possible, so even entry level kids can execute it.

    Although because of the increasing minimum wage, I am raising my labor rates to $13-$15/hr with a sous chef at $18/ hr.

    With a gross of $580K/yr, I calculate a 24% labor cost including FICA. Am I deluded or does this sound plausible? If instead, labor ends up being 33% I would clear very little at the end of the year.

    Also, I intend to use decent quality bread, meats, and cheeses and project 30% food cost plus 3% for paper goods since the place only has 8 seats and will be 95% to-go food. Does 30% sound reasonable for sandwiches/prepared salads and dinners?

    Thanks all.

    M

    PS: rent is $2500/month and I'll be carrying a note of about the same amount. Even still, I project a cash flow of 130K/year because of the low labor cost projections.
     
  2. sgsvirgil

    sgsvirgil

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    Your food and labor costs are going to account for the largest percentage of your gross sales. 20-40% is considered the normal range for labor costs and when food costs are piled in, the two together can easily reach as high as 75%. But, on the other side of the coin, they are also the two areas of your business where you potentially have the most flexibility.

    Without knowing the specifics, there's no way to lend any sort of meaningful advice. But, if it were me, I would hire 2 people to run the counter and forget about the $18/hour sous chef and do that job myself. Use a portion of that $18/hour to hire someone to do prep and maybe another body to fill in whatever gaps are left. Again, since I don't know the details of your BOH set up, I can only make assumptions on the fact that the business is a sandwich shop.

    I would also suggest that you seriously reconsider opening your business where the minimum wage laws are not so severe. This is a minimum wage industry. By mandating a $15/hour minimum wage, the state is literally removing one of your only advantages that you have in the struggle to keep your business open.

    I live in a state where the minimum wage is less than $8/hour. Yet, because of the way I set up my pay structure, my sous chef made between 60-70k per year. My line cooks (x2) averaged about 35-40k year, which breaks down to $18-20/hour. On top of that, by off loading my hourly labor costs, I could afford to offer my employees health insurance they would not otherwise have if they worked elsewhere. I was able to do that by by paying my sous 5% of the quarterly profits and my line cooks .5 - 1.5% of the quarterly profits (after 2 years). I know. Crazy, right? But, it worked and worked very well.

    None of this would have been possible if I was strapped with a $15/hour minimum wage.

    Anyway, I hope some of this is useful. Good luck. :)
     
  3. maxs

    maxs

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  4. maxs

    maxs

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    Thanks sgsvirgil. The sous chef is there because our hours will be 7am-7pm, 5 days/wk. and I need someone strong to be there when I am not.

    What do you mean buy “offloading hourly labor costs?” Is everyone at your place on salary?

    Cheers,
    M
     
  5. sgsvirgil

    sgsvirgil

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    No. By "off loading labor costs" I mean to transfer some of that load to the profits rather than placing it all on menu pricing. Hence, the small percentages of the quarterly profits that were paid in lieu of higher hourly wages. For instance, the line cooks received anywhere from a half percent to 1.5% share of the profits per quarter. So, if the profits for one quarter were 50k, the line cooks received a bonus of up to $750. While this may not seem like a huge thing, they were also being paid overtime and had health insurance. :)

    By paying my employees this way, it removed some of the burden placed on menu pricing. The idea being that lower menu prices + good food = more business and more profits. But, like I said, if minimum wage was $15/hour, this would not have been possible because I would've been forced to hire more part time employees to avoid overtime, would not have been able to afford health insurance and would've been forced to transfer the cost of $15/hour to food pricing.
     
  6. someday

    someday

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    The best indication of what your numbers will be is to look at the books from the place you are buying. If they are close to what you are projecting that is a good sign.

    Why are you hiring a "sous chef" for a sandwich shop? What is the sous chef going to do that you can't/won't be doing yourself? Seems redundant to keep both you and a sous chef for such a small place. I would just roll the sous chef into another employee (where you see your biggest holes, either customer service or if you need help in the morning prepping)...

    Also, remember that you can SIGNIFICANTLY reduce your cost of food if you make your own turkey/roast beef, etc. If you have the expertise, space, and time to make your own stuff it could really help your bottom line. It'd probably taste better than the "decent" stuff you are going to buy.

    30% for food cost % seems like it could be a little high for a sandwich shop. You obviously know this but the lower the FC% the more money you have to put towards other things and/or profit. I would make 30% your absolute maximum and strive for less than that.

    What type of menu are you going to have?
     
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  7. jimyra

    jimyra

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    24% labor? What about worker comp? Sandwiches and a Sous Chef with shift supervisors? That sounds like a 45% labor cost. Where did the gross income come from? If your planning to break even or make a profit for the first couple of years I would rethink the project. How much are you going to pay yourself? Good luck'
     
  8. chefbillyb

    chefbillyb

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    When I started my business I realized I'm not good at everything. Therefore I should concentrate on what I'm good at and farm out the rest. I never made any money sitting in the office. My money was made cook/managing, working the floor and serving and interacting with the customers. I never liked the idea of handing over my business to a bunch of high school kids. You'll see when you work the business you'll be able to work circles around everyone else. In my case I only brought in people as needed what money was coming in and people had to be served. You need to be on the floor to expedite fast service while serving a quality product. While working the floor you insure quality and also make sure all your demands are followed. I'll tell you from past experience that the sandwich shop will not run the same when you're not there.
    I would also look at why the hours of operation are what they are. Ask the seller for hourly cash register reading's. There better be a reason why you're open at 7AM and close at 7PM. If you're not making money then don't stay open. The Labor could drop drastically if you stop paying out money and bringing in small amounts cash. I've taken over operations that I cut labor 30 to 40 percent just by having me work the floor. I agree with "Someday" about not having a Sous. I would have a lead person that could also be the head cashier and do some banking getting change and so on.
    What is your breakdown for your 130K net. I see you being able to open 264 days a year. Thats also saying you only close weekends and stay open on Holidays. The key to this business is only being open 5 days a week and being closed on weekends. Thats a God sent for you being able to work the business and be there for almost all the opening hours. This alone will save labor dollars.......ChefBillyB
     
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  9. maxs

    maxs

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    Thanks all for the feedback. The reason I need the sous chef is that I want to be open from 7am-7pm (plus time before and after to prep and clean) There is no way I can be there all those hours, Wed-Sun (I’m 57).
    I need someone to be a firm hand and quality control person when I’m not there.
     
  10. someday

    someday

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    What is your planned schedule for when you work? What hours is the sous chef going to be there when you aren't?

    My thinking would just be to give someone a "shift lead" or "closer" title (and a couple extra bucks an hour) and have someone with a little more responsibility be in charge of closing/standards when you aren't there. I assume with a 5 day week (that meaning your business is open for 5 days) that you would be there every morning (Wed-Sun) and leave when the prep was done and the night crew is in good shape for the rest of the day.

    So lets say you work 6a-3p or 6a-4p, what is going to happen in the hours between 3 or 4pm and 8pm that you would need someone that is a "sous chef" to finish up? I assume that you are doing most of the prep in the AM yourself (or at least with one other person you are working close with) so the remaining quality control is just making sure the evening sandwiches/soups/salads all are made to your standard. Most of the food is just assembled to order so the chances for errors are minimized and with proper training I would think you could train a person to manage that without the need to call/pay them as a sous chef.

    Someone brought up Worker's comp which you should probably factor into your labor cost as well. I don't know what it costs in MA but you should know (if you don't already).
     
  11. capecodchef

    capecodchef

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    Your labor costs are understated at 25% including FICA. Firstly, Mass minimum wage is going up $1 per year, not .$0.75 until it reached $15. Second, as someone mentioned, add in FICA and Workers Comp. Third, in Massachusetts, you can't forget EMAC payroll taxes which is 5% of your payroll of any employee who is on Mass Health. For us, that amounts to about $9,000 out of our pockets. Run your numbers with a more realistic 40% labor rate and see what happens.
     
  12. maxs

    maxs

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    Thanks CapecodChef.
    When you say 40%, you mean including FICA, EMAC, etc?
    And if I am scheduled at 50 hours a week at $18/hr, should I include myself in the 40%?
    Honestly, at a 40% labor cost + $2500 rent + a $3000/mo note (for a start up costs loan as well as a note the current owner is willing to hold for me), I don’t see much money left at the end of the day.
     
  13. chefbillyb

    chefbillyb

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    No way in Hell your going to have a 40% labor cost. At 580K gross sales would give you $2230.00 sales per day. 25% would be $557 per day for labor. that would give you 37 hours per day @ $15 for labor. That would be 6- 6 hour shifts not including you. your making $185 an hour avg. Your labor is going to fluctuate with you opening and have a head/lead person closing. This will cut your hours down. The real key to saving labor in this operation is that the business is only open 5 days a week. This is a big labor saving feature. You're also carrying a note for 30k a year. Even with the note you should be able to make a good profit. Labor is the key to making money in this operation.........ChefBillyB

    P.S. taking the $557 labor $$$$$ and including about 15% for FICA, EMAC and whatever. it would be 15% of the $557 that is $83.55. This would make the labor cost Dollars $641 including the 15% in taxes. That would make the labor cost 25% plus 3.5% or 28.5% total labor cost for the employees. When figuring out your profit you'll also need to figure a 20 or 25% taxes on "YOUR" profit. The $2500 a month note is also your bottom line profit that is going out the window every month. After a period of time you will own the business and everything in it. This also has to be figured into the equation.
     
    Last edited: Dec 13, 2018
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  14. maxs

    maxs

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    Thanks CB.
    Just to play devil's advocate: if you are open 6 or seven days days/wk WITHOUT anyone going into overtime, wouldn't labor percentage be even lower since you are generating more money to throw at the bottom line?
     
  15. chefbillyb

    chefbillyb

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    I figured there's a reason they're closed two days a week. To me it's a gift being closed. Not open, no worries. You can work the business on a 5 day work week and not kill yourself. Your sales for those 5 days are good. I would also expect a higher employee turnover Everyone wants to work until they get a job.

    That being said if the business could make the same amount of money as the other 5 days then Hell yes be open. When you own a business nothing is done just for the hell of it. Every labor hour has a reason. When you open the extra days you're also losing some control. You need to weigh if this justifies the amount of extra money you'll make. You'll find that having employees make it difficult to enjoy being an owner.....ChefBillyB
     
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  16. brandon odell

    brandon odell

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    The average profitable quick service restaurant runs between 55% and 60% in prime costs (food plus labor). Well run quick service concepts can get to 50% or even under. Usually that requires volume and you would be hard pressed to get there with $580K in sales. If I'm you, I'm happy anywhere under 60% at that volume, with a goal of building to $800k where you should be able to get under 55%.

    That 55% breaks down one of two ways usually. A 25/30 split or 30/25 split, or somewhere in between. Usually, more labor means lower food costs or vice versa.

    If you're running over 30% in labor in a quick service restaurant, you don't have a well designed concept.

    From your plan, I'd agree a sous chef would be a waste of money at that volume. You're a chef. You don't need another to run a quick service concept. You need a strong service manager who knows a lot about point of sale systems, cash management and reporting. A good service manager can watch the kitchen when you're not there. Maybe a shift lead to close some nights beyond that.

    24% isn't over-ambitious in the right concept normally. With your minimum wage though, it might be depending on the prices you can command in your area.
     
  17. maxs

    maxs

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    Thanks B O’D,
    Good breakdown.
    Q: THe 24% goal you mention, does that include my labor?
    Thanks,
    M
     
  18. brandon odell

    brandon odell

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    It should be enough to pay someone to run the place, as long as the other manager and shift lead aren't being overpaid. Salaries are usually failry low in quick service. If that someone is you, and you aren't making more than you pay someone else, then it would include you. If you're paying yourself more than you would someone else, then you need to factor that in. Any labor factoring you do should always include ALL w2 pay, you included.
     
  19. brandon odell

    brandon odell

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    BTW, I still think with your wages and minimum wage 24% is probably too optimistic. UNLESS you can command higher prices to make up for it. I would realistically budget for 30% and try to make it up with a lower food cost, closer to 25%.

    High wage areas hit closer to the "30/25" model I mentioned.
     
  20. maxs

    maxs

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    I hate to seem dense, but this still doesn’t make any sense to me:

    If I include myself at $18/hr to cook on the line (typical for my geographical area), then my labor costs are 31%. When you add FICA and other withholdings, labor (including me) is 37%.

    If I don’t include myself in labor costs, then labor costs including withholdings is only 26%.

    Big difference, eh?

    I understand that the good thing about including my wages in the equation is that if I am out sick, then the labor cost would reflect the true cost of running the business without me. But in one scenario, prime cost are 67% (not counting paper to-go container costs, which are high since the business is all take-out). In the other scenario, the prime cost is a reasonable 56% + paper goods.