In 1986 (June 30 to be exact), I worked a busy lunch shift that looked like any other lunch time in a Melbourne CBD restaurant. Except it was an hour after service was actually over and the restaurant was still full of besuited customers.
The occasion was the introduction of a fringe benefits tax that was to take effect on 1 July 1986, and customers were intent on enjoying lunch as a tax-free perk one last time. For the restaurant industry, it really felt like salt being rubbed into the wound. Australia was just coming out of recession years with low annual GDP growth, unemployment and inflation both at 9 per cent, and interest rates an eye-watering 15 per cent.
The FBT was to be the final nail in the restaurant industry coffin. But it wasn’t. Nor was the early 1990s recession, the introduction of compulsory superannuation in 1991, the introduction of the GST in 2000, the early 2000s recession, the Global Financial Crisis 2008-2009, compulsory long service leave for casuals, nor the ban on indoor smoking and the more recent ban on smoking around food at all.
The fact of restaurant life is every time the economy sneezes, we feel the chill. With an industry so tied to discretionary spending, every social shift can seem like an existential threat. The industry, however, continues to thrive. It does so because it quickly sheds its casualties. New operators, attune to the changed conditions – or more likely, not fixed to the old norms – find a way to meet customer needs as they are, not had once been.
Today, the hospitality industry is again in the grip of a perfect storm of change. Technology in the form of social media has elevated customer expectations. A meal is no longer just a meal; it’s a pursuit of validation of taste, status, style, lifestyle and ‘virtue signalling’ moral food choices. Fairly or not, diners share and critique their experiences with all the authority of the credentials they earned watching reality television.
Dining has also taken a different turn as the demand for restaurant quality takeaway is fuelled by online apps like Uber Eats, DoorDash and Deliveroo. The trend not only sees restaurants having to give away a sizable portion of the sale revenue, it robs them of the ability to build the customer loyalty that comes from the in-person dining experience. So concerning is this development that the CEO of the Restaurants and Catering Association has taken to the media warning of the death of the nation’s food scene.
Meanwhile there is little let-up from the perennial challenges of rising food costs, rising rents, government red tape and finding reliable, skilled staff.
Wage underpayment legislation
The issue of underpaid workers gets worse with every new revelation in the media. Hospitality operators in Australia know the Federal government response to wage underpayments is imminent. Laws will be tabled within months laying out hefty penalties – 10 years imprisonment and $1.05 million in fines for individuals, $5.25 million for companies have been proposed – for deliberate non-compliance.
We know that new standards have been set to apply to salaries from 1 March 2020. This will require employers to track and record the hours worked and unpaid breaks taken by their salaried employees.
What we don’t know is how operators will be made to comply with the new legislation. How far back will you have to reconcile your past payroll records? What actions must be taken to rectify any issues? How long will you have to achieve full compliance?
Let’s say you have to go back two years and you find that your underpayments equalled 5 per cent of your annual payroll. If you employed 50 FTE on an average of $60,000 annual salary/wage, your rectification bill will sit somewhere around $300,000. Don’t forget to factor in your now higher, on-going, wage bill.
It doesn’t help that you know underpayments weren’t deliberate; you were just doing what the industry has always done: paying flat rates, annualised rates (salaries), or manually (and incorrectly) calculating wages. According to estimates, one in five people have suffered some level of underpayment in Australia. The bulk of the problems being in hospitality and retail.
Solutions not scare tactics
The industry will do what it has always done. Shake out the weak and vulnerable, and re-populate itself with new, agile operators. While hard work is inevitable, hard times are not.
After years of working with clients to adapt to digital change, I put my experiences and findings into my (just released) book, The Michelangelo Project. The key to survival in times of crisis is not saving costs, nor incremental improvements generally.
In the book, I describe the attitude to doing business as a game of snakes and ladders. You can move through the game, square by square (gradual improvement). It might feel like you’re making progress but you’re unlikely to win. Someone else landing on a ladder gives them the leverage to outpace you. Snakes propel you backwards, nullifying any progress you had made.
Unlike the game however, the snakes and ladders you encounter in business are not pure chance. You can decide whether you will travel one square at a time, up a ladder, or down a snake.
We can write off the ‘square at a time’ as an option because changes affecting the industry – as we’ve just outlined – will contrive to make gradual increments the same as standing still.
The snakes to avoid are those proposed by researchers Ahuja and Lampert:
- Familiarity traps – favouring things you already know and ignoring the less known
- Maturity traps – relying on things that already exist
- Propinquity traps – staying with things that have worked before
The antidote to these traps is accepting the hospitality industry is not immune to being disrupted. In times of great change, preserve sacred cows with utter caution.
The real gains to be made will come from implementing ladders, and as soon as possible. Head starts provide the highest returns of all investments because advantages accumulate: each gain begets the next gain and takes advantage of acquired experience.
In our present environment, there are two ladders every hospitality operator needs. High tech is the first. Many venues are sitting on software (ordering, table management, payroll, and so on) but are not using the data these generate. Learning to use these systems fully will increase the digital capability of your organisation. You could even advance to implementing the increasingly affordable smart technologies that can, for starters, monitor food quality, track customer moods through a meal, predict sales and be used to help staff spot sales opportunities. Cost savings and/or higher revenue at every turn.
As game-changing as high tech is, high engagement is the single most powerful ladder available to hospitality operators. For a people-oriented industry, hospitality has not been good at high engagement. Organisations are invariably command-and-control hierarchies. Staff are employed for their production capabilities, regardless of anything else they are able to contribute. Customers can have anything they want – as long as it’s okay with the establishment.
Open border sharing of resources, collaborating, co-creating, agile ways of working, talent-led workplaces, values-driven cultures and business model innovation are examples of high touch, high engagement activities to which, despite their relative low cost, the industry has paid scant attention. The research I conducted in writing The Michelangelo Project shows that these will become essential to business survival because hyper-connected technology will make these so prevalent that customers will measure all businesses by this yardstick. Hospitality simply cannot afford to cling to the idea of the controlling, all-powerful restaurateur/chef/general manager.
When to act
Now. Today. Not when the Christmas rush is over. What’s the point of thinking about the next step when the customers are gone, you’re down to skeleton staff and watching the cashflow? It doesn’t mean implementing operational changes during the peak season. It means putting in place steps to gather the data for change while you are generating it.
The upfront commitment is minimal, but the payoff will be immeasurable. As soon as the peak period is over, you will have a wealth of information you can analyse and plan your changes and move quickly to implementation.
Do this, and by the time new wage laws come into effect on March 2020, you’re already ahead. It will still be hard but you won’t be pegging the future of your business on how well you survive the legislation.