Recent industry turnover rates are upward of 150% and can even be as high as 400%.
At CNBC’s@Work Human Capital + Finance conference in July, CFO at Panera Bread Michael Bufano said that “restaurant industry employee turnover is 130%” -- equaling more than a full workforce turnover every year.
It’s no secret that the restaurant industry traditionally experiences high turnover rates, and for a long time, it’s been considered acceptable and expected. The work became standardized, and much of the skill had been taken out of them, making it so that work was essentially turnover-prone and employees became easily replaceable.
However, recent numbers from the restaurant research firm TDn2K calculated replacement costs at $2,100 to $2,800. This means if you’re a restaurant with 50 employees, with a turnover of 150%, and a replacement cost of $2,800, your employee turnover is costing you $168,000 a year. Imagine what would be possible with an extra $168,000?
Now that many restaurants are putting a number to the turnover cost, they realize that it’s a cost that needs to be treated seriously.
With the profit margins being slim, it’s essential to understand and optimize every business area for maximum growth, profits, and experience (for employees and customers).
For this article's purpose, we’re going to focus on how managers can focus on reducing one of their most costly numbers: employee turnover.
The "why" behind high turnover
Most restaurants experience high turnover for many reasons, including:
- Since everyone is essentially paid the same, with no benefits or time-off, there is no reason for unhappy employees to stay put. It’s fairly easy for an employee to jump from restaurant to restaurant at the first moment of frustration.
- Restaurants, fast-food chains and customer-service based jobs tend to employ a higher volume of teenage and college-age employees, including many who are joining the workforce for the first time, due to the ability to train skills on-site. Workers in this age group are typically nearing graduation, relocation, or entrance to the permanent workforce - all common reasons for leaving employment early in their tenure.
- Other reasons that might contribute to turnover include rate of pay for entry-level workers, limited benefits, disengagement, issues with management, and changes unrelated to work such as relocation, domestic obligations, or furthering education.
However, this doesn’t have to be the case. In recent years, companies like Starbucks are breaking free from the mold of doing business “how it’s traditionally been done” and are seeing positive impacts on their bottom line.
Starbucks’ turnover rate is 65%, much lower than the industry standard because they put energy, resources, and money into creating a great employee experience which directly impacts the guest experience. Starbucks has always focused on its “partners” (employees). Some recent examples of what Starbucks has done in just the last year alone include: offered therapy sessions to employees, provide employees a free one-way ride to polls for the 2020 election, announced efforts to link executive compensation to diversity, equity, and inclusion goals starting in 2021 fiscal year.
If you want to reduce your employee turnover rates, it’s going to take effort, outside-the-box thinking, and a deep passion for creating the best experience you can for your people.
How to reduce turnover rate
1. First, identify your turnover rate.
If you haven’t calculated this yet, this is your first step, as setting goals around turnover requires baseline data.
To calculate your turnover rate, take the number of separations over the previous 12 months and divide it by the average number of employees over the same period of time. Take that number times 100 to get the percentage rate.
Number of people who left the company in the last 12 months / average number of workers employed in the last 12 month
x 100 = turnover rate
For example, if you had 40 employees leave the organization between January and December of 2020 and 50 employees on average during that same time period, your turnover would be 80%.
Some organizations exclude certain terminations from the ratio, like those related to the death or disability of employees.
If you want to determine your annual costs associated with turnover, use our Restaurant Industry Turnover Cost Calculator.
2. Secondly, track the reasons employees leave your organization.
You'll likely see a mix, so start by focusing on either 1) the reasons your highest performers left or 2) the reasons cited by the greatest number of employees.
Getting an idea of what prompts people to lead your organization will give you insight into what areas might need to be addressed immediately to stop the organizational bleeding.
3. Third, invest in solutions to address employee grievances.
Based on your exit surveys' answers above, you’ll gain ideas as to what needs to be done now to reduce future employee turnover.
And below are some of the most common answers you’ll find and what you can do to address them. Think of these as the basic needs for your business, similar to the basic survival needs of water, shelter, and safety.
- Management: refine your process for promotion to ensure those who have the character traits needed for management are promoted to management positions; invest in ongoing training and education for your managers; give employees clear guidance for approaching concerns, resolving differences, and reporting grievances.
- Onboarding: create a great experience from the moment a candidate applies for a job to the day they walk in, and all the way until their final day. You can ensure people understand what behaviors are acceptable and encouraged by creating a mission, values (see sweetgreen’s here), or even a fun employee handbook.
- Lack of growth: ask every employee during their review and one-on-one meetings where they see themselves in one year and three years; provide direct feedback to help them grow the skills they need to be there; provide employees with opportunities to cross-train, learn new skills, and function in lead roles whenever feasible; promote from within; offer educational assistance.
- Schedule: offer flexible scheduling to the extent possible; allow job-sharing; offer full-time, part-time, and as-needed schedules to encompass the needs of all employees; offer sick leave to help cover unexpected time away due to illness.
- Pay and benefits: review your wage scales in comparison to market data and make adjustments to ensure all wages are at or above market; consider offering an employee perk stipend that employees can use for the benefits that are most meaningful for them (this can be especially helpful when you have such a range of ages and family statuses like that in the hospitality industry)
4. Lastly, identify unique ways your organization can stand-out from other employers and create a great employee experience.
Once you’ve addressed your people's largest concerns and have put systems in place to address those, it’s time to stop playing defense and go on the offense.
This means identifying what you stand for and cultivating a culture that represents this. As mentioned above, Starbucks walks the walk when it comes to creating a culture where employees want to work, are happy to identify themselves with, and proactively invests in programs to support and reinforce the behaviors they want their peoples to engage in.
Offense-related tactics not only create a remarkable experience for your employees, your clients but can also garner you a lot of additional press for being courageous enough to think outside the box and go for it. And this press not only brings more clients but also makes recruiting new employees even easier.
A few ideas include:
- Giving employees more decision-making autonomy. This empowers your people to make positive things possible for your customers without needing a manager to approve every decision. B.good does this by creating a process for staff to reward loyal customers with surprise freebies once in a while.
- Give your employees perk stipends. With stipends, a little money goes a long way to support employees and their whole lives. You can determine which categories of spending are allowed, from professional development to health & wellness, family, travel, and more. Once you select the categories of spending, invite your people to spend their money on what they need most from Ubers to and from work, diapers for their child, books, food, and more.
- Build a “Family Fund.” Sweetgreen built a Family Fund where corporate employees can choose to donate a portion of their paychecks to a pool that gives more than 3,000 restaurant workers at Sweetgreen access to emergency funds.
- Offering educational support. Ben & Jerry's offers their people Core Academy a series of free online courses covering topics like social equity, emotional intelligence, and activism.
If you need more ideas, a great place to look for inspiration is organizations in different sectors (like tech) that do a remarkable job creating a great employee experience.
Conclusion
With fewer than 50 employees on average, restaurants need to ensure they invest in the right ways to maintain their workforce (these investments go further than wages alone).
Compt can help you develop a competitive perk stipend that reinforces your employees’ sense of being valued and allows them to balance their personal and professional lives. Schedule a call with us today to get started.