$15 minimum wage problem solved

Even before mid-July, when New York acted to mandate a $15-an-hour minimum fast food wage, restaurant brands and operators around the nation had been watching closely as politicians and lawmakers focused their gaze on wage minimums. Their biggest concern is that increases would lead to an even higher cost of labor as a percentage of sales. The only antidote to such exogenous increases in labor costs is embracing technology that enables restaurants to generate higher sales volumes and keep labor fixed as a percentage of sales.

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Why? The restaurant industry has been relatively slow to adopt technology and its labor productivity has suffered as a result. Average sales per restaurant employee lags behind nearly every other adjacent market: The average sales per full-time employee was $84,000 for restaurants, despite being $304,000 for grocery stores and a whopping $855,000 for gasoline service stations, according to the Bureau of Labor Statistics and 2013 U.S. Census Bureau data.

The National Restaurant Association's 2015 Restaurant Industry Forecast notes that labor productivity—defined as output per labor hour—was essentially flat during the last decade. In fact, BLS data show a slight decrease in restaurant industry productivity over the past 10 years; even while the total nonfarm business sector increased by 1.7 percent annually. Such stats are usually the lead in to a larger conversation about the use of technology in the restaurant industry as a tool to enhance productivity in the years to come.

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The restaurant industry can combat rising costs by unlocking digital channels that create benefit for both the customer and restaurant staff alike. Digital ordering—enabling restaurant guests to order and pay from their smartphones or other devices—is one tool through which restaurants can "maximize revenue per square foot"—a metric that restaurant operators and investors will speak of much more frequently as they aspire to create better efficiencies to stay competitive.

The key is managing real estate costs to improve profitability within the restaurant's existing footprint. One example of maximizing revenue per square foot relates to average ticket size. Digital orders are 25 percent higher on average than in-store or phone tickets due to features like upsell prompts and advanced order customization, with some brands seeing order size lifts of up to 75 percent. Brands utilizing digital ordering also see lifts in visit frequency and guest intelligence, as the brand's app helps marketers to better know their guests every time they order.

Digital ordering also allows restaurant operators to make the less productive tasks of order taking and payment tendering self-service, while shifting labor to the more important activities of order making and handoff to the guest. This proves to be beneficial to both guests and restaurants alike: a study from Cornell University discovered that of the top 300 U.S. restaurant brands with digital ordering deployed, "all of them indicated that online ordering has met or exceeded their expectations on ROI."* The Cornell researchers also said that "the top benefit of online ordering was a savings in labor, since employees are not tied up on the phone or at the counter."

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Without having to spend more on labor as a percentage of sales, restaurant operators can maintain the same or even higher profit margins that they enjoy today without resorting to layoffs—and improve the guest experience as well. The best way for restaurants to manage rising labor costs is to maximize labor productivity with a progressive mindset and a thoughtful shift to digital ordering.

Commentary by Noah Glass, founder and CEO of Olo, a digital ordering platform enabling more than 14 million restaurant customers to Skip the Line®. Follow him on Twitter @nhglass