Client Situation
A Fortune-200 multi-brand food services operator was anticipating substantial wage pressures from an increase in minimum wage and a build-up of competitive pressures on the labor market. Preliminary analysis had indicated a first order impact of 260 bps to 960 bps reduction in EBITDA across brands. The leadership team sought to understand at a granular level the potential impact of wage increases on store-level revenue and profitability. Furthermore, they were seeking input on potential strategies to mitigate any negative impact and maximize growth and profitability.
3HA Approach
To model the impact at a granular level, we identified the key questions to be answered across direct and indirect labor costs, revenue impact from mitigation actions taken, and macroeconomic and out-of-control factors. The following work modules were completed to address these questions and finalize recommendations for mitigation actions.
Findings & Outcomes
Our work concluded that while labor cost increases either due to market forces or minimum wage increases would be significant, multiple levers existed to fully mitigate the impact on restaurant profitability. This allowed the client to communicate this to internal teams, franchisees and create a task force to finalize mitigation actions to account for near-term market driven wage pressures and kickoff complexity reduction initiatives across store operations & menu simplification.