The restaurant industry is constantly evolving, and one of the most important trends in recent years has been the focus on efficiency. In today’s competitive marketplace, restaurants must find ways to operate more efficiently to stay profitable.

There are many ways that restaurants can improve their efficiency.

Here are some effective strategies:

Streamline Operations: Analyze the restaurant’s workflow and identify areas where bottlenecks occur. Optimize processes to eliminate unnecessary steps, reduce wait times, and enhance overall efficiency.  This may involve rearranging the layout, reorganizing workstations, or revising staff responsibilities.

Optimize the Menu: Optimizing the menu plays a crucial role in improving operational efficiency, reducing costs, enhancing staff expertise, and delivering a better dining experience.  By focusing on a concise and well-optimized menu reduces complexity in the kitchen and streamlines operations.  It allows chefs and kitchen staff to focus on a smaller selection of dishes, resulting in faster preparation times, smoother execution, and improved overall efficiency.

Use technology to your advantage:  Leverage technology solutions to automate tasks and streamline operations.  Implement a point-of-sale (POS) system that integrates with inventory management, reservations systems, and kitchen display systems.  This integration can enhance order accuracy, speed up service, and improve inventory control.

Improved Communication: A key component of improving efficiency is to enhance communication channels between front-of-house and back-of-house staff. Use technology solutions like kitchen display systems or communication apps to relay orders and information accurately and quickly.  This minimizes miscommunication and improves overall efficiency.

Manage Inventory: Utilize inventory management software to track ingredient usage, monitor stock levels, and automate reordering processes.  This helps prevent wastage, eliminates stockouts, and ensures that popular items are always available.

Training & Cross-Training Staff: Invest in a comprehensive training program for your staff to enhance their skills and improve productivity. Cross-train employees to perform multiple roles, enabling smoother operations during peak hours or in case of absences.

Online Ordering and Delivery: Offer online ordering capabilities through your website or mobile apps.  Partner with popular food delivery platforms to reach a wider customer base.  Efficiently manage delivery logistics by utilizing route optimization software, GPS tracking, and real-time order status updates.

Data Analytics: Implement a data analytics system to collect and analyze customer data, sales trends, and operational metrics.  This can provide insights into customer preferences, optimize menu offerings, and identify areas for cost reduction or revenue growth.

 

Mobile Payments & Tableside Ordering:  Implement mobile payment options to speed up the payment process and enhance customer satisfaction, introduce tableside ordering systems that enable servers to take orders directly at the table, reducing errors and improving turnaround time.

Energy & Resource Management:  Invest in energy-efficient equipment and implement sustainable practices such as recycling and reducing food waste.  Efficiently manage utilities like electricity, water, and gas to minimize costs and environmental impact.

Create a Positive Work Environment: A supportive and positive work environment can boost employee morale and productivity. By creating a positive work environment, restaurants can attract and retain top talent.

Continuous Improvement:  Encourage a culture of continuous improvement by regularly seeking feedback from customers and employees.  Actively address areas for improvement and implement innovative ideas that enhance efficiency and customer experience.

Ask for Help: If you need help to improve your restaurant’s efficiency, plenty of resources are available to help you. Talk to other restaurant owners, or contact Synergy Restaurant Consultants, proven industry experts for over 30 years, to help guide you towards success.

By implementing these strategies, restaurants can enhance their operational efficiency, provide better customer experiences, and ultimately achieve higher profitability and long-term success.

The cost of food waste for the U.S. restaurant industry is a staggering $162 billion annually. Reducing waste in a restaurant is an important step towards cutting costs and minimizing environmental impact through wasted resources and energy that goes into food production. Here are some ways that restaurants can reduce their waste:

 

1. Implement a food waste reduction program: A food waste reduction program involves tracking and analyzing food waste to identify areas where waste can be reduced. This program can help restaurants identify where to reduce waste and develop strategies to minimize it. It can also save the restaurant money by reducing food costs.

 

2. Use sustainable packaging: Think about all those single-use plastic items used in restaurants for both the consumers and for food prep—forks, knives, spoons, lids, containers, and straws. Switching to eco-friendly packaging options such as biodegradable or compostable products can reduce the amount of waste generated by the restaurant. Reusable containers for takeout and delivery orders can also help reduce waste.

 

3. Compost food waste: Composting food waste can divert it from landfills and turn it into nutrient-rich soil for gardens and farms. Many municipalities offer composting services, or restaurants can start their own  If you’re in North America, here is a handy resource for finding a composting facility near you: findacomposter.com

4. Use energy-efficient equipment: Energy-efficient equipment can reduce the amount of energy used in the restaurant, which can help lower operating costs and reduce the restaurant’s carbon footprint.

 

5. Donate excess food: Donating excess food to local food banks or charities can help reduce food waste and provide food to those in need. You may even be eligible for tax credits under the Bill Emerson Good Samaritan Food Donation Act.

 

Keeping food waste to a minimum will reduce your carbon footprint and cut costs. It’s a win-win! Read more ways to increase your sustainability.

 

 

Sources:

ChatGPT from openai.com

https://foodprint.org/blog/restaurants-food-waste/

Across the country, Mother’s Day is a time-honored tradition to celebrate that special woman who makes a big difference in our lives. Each year, mothers and their loved ones classically flock to the brunch spots around their area to spend a day celebrating them. This holiday lends a hand easily to restaurants because all mothers want time, space, good food, and a chance to relax. As a restaurant owner, Mother’s Day is an excellent opportunity to get creative and make the day memorable for customers, and super profitable for your business.

 

If it’s specialty foods a family is looking for, try setting a unique pre-fixe menu. Signature foods that your restaurant excels at, wine pairings, and specialty desserts are a great way to go, says Restaurant News. Having a set menu gives customers a way to try out different foods they may not otherwise order, and it gives you a manageable way to serve a fixed list of dishes when the crowds rush in.

 

It’s no myth that restaurants compete on Mother’s Day to drive in traffic. To help entice customers, make your prices fair. You’ll want mothers and their families in your place on Mother’s Day, of course, but long-term thinking is a good tactic, too. You are creating a dining experience that is tasty yet affordable, so they’ll come back to try more.

 

One way to get a mom’s attention is to accommodate her children. It’s the reason we’re celebrating her in the first place! Help moms feel comfortable bringing their small children to your restaurant by setting up kids’ menus, and a small entertainment spot to play while the adults order and chat. Making your customers, all of them, feel welcome will drive business on Mother’s Day and long after, says Restaurant News. ToastTab even suggests giving moms a special discount in exchange for an embarrassing photo or story of their beloved children.

 

Let’s talk about entertainment. While the food is excellent, the prices are fantastic, and the kids are cared for, why not add a little music? Bars and restaurants could attract families by offering live music to their dining experience. If you are a bar owner looking to attract families without children, the answer might be with live music, too, says ToastTab.

 

 

Thinking outside the box this year could be your ticket to gaining new customers, says Buzztime, who suggests that making Mother’s Day a two-day event might do the trick. Offer a drink and food menu the night before, maybe calling it “Mother’s Day Eve.” According to the article, moms will enjoy the extra celebration and the chance to spend a night out. Add a “moms only” drink special, a DJ, or even a mom comedian to make it extra entertaining.

 

Whatever route you take this Mother’s Day at your restaurant, the point is to make moms feel special. Fantastic food, great drinks, fun entertainment, and the feeling of your place as a treat will not only help you on the day but also give families a ton of memories to return to.

Long lines, cut hours, overworked staff, some frustrated customers, and the sense that things can’t run as smoothly as pre-pandemic times are what the restaurant industry has been facing for the past few years. Since the lockdown, restaurants and hospitality services have been scrambling (and getting quite creative) to develop solutions for staff shortages. It may take some work; however, after years of disappearing staff, restaurants may find a little relief this year and in the future.

 

February Jobs Report

According to the Bureau of Labor Statistics, the restaurant industry gained 70,000 employees in February alone, and the predictions are looking sunny, says Restaurant Dive. The employment rate for the food and drink industry is 2.4% below pre-pandemic times, which is even lower than the month before, at 3%, says Nation’s Restaurant News. Although food and drink service employment remains slow-moving, it’s “moving in the right direction,” says the article.

Restaurant Staffing: Still a Challenge

Staffing is still a challenge, reports Nation’s Restaurant News, with 89% of owners saying recruitment and retention is a significant issue, with 62% saying they can’t meet demands with their current number of staff members. Since 2020, an estimated 2.5 million people have died or retired, says the Washington Post, setting off a domino effect for the food industry. Low-wage workers had the opportunity to move into higher-paying and more “professional” positions. The jobs that remained empty, and still are, are the less desirable, low-paying ones. According to the Post, many previous restaurant employees have not returned or have found “better” jobs. They may pay less initially, but the benefits, flexibility, and stability may be better than currently booming jobs like finance, construction, transportation, and warehousing. Labor economists say that the downshift in employment in the service industry has altered the US work market so much, it may shape the industry long term, reported the Post.

In addition to finding good employees this year and moving forward, is the cost of labor. Although nearly all restaurant operators plan on hiring more employees, many think it will be a challenging to balance their expenses. With each year surpassing the last in terms of costs, restaurants’ annual sales have been and will be affected. A specific concern is a weakness in inflation-adjusted sales, says Restaurant Dive. The cost of food and increased menu prices are predicted to drive sales growth in 2023, with food and drink sales minimally surpassing pre-pandemic levels because of inflation. With food and labor costs, restaurants’ bottom lines are continuously evaluated.

In the world of new norms, our restaurant experience has changed quite a bit for owners, operators, staff, and customers alike. After the reflective time during lockdown, the values, pay, flexibility, and work quality demanded by employees have taken shape. They are now beginning to shift the way our job market functions. Although predictions look optimistic, albeit slow-moving, the restaurant industry is still playing catch-up or changing the game to move along with the trends.

Related Posts:

You may be interested in our article; It’s Not Only About Hiring…It’s About Retaining Employees

 

 

If you’ve gone out to eat recently, you’ve probably noticed it: paper straws, condiments only upon request, no coffee cup lids, and lots of other subtle changes while you’re dining. Slowly but surely, restaurants have been getting more eco-conscious over the years. State after state is jumping aboard the no-plastic train, reducing or eliminating single-use plastics in restaurants.

 

States with Single-Use Plastic Bans

 

According to the National Conference of State Legislators, eight states have laws eliminating single-use plastics, including California, Connecticut, Delaware, Hawaii, Maine, New York, Oregon, and Vermont. Some states even charge a fee for tax for the use of plastic bags.

In February of this year, New York Mayor, Eric Adams, signed the Intro 559-A, or the “skip the stuff” bill. The bill aims to limit the use of single-plastic items from restaurants by making them available only through a request from customers, says Waste Dive. Instead of automatically including paper napkins, plastic cutlery, and condiments for takeout or delivery, restaurants will help the environment while also helping their bottom line, says the article. The bill was passed in an effort not only to curb the waste in current landfills but for “future generations to come,” said Adams.

The bans don’t stop in New York. Effective May first of this year, the use of all food-service containers, cups, dishes, and cutlery from restaurants in Los Angeles County must be recyclable or compostable, says Spectrum News. The ordinance also includes using “multi-service” utensils and plates in full-service restaurants. The article says the ban will take effect for food trucks next year for farmer’s markets, catering companies, and temporary food facilities in November of next year.

 

Plastic Ban in Los Angeles

 

Los Angeles also has a ban on the sale and distribution of Styrofoam products starting in April of this year, reports Los Angeles Daily News. Styrofoam is not biodegradable or massively recyclable, and the main ingredient of Styrofoam, styrene, has also been classified as a possible human carcinogen, says the article. The ban applies to businesses with over 26 employees in 2023 but will apply to smaller businesses in 2024. This latest act is in response to a world drowning in plastic, said Council President Paul Krekorian, and includes an ordinance of zero waste policy at events and city facilities, says the article.

According to  Local News Matters, Cupertino, California, will also follow in Los Angeles’ footsteps, banning single-use plastics and replaced with fiber-based takeout items made of organic material. The article further shares that compostable takeout containers are included in the ban because the city’s organic waste program does not accept them. The ban took place in September of last year.

These types of laws are helping make our planet greener, and restaurants can have a direct hand in it. Whether you’ve gotten used to paper straws, compostable containers, or limited condiments, a more sustainable dining experience is here to stay and will keep growing. Viability and environmental consciousness are the way of the future for restaurants in America and, hopefully, businesses across the globe.

While the concept of a four-day workweek has been gaining popularity in recent years, its adoption in the restaurant industry has been relatively limited.

One reason for this is the nature of the restaurant business, which often requires employees to work long hours on weekends and holidays to accommodate customer demand. The demanding schedule makes implementing a consistent four-day workweek schedule challenging without compromising operational efficiency.

However, some restaurants have successfully implemented a four-day workweek or experimented with reduced hours. For instance, some restaurants have shifted to shorter work shifts or staggered schedules to give employees more time off without disrupting operations.

In addition, some restaurant chains have piloted four-day workweeks for their corporate office staff or implemented flexible schedules and remote work options. While these initiatives may not directly affect restaurant employees, they demonstrate a willingness to explore alternative work arrangements and may pave the way for more widespread adoption in the future.

 

Here are some of the potential benefits and challenges to consider if exploring the idea of a four-day workweek:

Benefits:

1. Improved work-life balance: Working fewer days per week could allow employees more time for personal activities, such as spending time with family and friends or pursuing hobbies.
2. Increased job satisfaction: A four-day workweek could lead to greater job satisfaction among employees, who may feel less stressed and more fulfilled by their work.
3. Better recruitment and retention: Offering a four-day workweek could make restaurant jobs more attractive to potential employees and improve retention rates among current staff.
4. Reduced labor costs: Implementing a four-day workweek could potentially reduce labor costs for restaurants by cutting down on overtime pay and reducing the need for additional staff.

Challenges:

1. Operational challenges: Restaurants may face operational challenges in implementing a four-day workweek, such as scheduling and staffing issues. They may need to adjust their staffing models to ensure enough employees work each day to meet demand.
2. Customer demand: Restaurants may also need to consider how a four-day workweek could impact customer demand. They may need to adjust their operating hours or other business aspects to accommodate the new schedule.
3. Financial considerations: Restaurants may need to consider the economic impact of a four-day workweek, including the cost of hiring additional staff to cover the extra day off.
4. Reduced productivity: There is some concern that a shorter workweek could lead to reduced productivity among employees, as they may need to adjust to a new schedule and work longer hours on their working days.

 

While four-day workweeks are yet to be commonplace in the restaurant industry, they are being explored and implemented by some forward-thinking restaurants and chains. As more business experiment with alternative work arrangements and prioritize work-life balance, it’s possible that we may see more widespread adoption of four-day workweeks in the restaurant industry in the coming years.

A good manager has the skills and knowledge to streamline operations, manage employees, and increase profits. Restaurant owners must have strategies to attract and retain top managers, and here are a few best practices to ensure your top managers stay engaged and motivated.

 

Offer Competitive Pay & Benefits

Compensation is a significant factor in attracting and retaining great managers for your restaurant. Offering competitive pay rates help attract talented people and shows current staff members that their efforts are valued and appreciated.

In addition, offering benefits such as vacation time, health insurance, and flexible work hours can help keep your team motivated over the long term.

Read our article, How to Develop A Restaurant Management Bonus Program and Keep Your Great Managers.

 

Encourage Professional Growth & Development

One of the best ways to engage your top managers is by investing in their professional growth and development. This investment could include allowing them to attend conferences or workshops related to their field or providing training opportunities within your establishment–like classes on customer service and cooking techniques.

 

Investing in employee development shows that you value their growth and the future of your business.

 

Devise a plan that uses your team’s skills, and be a good coach by asking more questions than giving instructions. Being a good coach to your management staff will help you track the number of wins your team enjoys rather than measuring the number of problems you may identify.

 

Encourage Teamwork

A positive team dynamic is essential for keeping great restaurant managers around in the long run. Encourage collaboration between staff members by having regular team meetings where everyone can contribute ideas and feedback on improving the organization.

Show appreciation for each individual’s contributions by recognizing their efforts through awards or thank-you notes. Your added effort will foster an environment where everyone feels comfortable working towards common goals, making it more likely that your top talent will stay with you for the long haul.

 

Create a Positive Work Environment

Your restaurant must have a positive work environment where employees feel respected, supported, and appreciated for their hard work. Make sure that management treats all employees with respect regardless of role or experience level; this will help foster an environment of trust throughout the organization, which is crucial for keeping great managers on board for years to come.

These are just a few best practices for retaining top restaurant managers. Owners have countless other strategies that they can use depending on the size of their organization and its specific needs.

No matter what strategy you choose, focus on creating an environment where employees feel valued and appreciated for their contributions—this will go a long way toward keeping great talent around!

Taking these steps now will help ensure that you continue to get the most out of every employee while also positioning yourself as an employer of choice in the industry.

 

Eggs are an everyday staple in most fridges across America. They’re the perfect protein, the food you grab before a storm, and the inexpensive go-to. Easy, tasty, and cheap, eggs have it all, but recently, they haven’t had the same price range consumers and restaurants are hoping for. Not so inexpensive right now, eggs are soaring to almost $7.50 a dozen in certain states, says the Washington Post, and experts aren’t sure when it will come down.

 

Prices have been stubbornly rising since the avian flu outbreak in 2015, and have continued to rise because of supply chain problems due to COVID, says the article. America has lost over 10 million egg-laying hens because of the latest flu outbreak. In total, the flu has “wiped out more than 44 million egg-laying hens…roughly 4 or 5 percent of production,” says the Agriculture Department. The detrimental loss of the chicken flock has put pressure on both restaurants and consumers.

How Are Restaurants Responding to the Increase in Egg Prices?

 

Restaurants across America are still trying to regain their footing after COVID and inflation, and egg prices certainly aren’t helping. Although the price difference is concerning, restaurant owners are forced to get creative, says the Washington Post. There are no avoiding eggs on the menu, but the menu can pivot, like “doubling down” on less expensive options for eggs like pancakes. Some restaurants have had to forward the cost to customers, says WFSB, reworking the menu prices because of the increased costs of keeping pace with their production costs. According to CNN, some restaurants have decided to eat the cost themselves instead of passing it on to the customer, A mom-and-pop lunch spot in Rhode Island, which relies heavily on eggs for its menu, wants to hold the line and keep the customer happy, even if it means harder times for the restaurant, in the hopes that prices will go down soon.

 

Another option for restaurants is switching out eggs for a similar product, said a restaurant owner to USN News. With two restaurants and two bakeries in Arkansas, eggs are a must-have, but switching to a frozen and cheaper alternative egg product has helped with some of the products. For fresh meals, however, eggs are still unavoidable.

 

Although it seems “hang tight” might be the phrase for 2023 egg prices, the silver lining here is that farmers have learned from their practices in the past regarding flu outbreaks in their egg-laying communities, says the Washington Post. The 2015 outbreak caught farmers off guard, but they were more prepared (even though it was worse) for the 2022 outbreak with practices that keep their chicken flocks safer and less contaminated. Recovery is becoming quicker and quicker, said the article.

 

High egg prices will remain for a little longer (estimated 4 to 6 months), says The Dallas Morning News; however, they could decrease later in the year should there be no more intense outbreaks and farmers can replenish their flocks. According to the article, eggs are still a relatively inexpensive meal, and we shouldn’t give up hope that our staple is fading away.

The start of the year heralds changes to many minimum wage rates across the country.  As such, those of us in the restaurant industry perk up any time a state mentions any sort of minimum wage hike…or change to its state tipped minimum.  But, first, what is the tipped minimum wage?

The tipped minimum wage is the lower hourly wage rate that employers are permitted to pay to workers who receive tips, like restaurant servers and bartenders.  According to the U.S. Department of Labor, tipped workers include all workers who customarily and regularly receive more than $30 a month in tip earnings.

[For those readers already familiar with the ins and outs of the minimum wage in restaurants and just want the 2023 updates – feel free to skip ahead to the section “The Tipped Minimum Wage in 2023”]

If you’re a restaurant owner or manager, communicating the expectations of your workers’ employment to them is crucial.  This means knowing the minimum wage on your state and federal level – while keeping up to date on any minimum wage increase that would affect your restaurant and employees.  One of the most effective ways to communicate payroll and employment expectations is an Employee Handbook.  You can download a free template of one below.

The Federal Minimum Wage

In the US, the federal tipped minimum wage is currently $2.13 per hour, though some states have higher rates.  So, how does the federal government insure that tipped employees throughout the country don’t receive a subminimum wage?

Well, they require the employer (a la restaurant owner) of a tipped worker to make up the difference in pay if the workers’ tips combined with the federal tipped minimum are less than the federal minimum wage.  Currently the federal minimum wage if $7.25 per hour.  As tipped workers receive most of their tips in cash, employers must declare a portion of these tips to the federal government through their payroll.  This system of tipped workers getting paid a cash wage that is lower than the minimum wage is also referred to as a tip credit.

The tip credit varies state by state, so let’s take a closer look at the differences among the them with respect to the required pay for tipped employees.

 

State Minimum Wage

Looking at the relationship between wages and tips within states, let’s begin with those states that do not allow a tip credit.  As of 2023 – Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington do not allow a tip credit.  This means that – in each state mentioned above – all businesses must pay their employees (whether or not they’re tipped employees) the state minimum wage.

For states that allow the tip credit system, each state must set its own maximum tip credit – which combines with its minimum cash wage (or state tipped minimum) to make up the basic combines minimum wage in that state.  While some states (like Alabama, Kentucky, Louisiana, etc.) follow the federal government with a $2.13 tipped minimum and a $5.12 maximum tip credit, most other states set their own tipped minimum and maximum tip credit.  Some states with the highest combined tipped minimum and and tip credit include New York, Washington D.C. and Massachusetts.

However, many changes to state minimum wages and tipped minimum took effect to start 2023 and more are coming later this year.  Let’s explore these changes in wages.

 

The Tipped Minimum Wage in 2023

Starting on January 1, 2023 – each state listed below has increased its state minimum wage – which is the first pay rate listed.  For those states that have enacted growth to their tipped minimum, that new pay rate is listed in the second position.  The following data on minimum wage and tipped minimum increases come from CNN and NPR

• Alaska* – $10.85
• Arizona –  $13.85 | $10.85
• California* – $15.15
• Colorado –  $13.85 | $10.63
• Delaware –  $11.75
• Washington D.C. – $16.10 | $6.00
• Illinois – $13.00 | $7.80
• Maine – $13.80 | $6.90
• Maryland – $13.25
• Massachusetts – $15.00 | $6.75
• Michigan – $10.10 | $3.84
• Minnesota* – $10.59
• Missouri – $12.00 | $6.00
• Montana* – $9.95
• Nebraska – $10.50
• New Jersey – $14.13 | $5.26
• New Mexico – $12.00 | $3.00
• New York – $14.20 | $9.45
• Ohio – $10.10 | $5.05
• Rhode Island – $13.00
• South Dakota – $10.80 | $5.40
• Virginia – $12.00
• Washington* – $15.74
• Ohio – $10.10 | $5.05

Coming Later in 2023:

• Connecticut – $15.00
• Florida – $12.00
• Nevada* – $11.25
• Oregon* – $13.50

* = state does not allow tipped minimum

Frequently Asked Questions: Tip, Tipped Minimum & Wages Edition

What is the lowest tipped minimum wage?

The lowest tipped minimum rate is $2.13 per hour – which is the floor that the federal government has set for all states.

What do servers and restaurant workers think of the tip credit?

Tipped employees – like servers and bartenders – have expressed both positive and negative sentiments about the tip credit.  In a survey conducted by Professors Bagdan and Warrener from Johnson & Wales University, 89 percent of their respondents wanted to keep working for tips. One reason given by these respondents is that they worry when customers learn servers are receiving the general minimum wage customers, they will either stop tipping or greatly decrease the amount of cash tips they leave.

Opponents of tip culture in restaurants cite its possible propagation of inequality, racial discrimination and sexual harassment.  They also argue that workers paid within the tipped system receive lower and more unreliable pay, on average compared to their minimum wage counterparts.

What do restaurant owners and managers think of the tip credit?

Again you’ll find owners on both sides of the tip debate.  However, it research seems to show that managers are in favor of the tip credit.  Going back to a survey conducted by Bagdan and Warrener, 72 percent of managers were not in favor of eliminating the tipped wage.  So, why are owners and managers mostly in favor of tipped wages?

The primary reason is labor cost.  Labor costs are already between 25-35 percent of sales for most restaurants.  Owners argue that increases in minimum wages and tipped minimums will further cut into their razor-thin margins.

Other owners and proponents of the tip credit cite the effect eliminating the tips from restaurant pay will have on the guest experience.  In a study by Michael Lynn and Zachary Brewster, they found “(i) restaurants receive lower online customer ratings when they eliminate tipping, (ii) online customer ratings decline more when tipping is replaced with service-charges than when it is replaced with service-inclusive-pricing, and (iii) less expensive restaurants experience greater declines in online customer ratings when replacing tipping with either alternative than do more expensive restaurants.”

What is the history of tipping, the tip credit and tipped minimum?

The origins of the tipping are debated.  Some go back to Roman times to find its European source.  Others attribute the birth of tipping to Tudor England around the 16th century. For the U.S., tipping was imported from Europe around the time of the Civil War – primarily among aristocratic circles.  Tips became more widespread during Prohibition when sales were down for restaurants.  By the 1960s, tips became a formalized aspect of American culture.

In terms of the tip credit and tipped minimum, the IRS became involved in 1965 when employers were required to withhold Federal Insurance Contributions Act (FICA) tax on tips from employees’ pay.  In 1982, federal law required employees to report at least 8% of gross sales as tips.  The FICA tip credit was officially enacted in 1993.  This was the federal establishment of the tip credit.  At the same time, the federal government rolled out the Tip Rate Determination/Education Program (TRDEP) – encouraging employees to report the correct amount of tip income to their employer.

To learn more about recent developments in tip culture, check out our blog on the subject.

Cloud kitchens (sometimes called ghost kitchens or virtual kitchens) have exploded onto the restaurant scene in the past few years – primarily in response to the growing demand for online food ordering and delivery.  But what exactly is a cloud kitchen?

A cloud kitchen is a kitchen that only prepares food for delivery, rather than in-person dining.  The locations of these kitchens are usually in high-traffic areas.  In these locations, you’ll find kitchens with the necessary equipment, facilities, food products, and technology for food prep and packaging. A cloud kitchen depends on online delivery platforms (GrubHub, Uber Eats, DoorDash, etc.) to reach consumers.

Now that we have a basic understanding of the cloud kitchen, let’s explore its origins.

 

History of the Cloud Kitchen Model

Some argue that the food truck gave birth to the cloud kitchen – metaphorically speaking, of course.  As cloud-based technology and applications developed, food truck business boomed – spawning further entrepreneurial excitement in technology-driven food service models.

Interestingly enough, venture capitalists have historically avoided traditional dine-in restaurants – primarily due to the thin margins and high capital costs associated with them.  But this is rapidly changing as cloud kitchens operate on the data-driven, cloud-based approach that venture capitalists flock to.

Cloud kitchens are not without their controversy, though.  Thus, it’s important to look at both the potential upsides and downsides of them for restaurants, consumers and communities.

 

Cloud Kitchen Benefits

So, let’s start from the point-of-view of entrepreneurs, business owners, and investors.  Why would you to start a cloud kitchen?

For starters, the cost savings (compared to dine-in restaurants) are massive.  Cloud kitchens don’t have to worry about finding the perfect, high visibility, and high-foot-traffic location (with great parking and ample space for seating).  As long as food delivery drivers can get to it with relative ease, a cloud kitchen can set up shop wherever the rent is lowest.

In addition to rent savings, cloud kitchen restaurants enjoy lower overhead costs in other areas – including signage, decor, furniture, and dinnerware.  Plus, the labor costs of a cloud kitchen are significantly lower than a traditional restaurant.  Cloud kitchens do not have to worry about front-of-house staff, and they can be more flexible with their staffing – filling kitchen roles as needed without worrying about the extensive training and ever-stringent labor laws associated with dine-in restaurants.  All these savings give a cloud kitchen better margins than a traditional restaurant.

Another advantage these kitchens have is greater efficiency and productivity. Cloud kitchens are specifically designed and optimized for food delivery – meaning they can streamline their processes to focus solely on making high-quality food in big batches for rapid distribution. These more efficient processes helps these kitchens lower their food cost, reduce food waste and boost their profitability.

Cloud kitchens also benefit from reaching a wider customer base through the established online delivery platforms. Apps like Uber Eats, Grubhub, and DoorDash already have millions of people that regularly use their apps.  Not only does this allow kitchens to offer food delivery without the need for their own delivery staff, but it also puts their brand in front of the huge user bases of these apps.  Talk about a marketing dream –  especially for smaller restaurants that may not have the budget for marketing of this size.

Cloud kitchens also offer restaurants the opportunity to experiment with new concepts and menu items without the risk and costs that come with opening a traditional brick-and-mortar restaurant. This gives restaurants the opportunity to gather valuable data and feedback on their food and beverage items, so that they can make better informed decisions about expanding their business.

Challenges Facing Cloud Kitchens

So, we’ve explored the upsides of cloud kitchens.  Now what are the downsides?

First, as a food service business, they will face competition with dine-in restaurants. Many customers still relish the in-person experience of dining out, especially when it comes to celebrating special occasion. Plus, a great number of people are hesitant to order from a kitchen that they cannot physically visit. Thus, it can make it more difficult for a cloud kitchen to establish a strong brand identity and connection with a loyal customer base.

To capitalize on this point, restaurants have the distinct advantage of delivering unforgettable hospitality – which spurs the ever-powerful word-of-mouth.  And traditional restaurants have the opportunity to attract visitors and tourists simply walking by.  Cloud kitchens, on the other hand, only have their food quality and pricing as differentiating factors.  Even then, the food quality and speed of delivery of these kitchens is heavily dependent on the 3rd-pary delivery platforms (provided these kitchens don’t have their own delivery apps).

With a great focus on rapid delivery comes a greater risk of corners being cut in cloud kitchens.  Surely, most kitchens have strict quality control measures in place.  However, as speed of service remains a competitive selling point, some kitchens may be tempted to shave off time in the preparation and handling of food at the expense of safety.  This could then result in outbreaks of food borne illness and devastating damage to a restaurant’s reputation.

Another challenge for cloud kitchens is their dependence on 3rd-party food delivery platforms. While these apps can provide great exposure and convenience for restaurants and customers, they also take a significant cut of the profits.  Plus, the competition among brands on the delivery apps themselves is fierce – making it harder for restaurants and kitchens to differentiate themselves. In the last year or two, the rising dominant market shares of DoorDash and Uber Eats have raised concerns about the potential for monopolization among delivery apps – which could lower the bargaining power for restaurants and eat even more into their thin margins.

Finally, we should zoom out to the community-level and societal challenges facing cloud kitchens.  Protests among residents in Chicago against Cloud Kitchens sprung up throughout 2021.  These residents said that this virtual kitchen was hurting local business, causing traffic problems, and raising safety concerns.  Locals argued that cloud kitchens had no legal accountability – skirting the zoning, labor, and safety laws typically applied to restaurants and small businesses.  Cloud Kitchens and other virtual kitchens pushed back citing the relief their business were providing to small restaurant owners and food vendors.  Most recently, a report from the Insider has claimed that many operators are ending their relationships with the company CloudKitchens and other virtual kitchens- citing sanitary and safety concerns (notably a lack of working sinks and bathrooms in some locations).

 

Cloud vs. Ghost Kitchen Business Models

In the ongoing conversation, you may have heard the terms ‘cloud kitchens’ and ‘ghost kitchens used interchangeably.  So, is there a difference between cloud kitchens and ghost kitchens? If so, what is it?

The answer to the first question is ‘yes.’  In response to the second question, the main difference between cloud kitchens and ghost kitchens is the ownership of the kitchen space.

In the cloud kitchen model, the kitchens are owned and operated by a third-party company which leases kitchen space to multiple food service business and restaurants. These kitchens are thus used on a pay-as-you-go basis, instead of restaurants having to invest in their own kitchen design, equipment and space.

In the ghost kitchen model, the kitchens are owned and operated by a single restaurant that uses it solely for the preparation of food for delivery. Although this model is more expensive for the restaurant, it provides greater control – which would mitigate the concerns of sanitation, safety, and quality control mentioned in the previous section. Thus if you want your restaurant to maintain its brand standards and systems, ghost kitchens would likely be a better alternative for you.

Ghost kitchens give restaurants the opportunity to establish a strong brand identity online. Since the kitchen is owned by the restaurant, it can be used to showcase the restaurant’s brand, test new menu items, and experiment with new technology to adjust to real-time customer demand. These kitchens are an especially fruitful option for established restaurants with a strong customer base who are looking to expand their reach through online delivery.

Ghost kitchens share some of the same challenges as cloud kitchens (no opportunity for foot traffic, dependence on 3rd-party food delivery platforms, etc.).

Another kitchen business model in this space is the virtual brand.  From our blog The Rise of Ghost Kitchens and Virtual Brands in the Restaurant Industry, “virtual brand is a delivery-only food concept sold exclusively online with no physical space for guests to interact with the brand. A single restaurant can have multiple virtual brands running out of their facility with all meals produced in their existing kitchen. This model allows operators an opportunity to lean in on food trends and leverage staff and facility capabilities to create a new branded experience that extends their audience reach beyond their core concept.”

 

The Future of the Food Delivery and Cloud Kitchen Business

Hopefully, you have a better understanding of cloud kitchens, ghost kitchens and the emerging business models of food delivery.  At this point you may be wondering, what does the future look like for these delivery-only kitchens?

Despite local concerns cited above, it appears this space is expected to grow significantly in the coming decade.  According to the Food Delivery App Report, the food delivery industry is expected to reach a $320 billion market size by 2029.  According to a 2022 UnivDatos Markets Insights Report, the global cloud kitchen market is expected to reach the market valuation of $112.5 billion by 2027 expanding at a compound annual growth rate (CAGR) of 15.1% during the forecast period (2021-2027).

 

The growth of these kitchens may be  due to an increase in the number of users on social media sites and the global rise of internet penetration.  Another factor driving the growth of the cloud kitchen business model is the increasing inability of small restaurant owners to pay rent.  According to Nation’s Restaurant News, 52% of small restaurant owners were delinquent on their rent in December 2022.  If the restaurant rent trend continues in this direction, many small business owners may wish to develop their brands in the shared spaces of a cloud kitchen.

Looking outside the U.S., China is the largest market for food delivery, boasting a cloud kitchen market size of $27.3 billion in 2021.  Given these projections, advances in cloud technology, the ever-growing demand for online orders and food delivery, it’s hard to these kitchens going away any time soon.