Controlling Labor Costs in Restaurant Management: A Review of the Internal-Marketing Concept as a Method for Enhancing Operating Efficiency

Restaurants experience many challenges, including economic uncertainty, competition, demographic shifts in target markets, changes in employee work habits, and such financial considerations as maintaining adequate cash flow. Controlling costs in the restaurant business is essential to the success or failure of the establishment. In the hospitality industry, labor costs are very high; in fact, they amount to approximately 45% of operating costs. The goal of this review is to promote further research into identifying the specific criteria that govern the relationship between the use of labor resources and the goal of operating efficiency, mainly with a focus on internal marketing as a means by which to control labor costs. This study lays out the relevant literature for understanding sources of labor costs, particularly as they relate to the potential of internal marketing as a source of efficiency. It then appropriately offers recommendations for controlling labor costs in terms of the cost of labor itself (i.e., human-resource management practices), those costs associated with disruptions in the service flow and sources of error or lack of motivation in service delivery (internal marketing), and costs that occur due to gaps between employee preparation and espoused strategy. It concludes with a discussion of implications.