Menu prices are going up, and we're just going to have to deal with it.
— Erika Adams
As the minimum wage increases across the U.S., restaurants are scrambling to try and adapt to the new normal.
TouchBistro, an iPad-based point-of-sale system that services the restaurant industry, commissioned a research report on the rising minimum wage in order to better understand the new challenges the industry was facing, especially among independent operators.
The report surveyed 100 restaurant owners and 100 restaurant workers in 18 states across the U.S. that logged a rise in the minimum wage in January 2018. The majority of the restaurants surveyed were full-service operations and employed no more than 25 people.
On the staff side, the majority of the workers surveyed were female and reported annual earnings of $45,000 or less. For most of the owners, labor costs hovered between 25 to 35 percent of overall operational costs.
When Labor Costs Go Up, Something’s Gotta Give
All of the owners surveyed are currently dealing with some sort of a rise in labor costs due to the increasing minimum wage. Seventy-three percent of the owners expect a labor cost increase this year of up to $25,000, while the rest expect increases above $25,000. Thirty-nine percent expect to see cost increases from $1,000 to $10,000, and of that group, the majority reported that their profits have not shrunk yet, they have not reduced staff, and they haven’t had to raise menu prices.
However, when looking at the total spread of 100 surveyed owners, 77 percent said that they have seen profits shrink in direct relation to the minimum wage hike. The restaurants hit hardest are located in California, which pays every worker (tipped and non-tipped) a state-mandated minimum wage of at least $10.50, and that will keep rising by $1 per year until it hits $15. (Some cities are on a quicker timeline, however. The minimum wage in San Francisco will rise to $15 on July 1.)
One Chick-fil-A franchisee in Sacramento is trying to get out ahead of the squeeze by raising his staff’s pay right now, from $12 to $13 per hour to $17 to $18 per hour.
If restaurant profits have shrunk, every one of the owners said that they have at least considered cutting staff in order to offset the losses, if they haven’t actually already done it. Eighty-eight percent have cut operating hours, and 83 percent have raised menu prices.
In Minneapolis, another city that has moved to start implementing a $15 minimum wage, restaurants are twisting in every which way to make up the money elsewhere. According to the Minneapolis Star Tribune, several restaurants instated service charges and then rolled them back due to customer confusion and backlash.
One longtime restaurateur in the area specifically designed his newest venture as counter-service in order to ensure that he was still turning a profit given the minimum wage increases in the city. He didn’t see a viable way to operate a fine-dining or table-service restaurant with the new law in place, because the labor costs would simply be too high.
On the staff side, 80 percent of those surveyed said that they haven’t seen their employers cut staff due to the minimum wage increase yet. Of that subset, 92 percent said they hadn’t seen their hours cut either, but 87 percent attribute that to price hikes on their menus.
Unfortunately, the study showed that rising menu prices have cut into some tipped workers’ wages. 69 percent of tipped employees have not seen a noticeable increase in their tips relative to rising menu prices, and 17 percent have actually seen their tips decline after a menu price hike. The perception of how much certain ingredients should cost is strong, and if it defies expectations; well, tips seem to be first on the chopping block.