Jeremy Julian

Is the $15 per Hour Wage Hike a Death Blow to Your Restaurant?

June 9, 2016

California’s restaurants are going to be ground zero for the impact of the new minimum wage law. The retail and food industries alone, employ nearly a third of all workers who will get a raise from the new law. Of the 5.6 million workers who are expected to earn more under the law, about 1.7 million of them are employed in retail or food services.

Restaurants are and have been a major driver of job growth and because they spend a relatively large share of their operating expenses on labor, restaurants will feel the effect of rising pay the most.

When the new minimum wage law was first proposed, The National Restaurant Association came out and opposed the wage hike, stating that “Profit margins in our industry are slim (between 4% and 6%) and the rate of survival is a high hurdle to overcome…As restaurateurs already grapple with rising food and operational costs, an increase to $15 will fundamentally change the way restaurants do business.” In addition to changing how restaurants do business, the increase will also affect how and when restaurants grow. From 2010 to 2015, restaurants created 244,000 jobs in the state, according to Economic Modeling Specialists International, a company that analyzes labor data.

Labor costs of your restaurant are going to increase by 50%. That is a hard fact to prepare for.

When profit margins shrink, how will you make up the difference? Raise the price of meals and services? Cut staff? Each option offers a short-term solution, but there are only so many hours in a day a person can work. And when raising prices, how much is too much before customers become frustrated and look elsewhere?

This is a delicate balancing act to push onto an entire industry which employs millions of people in California. This will not only hurt the business owners that drive the economy, but the employees that were supposed to benefit from the increase.

One solution we can offer is over at Custom Business Solutions. Our friends over there just released a whitepaper that analyzes restaurant technology solutions that can help your business save money and offset the costs of the higher minimum wage. Check it out and request a free demo to see how you can prepare your restaurant for the wage increase.

Next week, we are going to transition to a real-life example that shows the effect of the $15 minimum wage on the restaurant industry. It comes from a restaurant owner in Seattle, Washington, which was one of the first cities to adopt a $15 minimum wage, and discusses the inconvenient truths and consequences that no one wants to talk about when mentioning the recently raised, $15 minimum wage.




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