The minimum wage is on the mind of most quick-service operators today, especially as many states and cities pass regulations that bump the minimum wage upward.
But when Moo Cluck Moo founder Brian Parker and his team first sat down to discuss employee pay, he says, the minimum wage wasn’t even a consideration.
“We thought, ‘What’s livable? What’s not embarrassing? How can we pay people and make them feel part of something, make them feel proud? What’s the compensation for bringing people in to work for us?’” he says.
Moo Cluck Moo is based in Michigan, where the statewide minimum wage is $8.15 per hour. The restaurant opened with a base pay of $12 an hour, but Parker decided to raise all employee wages to $15 an hour after a 2013 trip to Chicago, where he witnessed demonstrations calling for higher wages. He says the raise acted as a type of insurance.
“The pay is kind of inconsequential, because it’s really an investment in building a brand,” Parker says. “It’s what [employees] want, and that way, in our mind, we don’t have to worry about protesters or anything like that striking in front of our building.”
News of this raise, he says, was “like throwing a match in a hayfield.” Some praised the company, while many operators questioned the viability of the business plan. Nearly 40 percent of Moo Cluck Moo’s expenditures go toward labor costs, much higher than the 25 percent average at most restaurants, according to payroll efficiency company Paymasters. A good portion of this increase comes out of Parker’s own paycheck.
Not every quick-service brand—especially larger, national chains—can easily accommodate such high labor costs, however. That’s part of the reason proposed minimum wage increases have been met with pushback. Many believe higher wages will force business owners to cut back on labor costs; according to the Congressional Budget Office, if the national minimum wage were raised to $10.10 an hour—from the current $7.25—500,000 to 1 million low-wage workers would lose their jobs.
But some companies are getting ahead of looming minimum wage increases and piecing together a way to fit higher wages into their expenditures. McDonald’s, for example, made news by announcing plans to increase hourly wages by more than 10 percent at all company-owned locations starting this month.
Ryan Holdan, founder and president of Paymasters, says there have been several creative solutions from the quick-serve industry in making higher wages work. He recalls one franchisee who went as far as buying his own snowplow and pickup truck to avoid paying service fees to an outside company. These cases, though, are few and far between; labor, he says, is often one of the first things on the chopping block as operators face pressure from rising costs.
“Franchisees don’t really have many other places to look to offset costs than to cut labor costs,” he says. “Other than that, there’s, I guess, buying a snowplow.”
Holdan says attracting and maintaining the best employees is critical to absorbing rising labor costs by reducing turnover rates and reaping the benefits of high-performing staffers in terms of productivity and quality. That’s why many companies are implementing background checks, drug tests, and other pre-screening measures to ensure each team member is a good investment; they’re also issuing regular performance reviews to keep efficiency and quality of work strong.
Attracting the right people for the job also means offering competitive wages. Parker says going above—and in his case, beyond—minimum wage has allowed him to maintain dramatically low employee turnover rates. When a restaurant has a dedicated and happy staff, increasing efficiency and cutting costs in other areas becomes much easier. Training can be completed more quickly, he says, and staff members feel as though they have a stake in the store’s success.
“We’re always looking for ways to keep our staff happy, healthy, and engaged. We don’t want them to be so automated and so removed that it becomes a mindless, overwhelming effort, and we get compliments all the time on the resulting quality,” he says. “It’s funny, because even at the higher wage that we pay, people insist on giving our team tips.”
Minimum wage regulations aren’t the only reason several operators are adjusting to the new wage climate. Technomic reported that 83 percent of restaurant patrons strongly support increasing the minimum wage, which gives brands a good narrative to communicate with customers. Parker says the higher wages at Moo Cluck Moo, which has two units, have resonated with the blue-collar Detroit community the restaurant serves, creating customer loyalty.
“Detroit is a working-class city; Detroiters like to have just as much work as we have fun, so our customers really embraced the fact that we’re taking care of our employees, and that it is a livable wage,” he says.
Toppers Pizza addressed the wage issue system-wide when the minimum wage increased in 11 states with restaurant locations. Toppers’ vice president of marketing Scott Iversen says the company has kept its “fingers on the pulse of what’s happening” to stay ahead of any legislation changes that might come down the pike.
The brand has slowly increased wages at all locations in preparation for further legislation. “Then, if nothing happens in those additional states, we’re just that much more competitive,” Iversen says.
He cites attracting and retaining reliable labor, scheduling appropriately, and increasing store efficiency as the most important strategies to offsetting labor costs.
“In a way, it’s a good thing,” he says. “It’s really made us look at our model and find every place we’re inefficient. We’ve homed in on the labor program that we use to do scheduling, and it’s incredible how much more efficient you can be when you have the right people.”
Toppers also turned its focus to technology, particularly utilizing online ordering systems to increase sales and reduce time at the register. With approximately 35 percent of Toppers’ orders coming through its online POS system, managers have been able save the time employees were previously spending on the phone and shifted it to more productive activities.
The biggest takeaway from the experience, Iversen says, is realizing the franchise could continue to thrive under seemingly insurmountable wage pressures.
“A lot of people might be thinking that it could hinder their company’s overall growth if they’re having to increase wages across the board, and the last three years have actually been records for us,” he says. “We’ve more than doubled our store count, and our sales company-wide are up over 70 percent in that three-year time frame. It doesn’t have to slow you down, and for us, we’ve just kept our foot on the gas and continued to open more stores.”
Profitality founder and principal Juan Martinez believes efficiency is the key to thriving under the constraints of higher wages—whether a restaurant is acting pre-emptively or responding to a mandated increase within a state.
“Smart businesses are going to get ahead of the curve, or it may drive them out of business,” he says. “Try to fix the problem before it arrives.”
He suggests operators look at the food prep line and calculate exactly how long it takes to prepare any individual item, an aspect of efficiency he says is easiest to benchmark and monitor.
“You need to know how much labor any one product is costing you. Then it may help you redesign the way you do products to require less labor, or you may decide some menu items need to be changed up,” Martinez says.
He adds that when a restaurant is operating at its peak hours, the cost of labor is lower in proportion to sales; knowing exactly what products cost in terms of time allows operators to schedule labor in the most efficient way. For instance, operators could shift some employees’ responsibilities toward prep work within certain day-parts instead of scheduling more people and working on prep all day.
Above all else, Martinez says, operators should remember that raising prices is a last resort. “As sensitive as operators are to cost increases, consumers are to price increases,” he says. “You can’t reduce costs at the expense of overall sales. In other words, the worst thing an operator can do is provide bad service or a bad deal because he or she is trying to cut costs.”
Firehouse Subs CEO Don Fox says the company also works on efficiencies in its scheduling to accommodate labor costs. But he acknowledges that making those changes is more difficult in actuality than in theory.
“A lot of folks will say, ‘Oh, you’ll find a way to pick up efficiency and offset it,’ and I remind them that if there were such obvious ways to improve productivity and improve operation, we’d be doing them already,” Fox says.
Fox says the biggest struggle with minimum wage increases is trying to stay consistent system-wide when labor costs are dramatically different in different areas. As a national brand, Firehouse Subs has made changes across the board to keep existing locations viable, while franchising efforts have come to a standstill in areas with high labor costs like Seattle, where the minimum wage was recently set to $15 an hour. The first change Fox implemented was increasing company guidance to Firehouse franchisees to help them optimize efficiency and reassess scheduling productivity. As a result, the average number of employees per store has gone from 16 to 15, while some remaining employees have seen their number of hours decrease.
The next change the company is investigating—integrating more technology—also has Fox worried about unintended consequences.
“Our success as a brand is first and foremost a function of our people, and the interaction that they have with our customers is a critical point of difference,” he says. “Introducing technology starts to detract from that in some way, which may not be a very good thing for our brand.
“Without good people, you have nothing,” he adds. “The better, happier, and more productive your staff are, the better your business is going to be. So while there’s immediate pressures on people now, you have to just step back and make sure you provide the best work environment and culture possible.”
While Moo Cluck Moo, Toppers, and Firehouse Subs have each responded to nationwide changes in labor costs in a different way, each has also managed to achieve continued growth. Overall, integrating wage changes while maintaining the value of products and services is just another piece of the puzzle to remaining viable in a constantly changing economy.
“Just embrace it,” Iversen says. “Roll with the changes, because you don’t really have a choice. The choice that you do have is to be active, go forward, and don’t let it ruin your business.”