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    Making Wages Work

  • How three brands are getting ahead of minimum wage increases.

    firehouse subs
    Firehouse Subs has used efficient employee scheduling to offset higher labor costs.

    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.