Web Exclusive | January 2012 | By Daniel P. Smith

Wage Hikes Pressure Operators

Latest minimum-wage increases force quick serves to reevaluate hiring, menu prices.

Escalating food costs and only modest traffic gains aren’t the only things Rob Grendow is concerned about these days with his five Ohio-based Danny Boy’s Pizza outlets. Ohio’s latest minimum-wage hike is also putting pressure on the operation.

“It might be only 30 cents,” Grendow says of the shift from $7.40 to $7.70, “but for a little business, that’s a big number.”

While the federal minimum wage remains locked at $7.25, seven states joined Ohio in instituting minimum-wage hikes on January 1, increasing labor costs at thousands of quick serves across the country.

Florida jumped 36 cents to $7.67, while Vermont rose 31 cents to $8.46. Arizona ($7.65), Montana ($7.65), and Oregon ($8.80) all implemented 30-cent increases. Colorado operators encountered a 28-cent leap to $7.64. And with a 37-cent rise to $9.04, Washington became the nation’s first state with a minimum wage above $9.

“This is not a fun spot to be in,” says Phil Costello, who runs Stop-n-Go, a Spokane, Washington, burger concept where about three-quarters of the workforce earns the minimum wage. “A $9 wage is one thing in the Seattle area, but quite another for the rest of the state.”

Proponents of higher minimum wages argue that the pay increases protect low-wage workers and stimulate local economies with greater consumer spending. Many others, however, contend that minimum-wage increases, particularly in an already sluggish economy, stunt job creation, negatively impact GDP growth, and spark rising costs for consumers.

“These increases simply don’t reflect what’s going on in the economy or what’s happening in the business world,” says Bruce Beckett, director of government affairs for the Washington Restaurant Association (WRA).

Grendow says the new minimum wage will increase his labor costs about 5 percent and introduce a range of problems, such as asking more of fewer staff, restricting raises to deserving employees, and raising menu prices.

“We’ll try to drive sales first because that’s the best option, but the decisions get tougher after that,” says Grendow, whose five units employ nearly 250 workers, about one-third of whom earn the minimum wage.

To cover increased labor and food costs, Costello anticipates raising prices about 25 percent, Stop-n-Go’s first price increase since its July 2010 opening.

“You almost have to raise prices and deal with the backlash,” Costello says.

“It might be only 30 cents, but for a little business, that's a big number.”

At Lillian’s Pizza in Pensacola, Florida, owner Lillian Walsh says Florida’s minimum-wage increase will only impact her delivery drivers. Though she will absorb the increased labor costs and stick to her $3 delivery charge for now, she says change may be inevitable.

“People aren’t willing to pay more, so I’ll have to leave that delivery charge where it is and see how it goes,” Walsh says.

Other operators will either pursue savings elsewhere, potentially targeting commodity or real estate savings, while many others will rely on a leaner workforce. In a recent WRA survey of 480 Washington-based restaurants, 66 percent said they planned on eliminating jobs or halting hiring in 2012 as a result of the state’s new minimum wage.

“We’ll all have to ask more out of the employees we have,” Grendow says.

Some quick-serve operators, however, say the minimum-wage hike won’t even register.

Nathan Pollak is co-owner of the American Grilled Cheese Kitchen in San Francisco, where, as one of nation’s few big cities with its own base pay standard, minimum wage increased 32 cents, bringing the new rate to $10.24.

Pollak says many of his customers understand San Francisco’s high cost of living and that making a premium product demands a skilled workforce and appropriate pay. He says his one-unit operation will continue paying above the minimum wage just as it has since opening in May 2010.

“We’re blessed with business and have priced the product right, so making payroll has never been a problem,” Pollak says.

Similarly, Tony Crump, owner of Forefathers Gourmet Cheesesteaks and Fries in Tempe, Arizona, posts his starting hourly wage at $9.50, nearly $2 more than Arizona’s new $7.65 standard.

“I’ll pay a little more and expect a little more,” Crump says of his 20 employees.

Crump believes the minimum-wage hike might even help his five-year-old fast casual. As many major quick serves increase menu prices, he says, it will narrow the gap between his prices and theirs, underscoring his store’s value perception.

“The closer the major quick serves get to me on menu prices, the more headway I’ll make,” Crump says. “I see the minimum wage increase as an opportunity to gain even more ground with a quality product and service.”


If the people of the United States think that it is not a problem, let's quit this teasing. Just raise the entire work force to the $100 an hour level minimum wage and as business people we can all join hands with the rest of the population and watch the lights go out. The streets will be empty as the businesses will all close, there won't be a need for banks as noone will have a job....can't anybody see that the business of America is business and we have in place governments and a President who have absolutely no clue that they are starting to chew on the very thing that makes the wheel turn? If I were in the tech business, I would be working night and day to perfect the happy kiosk, to greet and wait on people, because that is what it will be coming to if this country doesn't wake up.

While I think the $100 example above is a bit over-the-top, what I will say as someone in management at a Washington State quick-serve is that money doesn't grow on trees. If you force us to give an increase of 37 cents an hour to every single employee at or near minimum, from the new high school student on up, you are not going to be able to offer sizable increases to the second- (and even first-) income earners for their families who are paid out of the same pot.If you have 25 employees, and 15 of them just got an increase without merit and without necessarily needing it, that doesn't leave a lot left over for the mother of two who needs this job to help her family get by. Yet, that mother of two will now likely see her wage held or only grow a little, and/or her hours reduced. In the end, the business has to make a profit, and with food prices, utility prices, taxes, etc all increasing dramatically, it is getting harder to do every year.Why not have Seattle/King County sport a higher minimum wage, but let the rest of the state be lower? Why not have a different minimum wage for minors?I support people making more money. But when it's not a merit based increase, but rather something sanctioned by Olympia et al, then there's going to be other ramifications. Just my two cents.

Add new comment