Operators say a ‘living wage’ won’t kill them – if certain key ‘if’s are met

Photo courtesy of P. Terry

Paying workers $15 an hour was as unimaginable for most of Todd Coerver’s 25 years in restaurants as seeing the industry crippled by a bat virus. Yet in January, the 300 full-time employees of his current charge, the 20-unit P. Terry drive-thru burger chain, were raised to that pay level at the behest of management, which Coerver runs as as CEO. And no cracks have manifested in the organization or the industry.

Indeed, other operators have reached out to the Austin, Texas chain to find out how they can operate profitably under this compensation model.

When organized labor coined the term “living wage” to put a halo on a $15 an hour minimum, the industry shook its head in disbelief. Requiring an entry-level salary to start at this nosebleed level was seen as a sure sign that the End Times was upon us, or at least the industry.

Much more moderate minimums were also resisted, with traders warning that even cost-of-living adjustments would kill jobs, raise prices and hasten the death of the industry by a thousand cuts. The industry also cited its belief that the market should set the going wage, not legislators.

Todd Coerver

Photo courtesy of P. Terry

But the prospect of raising the federal wage — to $15 no less — is getting a different reaction from industry this time around. Many operators say market conditions have already pushed wages far beyond this threshold. About 78% of employers in the industry pay more than the federal minimum wage of $7.25 an hour, with nearly half paying more than $12, according to a survey of 500 operators by Catering company. About 4% pay more than $20 per hour.

Operators and proponents of the hike also note that minimum wages in eight states and about 40 municipal or county jurisdictions are already up to at least $15 an hour.

Among those early adopters is California, where the minimum for businesses with at least 26 employees rose this year to $14 an hour. Small businesses are required to pay at least $13 per hour.

The bulk of Denny’s branches are located in the West Coast State. Yet the restaurants appreciated it”six straight years of positive traffic – not just positive sales, but positive traffic – as the minimum wage went up,” Robert Verostek, Denny’s chief financial officer, told financial analysts. This market outperforms the system.

Indeed, he says, sales there were likely boosted by the fact that consumers had more money to spend due to their rising wages. “We’ve seen it in our system in a way that can be beneficial,” Verostek said.

He compared this situation to that faced by Denny in Arizona, where the minimum wage rose overnight by $1 to $12 an hour. Denny’s tried to mitigate the impact by raising prices in a flash of 5% to 7%, a sharp rise that “has an impact on traffic”, Verostek acknowledged.

Mitigating the risk of sticker shock through gradual adoption, rather than the size of the overall increase, has become a primary concern. Operators say they would like time to adjust to a wage increase of this caliber, but are undeterred by the prospect of literally doubling what is now the lowest statutory wage on a federal basis.

“As long as it’s done in a phased and fair way for everyone, McDonald’s will do just fine,” McDonald’s CEO Chris Kempczinski assured investors in January.

Prices likely to increase

The near-universal response to any increase in the federal minimum wage would be higher menu prices. Nearly four in five respondents (79%) RB The operator survey said they would try to mitigate the impact by asking customers to pay more for their meals.

Fifty-eight percent of respondents said they would cut workers’ hours and 56% said they would work to cut jobs.

P. Terry’s was able to cover about half of its increased labor expenses by taking a price increase of 2% to 2.5%, depending on location, Coerver said.

“That was a penny on every burger and a penny on our fries and drinks,” the CEO said. As for the reaction of the guests, he said: “We didn’t see anything, we didn’t hear anything. So, we thought the guest accepted it.

The Terry’s, the husband-and-wife team that owns the Austin-based chain, decided to cover the remaining 2-2.5% of the cost increase by absorbing the hit to margins.

No jobs have been cut. Some employees cried at the news, Coerver recalled, even with a drop in hours here and there. “They got what amounts to a $5,000 raise on an annual basis,” he said. “It had real, tangible value for them. We have people going back to school. People who put a down payment on a car or a down payment on a house.

He is quick to add: “Obviously there is also a commercial advantage to this. We see very talented and skilled people leaving some of the best employers in our industry to come and work with us.

Jobs likely to be cut
P.Terry may be an exception by leaving his payroll unchanged as wages increase. More than half (56%) of operators participating in RB survey indicated that they intended to eliminate positions.

The Congressional Budget Office (CBO), Capitol Hill’s on-site bookkeeping shop, has calculated that the $15 minimum wage introduced in Congress as part of the US bailout would likely eliminate about 1.3 million jobs, or about 0.8% of the national payroll. when the compensation threshold is reached in 2025. The CBO found that the number of positions lost could reach 3.7 million, depending on the breakdown of certain variables.

But the agency found that the return on investment would be lifting 1.3 million families out of poverty by the full enactment date of 2025.

The industry still expresses fears of doomsday scenarios if a $15 federal wage were to be enshrined in law. About 22% of respondents in the RB inquiry said they would consider closing if this so-called living wage becomes national law. 25% said they thought a salary of this magnitude would kill the industry, and 8% concluded their restaurant would be among the victims.

Yet even this research shows moderation to the generally strident and unwavering industry opposition to a raise. Seventeen percent of respondents said they don’t oppose raising the minimum wage, but consider $15 an hour too high at this time.

Three percent said a move to a living wage would be a “non-event” as they are already paying more than that amount, and 6% said they favored an increase because of the beneficial impact it would have. she might have on expenses.

Feasibility issues

Texas is one of the states that uses the federal standard rather than a state-defined figure as its mandatory minimum wage, which means the pay floor would be raised to $15 if the federal proposal was withdrawn at the last minute. of the American rescue plan had to be adopted. as a stand-alone piece of legislation. This measure, known as the Raise the Wage Act, calls for the minimum to be raised in stages until it reaches $15 an hour in 2025. Tip credit would be disallowed under the law.

Already offering $15 an hour doesn’t mean P. Terry’s is indifferent to setting that amount as the national wage floor. The 20-unit chain spent six months studying the situation and its options, seeking to balance the pros and cons for all parties. It was a highly personalized exercise that could have ended with a different outcome for a different operation, Coever says.

“The answer is complicated,” he said when asked if the channel would like to see a national pay threshold of $15. “I don’t know if a federal model is even the right way to go.” Even in Texas, he says, there’s a world of difference in the cost of living from one part of the state to another.

Still, he noted, the federal minimum hasn’t been raised since 2009, when the legal limit was raised by 65 cents an hour.

“Hopefully it’s phased over several years,” Coever said of any federal raises. But $15 doesn’t sound weird, he said. “If we’re going in this direction, and I know we will, it’s the logical and humane thing to do.”

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Michael A. Bynum