Thursday, July 24, 2014

Minimum Wage Hike

As more and more cities and states adopt an increase in minimum wage - or at a minimum discuss an increase - those of us running businesses in Illinois watch closely. An increase in the minimum wage can be tough for any business, but especially restaurants. We won't get into who would be receiving the increase because that only opens an entirely different can of worms, but rather share some numbers and hiring practices that have recently come from studies that the National Restaurant Association has conducted in regard to a minimum wage increase.

Already running on paper thin pre-tax profit margins, on the average of 4-6% for most restaurants, a minimum wage increase could prove to be the nail in the coffin for many restaurants. Consider already, the labor cost for the average restaurant runs at about 1/3rd of a restaurants sales. Yes, $0.33 of every dollar goes towards our labor cost. And in some weeks, much, much more.

The studies conducted have determined that your average full-time employee in an eating and drinking establishment represents about $84,000 in annual sales. Compared to a full-time employee at a grocery store where they may represent on average $304,000 in annual sales. So clearly, you have many, many more employees working within a restaurant's four walls... making it much tougher to absorb an across-the-board wage increase.

How will restaurants handle a minimum wage increase? The study learned that one of the first jobs to go would be jobs for teenagers. Instead of hiring five, six, seven young high school students looking for a few hours each week to have some cash on hand, many restaurants would instead hire 1 or 2 more qualified individuals on a more full-time basis. Instead of throwing dollars away at training and a one-in-five shot of retaining a young high school student, restaurants would go with much more of an experienced, qualified individual. An increase could drastically reduce teenage hiring.

The study found that the next wave of employment opportunities to disappear would be in the special needs sector. Many restaurants will hire disadvantaged workers without question. Many people are always in need of a break or an opportunity, and the restaurant industry is a great way to get a foot into the real world. Again, the study indicates that any increase in the minimum wage would all but ensure many restaurants eliminating this practice.

Lastly, the most obvious of all repercussions... price increases. If your costs increase, there's only one way to get them back and that's by increasing prices. Believe restaurants when they say they don't want to increase prices. If the consumer can receive a wonderful product at a good price, we don't want to ruin that. Customers will always be looking for lower prices and a quality meal. Internally, raising prices is a very difficult thing for any restaurant to do, but it's almost a guarantee should minimum wage increase.

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