While the full-service restaurant scene in Seattle is being shaken by new minimum-wage requirements, operators across the U.S. are keeping a close eye on the situation as similar regulation may be heading their way.
While most restaurant operators in Seattle are in “wait and see” mode, some are considering dramatic changes they’ll have to make to accommodate rising labor costs.
Chef Jason Wilson—owner and chef at both Miller's Guild in the Hotel Max and Crush, an upscale, modern American-cuisine restaurant—says labor costs will rise 50 percent, and he expects severe ramifications.
“There has got to be a way to get that money back,” he says.
Most likely, Wilson says his restaurants will look into ways to simplify food production so it requires less labor. He can’t raise food prices, he says, but he may be able to raise “sin tax,” or the price of alcohol.
“The last thing we want to do is change our service and change our service style,” Wilson says, “although that may be affected a little bit.”
Wilson is thankful he’s got a couple years to test options. While franchised restaurant owners fall within a group deemed “large employers” and must phase in raises to $15 over the next three years, small businesses and independents have seven years to gradually bump their employees up.
Stephanie Davenport, spokesperson for the Washington Restaurant Association, points to the fact that restaurants have extremely low margins relative to other industries.
“A dramatic increase in labor costs puts small, local restaurants in a fragile state financially month to month,” she says, adding that restaurants are hit harder relative to other industries. “Restaurants have high competition for business; consumers have an alternative on the next block or sometimes even in the same building.”
Wilson says bumping up the minimum-wage employees forces him to increase pay for others who were already making above $15 an hour.
“The line cook is now making $15 an hour, and the senior cook position skyrockets up to $18 or $19. Those labor dollars are astronomical,” he says. “We’re still trying to wrap our heads around it.”
Wilson says the increase was driven by talk about equality, but he points out that tipped employees have never been on equal footing with nontipped employees.
“A fast-food worker, maybe there’s an argument to increase their wage,” he says. “I don’t see it in finedining, where I have servers with $60,000 incomes.”
Wilson says fine-dining servers make $40 an hour on average. To comply with new mandates, he’ll have to bump their hourly wage from $9.80 to $12.
One effect may be restaurants resulting to tablet ordering and a smaller waitstaff, he says. “We’ve got to start figuring out something for sure. It’s like the marijuana laws: Everyone is just trying to figure out how to legislate this and accommodate for it.”
Around the country
Technomic research shows 50 percent of restaurant operators are concerned that a minimum-wage increase to $10 an hour would have a negative business impact. That number jumps to 79 percent when considering a $15 minimum wage.
“It’s obviously on the forefront of restaurant operators’ minds,” says Joe Pawlak, v.p. at Technomic.
A "consensus measure” will be on the November ballot in San Francisco and if voters approve it, that city would boost minimum wage to $15 in quicker phases than Seattle. In San Diego, a proposal for an $11.50-hour minimum wage also could go before voters this fall. A bill in Massachusetts that won Senate approval last week would raise the state’s $8 minimum wage in three increments to $11 per hour by 2017.
The same Technomic survey asked restaurant operators what they would do if faced with similar wage hikes as in Seattle. The top five responses were: cut hours (55%), raise menu process (55%), reduce employees (44%), hire fewer than planned (36%) not fill lost positions (35%). Twelve percent responded wage hikes were a “closure risk.”
The International Franchise Association recently penned a letter to the Chicago City Council, where a $15-per-hour draft ordinance has been proposed, saying legislators are misunderstanding the franchisee-franchisor relationship.
There’s a similar sentiment in Seattle.
“We have to help the legislators understand the nuances of a small business,” Wilson says. “They have to make it sure it’s effective and that small businesses can afford this.”