Battle in Seattle: Operators face $15 minimum wage

With legislation to create a national $10.10-per-hour minimum wage standard on hold, ground zero in the minimum wage battle has shifted to Seattle, where restaurants could be just one city council vote away from having to pay a $15-per-hour minimum wage. Operators there say this rate would strike a mortal blow to their unit economics, and they’ve backed up their argument by showing council proprietary numbers that demonstrate why the $15 rate won’t work.

At present, operators in Seattle pay Washington State’s prevailing minimum wage. At $9.32 per hour, it’s the highest in the country. It’s about to be eclipsed, however, as a number of cities and states are phasing in higher rates. State legislatures in California, Maryland and Connecticut recently passed new minimum wage mandates; $10.10 is also the minimum wage district-wide in Washington, DC.

At the federal level, legislation that would make that $10.10 rate a national mandate appears dead in the water, at least for now. But individual cities have the power to impose higher minimum wage standards if they choose, and Seattle is ready to make its move. Its mayor, Ed Murray, wants to take it all the way up to $15.

Seem like a lot? Some argue that this would be the highest minimum wage in the world. Murray told the Los Angeles Times he wants Seattle to be an “incubator of democracy,” leading the national conversation to address ‘the growing problem of income equality.” It’s an idea that holds appeal for many—but not to the Seattle restaurant operators who would have to cut paychecks for $15-per-hour minimum wage workers. They say the numbers aren’t going to shake out the way Murray and his backers predict.

Some operators, including Seattle-based Ethan Stowell Restaurants, local pizza chain Pagliacci Pizza, Pho Cyclo Cafe and Auntie Anne’s Pretzels, have gone further. They took the step of sharing their financials with council to illustrate the damage a $15 rate would do. You can view the full presentation from Ethan Stowell Restaurants here. Stowell, a Food & Wine Best New Chef All Star, heads a group that operates nine restaurants in Seattle, with two more on the way. Last year, he told the council, his company had a 31 percent gross profit margin and a 6.2 percent net income before capital investments, debt repayment, taxes and depreciation. It’s a solid, growing business by any standard, but here’s what will happen to it if the $15 rate becomes law:

• “Our gross profit margin would be reduced to 24 percent.

• Net income would reduce to -7.4 percent.

• Payroll cost would increase by $517,000 or 15.66 percent.

•  Cost of goods would increase by 4.2 percent.

• Other operating costs would increase by 9 percent.”

So what would Stowell’s group have to do to stay in business? Among the moves it could make, he says:

• “Cut approximately $100,000 in annual charitable giving.

• Cut paid time off for nonsalaried employees and eliminate educational trips for managers and chefs.

• Most likely decrease our support staff (hosts/bussers) and consider closing certain days of the week, which would reduce all employee hours.

• Cease expansion in Seattle. Seek business growth opportunities in other regional cities or out of state.

• Consider diverting local purchasing to larger, national chain suppliers.

• Increase menu prices by 25 percent.”

In other words, a $15-per-hour mandatory minimum wage would be harmful to both Stowell’s restaurants and the city.  We’ll find out soon if this dose of restaurant reality had an effect on Seattle City Council. It has been using a special report authored by three University of California-Berkeley professors, “Local Minimum Wages Laws: Impacts on Workers, Families and Businesses," as its guide. From the standpoint of these academicians, everything works out okay when the minimum wage goes up.

It’s telling, though, that working restaurant operators, even one as successful at Stowell, disagree so strongly.

Seattle City Council’s Select Committee on the Minimum Wage and Income Inequality is taking public input during May, after which it will vote on the legislation. No matter the outcome in Seattle, the city, county or state in which your restaurant does business could become the next minimum wage battleground. Be ready if it does.