Restaurant operators: 'Not the right time for wage boost'

Leaders of Dickey's Barbecue, Firehouse Subs, Mooyah, Famous Toastery and Teriyaki Madness discuss when and if it's time to raise the federal minimum wage to $15 per hour.


The National Restaurant Association is urging Congress to ditch the Raise the Wage Act, which would increase the federal minimum wage to $15 an hour — more than double the current $7.25 an hour — over five years. The association sent a letter to congressional leaders Tuesday citing results from a February survey polling 2,000 restaurant operators, who said that the increase would lead to job losses and higher menu prices.

"Nearly all restaurant operators say they will increase menu prices," Sean Kennedy, executive vice president for public affairs for the National Restaurant Association, wrote in the letter requesting Congress to remove the act from the $1.9 trillion stimulus plan. "But what is clear is that raising prices for consumers will not be enough for restaurants to absorb higher labor costs. The act also eliminates a separate minimum wage for tipped workers."

Most tipped servers make between $19-$25 per hour under the current tipped credit system, but the NRA said results of a recent nationwide survey of restaurant operators revealed that 82% of operators said the initial wage increases would hinder their abilities to recover from the coronavirus pandemic. For franchisee-owned restaurants, that number was 90%.

"The survey results make it crystal clear that the restaurant industry and our workforce will suffer from a fast-tracked wage increase and elimination of the tip credit," Kennedy said. "Restaurant jobs will be critical to every local community recovering from the pandemic, but the Raise the Wage Act will negate the stimulative impact of a worthy plan.

"We share your view that a national discussion of wage issues for working Americans is needed, but the Raise the Wage Act is the wrong bill at the wrong time for our nation's restaurants."

Laura Rea Dickey, CEO of Texas-based Dickey's Barbecue, said that although the wage increase wouldn't affect her company for several years since it pays its workers between $10 and $12 per hour, increasing the minimum wage won't have the net result that helps hourly workers.

"There will be many unintended consequences including reducing jobs, reducing hours and shrinking benefits," she told FastCasual. "To cover the wage hike, businesses will be forced to pass the cost through to consumers by increasing prices and making reductions.

Dickey doesn't believe there will ever be a "right time" for a federal bill.

"Businesses are successful when they are competitive, so I believe that it should be a state decision to establish the minimum wage," she said.

Firehouse CEO Don Fox agreed, saying that minimum wage should remain a state issue.

"Many states have already made the federal minimum wage nearly irrelevant, having already established a minimum wage above $7.25 per hour," Fox said. "Future actions by the states will further erode the relevancy of the federal standard."

If the federal government moves forward with a minimum wage increase, Fox thinks it should be higher than the current $7.25 per hour but said the schedule of increases as detailed in the Raise the Wage Act failed to takes into account regional differences in the economy and workforce.

"Its one-size-fits-all approach, while well-intentioned, is ill-advised and may prove harmful to some of the very people it seeks to assist," he said.

Increasing wages after the pandemic

Like Dickey and Fox, Mooyah Burgers, Fries & Shakes VP of Operations Mike Sebazco said that his company would evolve with any wage hikes but that no brands were in a position to endure a "one-fell swoop" approach to increasing wages.

"It's not just the fact that new employees will be more expensive to train and part-time positions will be more expensive to incorporate into our schedules, but our purveyors, growers and suppliers will be experiencing similar increases," he said during an interview with FastCasual. "This will further cut into the profitability of our economic model that has been a standard for decades. The model is built to be evolutionary, not revolutionary." Sebazco said it would be better to increase wages after the nation recovers from the pandemic — when dining rooms are operating at full capacity and operations have normalized. "I believe that $15 an hour over the next 36-48 months is reasonable for operators to adapt to the wage change while maintaining jobs," he said.

Famous Toastery CEO and founder Robert Maynard, who pays all workers above minimum wage, agreed that a wage increase would be better timed for when stores are no longer forced to operate at only 25% to 50% occupancy.

"This is just the wrong time, there's never really a good time in the restaurant world, but this seems to be the worst time for the act to come up," said the founder of the North Carolina-based chain. "There are industries that are going to get demolished by this increase, and nothing seems to be getting any better right now. If there's ever been an argument for holding off, waiting until there's a larger sense of normalcy would be it. We're at almost a year of closures, adding more pressure on the restaurant industry specifically."

That being said, Maynard wasn't opposed to increasing the minimum wage to $15 per hour if done correctly.

"We're not too far off from paying our workers $15 already, but the average restaurant makes 5% of the income, (so) you have to do the math when you start mandating higher costs," he told FastCasual. "There's only so much survival that can happen with these increased costs.

"Business, oftentimes, aligns closely with politics, but I believe the best thing would be to wait to implement this measure when the economy is in a stable place again. Some parts of the country are still shut down or at 25% capacity for indoor dining. I think it's something that should be tabled and thought about again after the pandemic ends."

Although Teriyaki Madness CEO Michael Haith pays most of his hourly workers $15 per hour, he doesn't believe the government should force that upon small businesses — yet.

"We need to let the small business owners recover from the toughest time the hospitality industry has had to face," said Haith, who suggested that the five-year step-up plan should start in 2023 instead of now. "Our strategies have been based on $15 per hour labor for a couple of years now, and we always strive for great profitability for our shop owners while providing great value for our customers."

The National Restaurant Association's survey of operators also revealed that raising the federal minimum wage and eliminating the tip credit would force:

  • Nearly all (98%) operators to increase their menu prices.

  • 84% to cut jobs and employee hours from normal levels.

  • 75% to cut employee benefits.

  • 65% to add labor-reducing equipment or technology.

A different opinion

&Pizza CEO Michael Lastoria totally disagrees with the NRA, telling FastCasual that a $15 minimum wage was a win for workers and the economy.

"Instituting a higher minimum wage isn't just the moral decision, it's the common sense one," he wrote Tuesday in an exclusive blog published on FastCasual.com. "At a time when our country is beginning to heal from the wounds of the past year, we have a unique opportunity in front of us to lift millions out of poverty, empower the working class and stimulate the economy."

Click here to read the entire commentary.