Results from $15/hr Min Wage Survey

  • Operators were more than eager to weigh-in with their opinions on plans to increase the national minimum hourly wage from $7.25 currently to $15 over the next few years.
  • Our survey is well represented by 198 operators across different brands and geographies as outlined below.

  • 91% of survey respondents think this initiative is flawed for a host of reasons which are organized and outlined below.
  • If there was one comment that best summarized sentiment, it would be the following: “It will increase our labor costs by 40% to 50%. As a result, our labor as a % of sales will likely rise from around 25% to 37.5%”.
  • In our opinion, the conundrum is not that operators don’t want to pay higher wages, but that the market is not able to generate sufficient economic profits to provide a badly needed increase in pay for restaurant employees.
  • Salary levels for the whole nation have stagnated for decades while prices for things like housing, education and health care have expanded at an exponential rate.
  • How do we as a nation improve economic profits sufficiently so that pay can finally catch-up with inflation?

  • Economic reality is what it is… A significant cost increase translates into significant margin pressure.
  • Operators expect their labor margin to increase 3.5% (median) as a result of a $15/hr min wage & this would represent a corresponding decrease in the average EBITDAR margin from ~18% to 14.5% (not factoring-in a potential menu price increase which more than likely would be offset by a traffic decline).
  • While a $15/hr. minimum may not impact operators in high cost markets, it can be devastating for operators in low cost markets.
  • Does a part-time 16-year-old high school student in Mississippi need $15/hr.? If so, what does an operator in that market have to pay a manager?

  • Higher labor costs mean higher consumer prices…
  • Higher menu prices means less traffic…
  • Operators are scrambling to come to terms with how much menu pricing is necessary to offset a $15/hr. minimum wage. Obviously, this amount varies dramatically by geography with rural operators and consumers standing to suffer the most.

  • We are concerned that not enough attention is being paid to the very real possibility that government mandates to increase wages will result in more business closures, fewer hours for employees and the elimination of jobs for young people just getting started in their careers.

Please Read the Operators’ Comments!!

Store Closures are a Real Concern

  • Fast-food restaurants do not have the margin to afford to pay high wages. This will increase labor to 35-38% leaving us with no profit. Gives us no margin to invest in marketing or equipment with all our money going to royalties, taxes, and wages. We will shutdown our stores after our leases expire.
  • We closed one location in IL due to their $15 minimum wage last year. A second location will close this year. That leaves only 3 in IL. We will not open new locations in IL. We can not make the numbers work.
  • I will probably end up closing my 2 slowest units as this wage increase will put them into a loss situation.
  • With yearly increases in rent, labor, cost of goods and almost all other expense categories, I know that my net profit will be under further attack. I do not believe we will be able to stay in business. Then our loyal employees will have to depend on government to support them. As government pays more for unemployment, they are killing the self-reliance of our young workers, those returning to the workforce and those needing their first work experience. This will hurt the lower socioeconomic worker most along with the American taxpayers.
  • We are not the government that we should take on the burden of welfare. We will have to close stores, and I am definitely skeptical of opening new locations.
  • Colorado increased minimum wage from $9 to $12 and the subsequent price increase cost us about 20% in customer counts. $15 minimum wage will result in further customer count decreases. At a minimum, it will drive a decrease in the number of employees. The worst case is closing the business. I work on a 10% margin. Increasing labor costs by 25% will increase labor costs by an additional 10% of gross sales. Increasing prices only works short term before customer counts start to decrease.
  • I will need to close at least one restaurant if this passes. Maybe 2.
  • I have to close my Business.
  • Deadly to small business, secondly it has done nothing in existing high wage states in terms of easing inequality.

Wage Mandates Cause Inflation

  • It is not just an increase in my labor costs, it is an increase in all of my suppliers’ labor costs, which will be passed on to consumers, like my company. There will be a ‘trickle down effect’ that will increase most all other costs in running a business, including product costs, administration costs, and most overhead expenses.
  • An increase in the minimum wage will cause everything to increase in cost. The federal and state governments will be the only beneficiary of the increase as they collect more taxes. Those reliant on a minimum wage job will find that their buying power will actually decrease.
  • Please let the public know that workers comp and payroll taxes will also go up significantly. Also, explain the math. If an employee loses one hour combined with rising prices, taxes etc. it puts them in a worse position. Reduce workers comp, payroll taxes and other business expenses and let small businesses do the right thing. Finally, look how it has destroyed the worker. How are you now to give an employee a raise over minimum wage? The work ethic has stopped because of this.
  • Income equity is a legitimate issue in the US. This is not the way to solve the problem. If imposed all at once, the cost will immediately be passed on to customers. Feels a little like a middle-class tax increase for reasons that have nothing to do with the middle-class.
  • Menu prices may go up more depending on how much the wage increase affects commodity prices.
  • Raising the minimum wage only raises prices. It will not raise the standard of living for those who work for a wage and no tips…  By increasing the minimum wage for tip earners, you limit the amount above minimum wage that a merchant can afford to pay the non-tip earners. Many of these hamburger flipping jobs were never meant to be a career…. I always tell managers that if you really care about an employee who will not be earning tips or doesn’t wish to move up to management, encourage them to consider a different job such as a trade. No matter what the minimum wage is, those positions will never be valued enough for an individual to actually own a home and raise a family.
  • When minimum wages go up, so does the individual prices for every single item. Minimum wagers move out of the cities like NY with a higher minimum wage because of the higher living expenses.
  • The day it happens, everything will adjust its price, and $15 will be $8.5.
  • It is tough to calculate the full impact of a $15 minimum wage, it doesn’t just affect my labor costs but also my suppliers and producers prices. Employees that I pay more than minimum wage currently, will expect to be paid more than minimum wage. Hours get cut, and those that deserve to make more end up making the same as somebody who deserved less. Currently, if I don’t pay them enough, they will leave me and go to the business which will pay them more. If they remain at the minimum wage, it is only because haven’t earned their raises.

Operators are Incented to Cut Labor

  • $15/hour raises my expenses to an amount that would leave me unprofitable unless I choose to drastically increases prices, drastically slash labor hours and drastically automate as much as possible.
  • Today our labor costs equate to about 25% of total sales. Using the same amount of labor hours, I would increase my labor cost by about 10% of total sales. Assuming a 25% price increase, with the reduction of items like food and paper costs, we would be close to even. However, my customers will not come to me as often if I increase prices by 25%. In all likelihood, I would have to utilize more technology, make people more productive and utilize less total hours (less hours and/or less people employed).
  • Hours of operation will be trimmed, benefits such as half priced meals eliminated and productivity metrics strictly enforced.
  • Will cut positions and limit entry level students and part time workers.
  • The market is already moving the wages up. Artificially inflating this wage so significantly will inevitably also impact the entire supply chain. Then automation will come in and people will be out of jobs as they will be replaced by equipment.
  • $15 minimum wage will require us to cut labor by eliminating some positions and/or reduce labor hours for the existing employees.
  • We are actively working to utilize technology to reduce labor hours in our stores to offset wage increases.
  • Looking for other means to service our guests, such a self service POS.
  • Will hurt the franchisee profits, will cause customers to pay a higher price for products, will cause employee hours to be cut. It will now be more cost effective to purchase products that are already prepared. Will not need employees to prepare some products.
  • Prices will have to be raised, impacting our sales just as it did over the last several years before 2020. Timing of a significant minimum wage increase during a pandemic would be an additional problem. I have just caught up with staffing levels since the wage increase from $8.05 to $10. An increase of minimum wage / price increase will set back our sales, causing me to not hire and possibly reduce my staff levels.

Minimum Wage is for Kids, Not Adults

  • Minimum wage jobs are not designed to support a family, but provide a platform for part time employees such as high school kids to have pocket money and gain life experience. Paying $15 an hour for a 16 year old with no work experience or work skills will simply result in automation and technology replacing jobs along with a higher cost for consumers.
  • There is no reason 16-18 year olds should be paid $15 an hour. Few 18-21 year olds have skills that justify this. Why not just move the wage to $100 an hour?
  • We employ a large number of part-time high school students to work in our restaurants. This is a first job for them and they earn $7.25 to $8.00 an hour. They only stay with a us a year or two until they are old enough to wait tables. A $15/hour rate would double our payroll costs. A 16 year old high school student doesn’t need to be paid $15 and their labor is not worth that. We would be forced to find ways to increase technology in our stores to reduce the hours they work.
  • I teach 15 to 16 year olds how to be employees.

One Size Does Not Fit All

  • More than doubling the current minimum as a mandate, nationally, would hurt the rural environments. It is too large of an increase at one time. A slower increase over time would help the issue. With that said, people would be laid off, High School students, College students and Senior Citizens would feel the impact. What a person makes in New York City is different than DuBois Pennsylvania. The local market place determines what people need to be paid, not the national government. If you care about your staff, work with their flexibility/schedule and provide opportunity and proper training, pay a competitive wage in the market you are in, and you will keep your people employed. I am not opposed to a small increase over time, but $12 to $15 per hour is not the right place to start, especially in the rural environment.
  • This is really the urban coasts cost to bear. It is really hard to pay someone in San Francisco $16/hour and expect to pay someone in Omaha $15/hour. It is also hard to CPI index minimum wage and expect that to fix the problem. The cost of living disparity is greater than the difference in minimum wage and it will not solve anything for the lowest earners. A tiered approach based on geography makes much more sense. In areas of ‘rent control’ they calculate the % of possible rent increase on an annual basis. If they could do something similar for wages, but every 3-5 years, that would be a better method to solving this issue.
  • Impact will be far worse in low income areas. Min. wage should be different in different states.
  • This is not fair to the Midwest , and we will all suffer.
  • In Mississippi, the lowest cost of living states, $15 minimum wage would be impossible to overcome. We would lose money and possibly shut our doors.
  • I am in Mississippi. Our minimum wage would more than double if it went to $15. We are in favor of min wage growth, but not nearly the $15 that is being presented. We will most likely go out of business if it happens. To think we would have the same minimum wage as NY and CA is absolutely unrealistic. 
  • The increase will obviously have a bigger impact on businesses in states that follow the fed min wage. I am in a high cost state. Considering all experts agree the economy will not recover for at least a year or more and study after study reveals min. wage increases hurt the intended recipients more than help, raising the Fed Min. Wage to $15 is a mistake.
  • This is a slippery slope and will further the gap between struggling business and larger groups.

Negative Impact of Eliminating Tip Credit

  • This will decimate the full service industry. This can’t be a one size fits all and tip credit is a must.
  • Really need to continue with tip credit. Fact of the matter is, $15 for BOH team members is very doable. But $15 for wait staff that gets tips, would certainly change the business model of our concept. I feel $15 with no tip credit for wait staff will eliminate many serving jobs all together…smart operators will find a way around needing those positions.
  • I have 2000 hours weekly that would go from $4.13/hr. + tips to $15 and I don’t believe we can stay in business if minimum wage goes up or we have to double the prices.
  • Much worse is the elimination of the tip credit, which will absolutely wreck full service dining. In particular, FS restaurants with lower menu prices will be out of business.

Responses in Favor of Increase

  • I believe the living wage will help reduce turnover long-term driving up productivity and operational consistency.
  • Income and wealth disparity is a real and increasing problem. Happy to do my part.
  • The increase will be absorbed by the consumer. The industry will charge higher prices for meals eaten away from the home. The ultimate choice is between a grocery store and restaurant meal and grocery store prices continue to increase. Our staff needs living wages and to be appreciated by society as a whole. It is time to remove the working poor from our ranks and give them wages they deserve. Let’s force our monopolies (like the antiquated CDN supply management system and the inefficiencies it supports) to evolve or close so we can pay restaurant workers what they deserve. I’m embarrassed by the wages I must pay to remain competitive.

Better Ideas

  • I do believe we need an increase in the national minimum wage, but I do not agree in doubling it. $10-$12 per hour seems more reasonable though we would still need to increase price to cover it. Restaurants cannot bear the cost of supporting families with wage and benefits that do not reflect the skill level of $15 per hour.
  • Should increase over 7-10 Years.
  • Full time employees ok, part time employees I do not see how we can afford.
  • We need to keep Tip Credit at 66% of minimum wage.
  • It’s not just the minimum wage increase, but the onerous regulations along with it that makes it difficult to overcome.

Sonic – RR’s Executive Summary

Sonic enjoys strong brand equity (particularly in core South & Central Plains markets) around its drive-in format with car stalls, friendly carhops and a plethora of specialty drinks & frozen treats. Its unique drive-in format increases the chance that every customer will be first in line, served by car hops (brand ambassadors) that help to generate high scores for friendliness. This format also allows customers to take their time ordering without concern about slowing a drive-thru line. The brand’s current re-branding effort includes: the theme that Sonic provides an oasis in everyone’s daily routine with drive-in service providing a fun “summer mindset” experience; a tagline tweak from “this is how to Sonic” to “this is how we Sonic”; new ads featuring families/groups of real customers having fun parked in a Sonic stall (this is how WE Sonic…); a logo upgrade & new color palettes for packaging to communicate change; and a new, more relevant “Delight” prototype. Sonic’s re-branding reflects a current consumer lifestyle characterized by a daily grind marked by insufficient time & money. To this end, Sonic is portrayed as providing an escape from the grind, offering stressed consumers with fun breaks/special time between driving family from daycare to sports as an example. The emphasis is on a prevalent car culture and Sonic’s offer of freedom is to choose access (drive-in, drive-thru, order-ahead) and to choose from nearly unlimited menu combination options. Sonic’s craveable & fun (made-to-order) menu items span 5 dayparts (drinks, desserts & sides drive snack hour sales) with the full menu available all day and it is notable that the chain’s plethora of high margin, unique drink/treat options generate strong trial & appeal to women who generate the most traffic and transactions (especially during happy hour when drinks & slushes are offered at 1/2 price). Notably, the system’s 2019 comp turnaround reflected: increased product innovation; price increases; and new order ahead functionality. This was continued with 2020 comp strength which reflected Sonic’s post-lockdown advantage of offering not just drive-thru service, but an opportunity for families/groups/individuals to get out of their house to eat-out in the safety of their own car in a drive-in stall. However, over the long-term and after a return to normal, Sonic must still address how to drive higher average checks from drink/dessert customers sufficient to bring its AUV closer to the segment average. Also, Sonic must face its ongoing challenge to gain sufficient share of voice in new markets (particularly in colder climates where frozen drinks/treats have seasonal appeal) in order to fulfill its goal of achieving a national footprint. In conclusion, Sonic’s positioning works well in a post-lockdown world and hopefully the brand will be able to leverage this window to drive higher tickets in core markets and greater frequency in newer markets.

Church’s Chicken – RR Executive Summary

Church’s specializes in Southern-style, hand-battered, double-breaded fried bone-in chicken (available in Original & Spicy) which is marinated for 12 hours & freshly prepared throughout the day in small batches and complimented by its freshly baked home-style sides and scratch-made Honey Butter Biscuits to form a complete meal for individuals and families. The chain has a Southcentral geographic concentration (Texas roots) with a target market that includes lower income, urban families and value oriented young adults. A 2019 repositioning (supported by new image & national ads) seeks to reach towards to a slightly higher income demo (lower to middle income) without losing its leadership in value for price paid. In essence, its repositioning seeks to move the brand away from its historic positioning as a deep discounter that was well known for in-window dark meat bargains. The brand’s strength in access (digital ordering jumped +80% post-lockdown) and value is emphasized by its “Go Box” campaigns which promote its ability to feed 6+ for just $20.99 (a complete meal for $3.50/head). Access also benefits from an ongoing rollout of curbside pick-up and delivery offered at 800 stores. The brand’s repositioning helped comps and Church’s annual sales have steadily improved (albeit just slightly) from 2018 – 2020. Post-lockdown 2020 results benefited from Church’s drive-thru format and its value-oriented home-meal-replacement equation which was well suited to 2020. Further, 2020 results benefitted from Church’s successful launch of its chicken sandwich which helped the system participate in the chicken sandwich craze sparked by Popeyes in 2019. Notably, 2020 results were achieved with their dining rooms closed for nearly 10 months during this time. While system fundamentals are improving, it is notable that an abundance of older stores in outdated, low-income markets (corresponding to a 68-year-old system) and use of smaller non-traditional sites explains a material AUV under-performance. Further, challenging historical system fundamentals, a low sales-to-investment ratio and a high build/buy ratio translated into very modest gross new unit development. In conclusion, Church’s is executing around a well-conceived turn-around plan that is beginning to gain traction at the same time consumer demand for all things chicken continues strongly.