Higher Wages vs. Restaurant Closures

Cause and Effect: Higher Wages vs. Restaurant Closures

            Our position is to advocate for operators to review their current business model and evaluate the options regarding wages to determine the “best fit” for their business.  To that point we’ll offer some suggestions and attempt to start the conversation as this issue affects both the business owner and their most important asset, the people who bring their concept to life on a daily basis.

            Flashback to my first semester as a culinary student, we’re all sitting in the lecture room in our crisp, white “commis” uniforms and our Chef Instructor lays some wisdom on us in the form of a time-tested adage, “There will always be an audience willing to pay for quality.”  Basic, straight-forward, common-sense approach to foodservice operations at any level within any segment.  If it reminds us of the theorem, “build a better mousetrap and the world will beat a path to your door” then none of us should be surprised.  It requires the same level of creativity that goes into the development of a new menu item or signature cocktail as it does overcoming the next human resource challenge, and the determination to make it happen!

            All operators worry about raising menu prices especially now when consumers are often “price sensitive” and are seeking value at all category levels from quick-service to casual dining (we’re assuming if you’re at a fine dining establishment budget may not be your first concern).  As a reference point I’d like to share a recent article (NRN, 4/20/17) regarding the cause and effect of potential menu price increases and which operations were more or less likely to be impacted. 

The study referenced in the article pointed to the correlation between the ability of a restaurant to raise prices as compared to their online ratings score (in this case Yelp).  It appears that operators with a higher online consumer rating score have more flexibility regarding a rise in menu prices as compared to those with a lower rating.  Is this a direct “cause and effect” situation, perhaps but let’s “follow the money” to determine if we can learn another approach to managing labor.

To complete the thought above when operators had a higher rating they had the ability to raise menu prices and their guests did not appear to have an issue.  This assumes the higher rated operated is doing everything in their power to please and service their guests.  The lower rated operator may have issues such as poor food quality, lack of (or just bad) service or a cleanliness issue.  The latter operator will be challenged to raise menu prices to accommodate for a higher minimum wage as their guests won’t see it as a positive price / value relationship.

The battle for labor will only tighten in the future and the operator who can afford to raise their menu prices (for whatever reason) will succeed as they can compete for the best labor available at the new minimum wage.  Those operators who can’t afford to raise menu prices will be at a distinct disadvantage and WILL be the ones who must close their business due to a wage increase.

A couple of quick suggestions for any operators who may face this issue include, if you’re the “lackluster” operator either up your game or get into another business.  Those of us committed to this industry, and the dining public, are only hurt by your lack of performance.  On the other hand, if you’re working hard for both your guests and staff perhaps changing from a table-service business model to a counter service could manage increased labor costs.  Another option would be to use a fast-casual service model at lunch when diners need to be serviced quickly and then shift to table service for dinner when traditionally diners are accustomed to paying a higher price point. 

We hope our review of this sensitive topic has started a new conversation that potentially “raises the bar” for all operators and that some operators will find our suggestions either helpful or a good starting point.  Remember, if we can be of assistance to consider reaching out for an experienced and objective consultation.