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Health-care reform: What operators are saying

There is a lot known about the new health care law, but there are still some rules left to be sorted out. Regardless, there is enough known that many in the industry are concerned. Here's how some of your peers are responding to reforms:

Jeremy Merrin, Havana Central: Merrin is the owner of Havana Central’s three restaurants in New York City, which employ a total of 350 people. He plans to open a fourth on Long Island in the coming months.

“This comes at an interesting time, given all of the news about food shortages and increased prices. Beef, pork and possibly fish prices will be going up. We’re speaking to our venders to get weekly—sometimes daily—pricing on all the major items we purchase. We may have to take heavier beef dishes off the menu, and we’ll be making some price increases.”

How will health care reform affect your business?
We are in an industry that has a large number of low-wage employees, so it will definitely have an effect. But we don’t know how because we don’t know what the new rules mean yet. The insurance companies are not discussing it with us. They have become very hard to work with. And it seems they have been dramatically narrowing our options. We changed our insurance carrier a year ago, and a lot of the carriers that were insuring restaurants last year are not this year.

What will this mean for your business?
We don’t have enough information. Everything is on the table. We are waiting to see what happens. Health insurance is part of our overhead, so that will be reflected in a general price increase. Whereas increases in beef and pork from food shortages will be more targeted. The bottom line is that the insurance companies are not helping us in the least bit. They’re just not giving us options.

Ashley Morris, Capriottis Sandwich Shop: Ashley Morris is the CEO of Capriotti’s Sandwich Shop, a franchise with 78 locations across the US. Each shop staffs between 15 and 20 employees, but many shop owners operate multiple shops, putting them over the 50-employee limit and thus mandating health coverage.

How are you reacting to health care reform?
“The health care bill is very complicated and what will come out of it and how it will be enforced by the government and interpreted by businesses is still hard to tell. We have an entire position right now—the president of our company—who’s sole job is dedicated to gathering information on health care reform.

Right now we are just gathering information. Once we know more we will adjust our operation to respond. We’ll wait for the other big players in the QSR field, McDonald’s, Yum! Brands, to see what they do, because they have more resources and I imagine are way ahead of us in terms of figuring out what the new bill means.

On a scale of 1-10, how concerned are you?
It’s irrelevant, really. For me, I’m a roll-with-the-punches kind of guy. When the government passes a law, you have to follow it. For the most part, businesses want fewer laws. But we will work through it and figure out.

What will this mean for your business?
What I think is unfortunate and will ultimately happen is that it’ll pass on to consumers. So as costs rise, businesses will have to adjust and prices will rise for consumers. There are systems and changes that necessary in higher government to even implement the law. So until that happens we aren’t interested in making changes in the brand or the business model.

The International Franchise Association (IFA) of which we are a member is leading the drive right now to get the right information and we will rely on them heavily for good information. Within the organization there are a variety of people putting together strategies for how to deal with this.

John Kunkel, 50 Eggs Restaurant Group: John Kunkel is the Founder and CEO of 50 Eggs Restaurant Group. He also created the acclaimed Miami restaurant Yardbird, which employs more than 100 people.

How are you reacting to health care reform?
Everyone, including our insurance providers, were shocked that health care reform wasn’t overturned, so we haven’t taken many steps to figure out how it would affect our bottom line. The way it’s written, it’s a death sentence for small business and a huge blow to medium- and large-sized chains and franchises.

With a single restaurant, it’s really a death sentence as its laid out right now. The problem in the restaurant business is that most of our employees use their position as a stepping-stone; they’re students or part-time workers who do something else as well. So most employees at the restaurant level (dishwashers, waiters) make $8 to $14 an hour and want to take home every cent of it. While we have always provided healthcare options to management and executives, there has never been much interest in getting company health care for employees.

Even when we have had hourly plans available, our employees showed no interest in it. Ruby Tuesdays offers an hourly health care plan, but it didn’t move the needle at all for our hourly workers. These are summer, not long-term, jobs, so there’s lots of turnover.

How are you planning for the changes?
Everybody still believes that the penalty in its current form will be struck down because it might be viewed as a tax. The outcome of the presidential election will determine that. We are all still cautiously optimistic it’s going to get struck down in some form.

On a scale of 1-10, how concerned are you?
I’d say a 7 or 8. Unfortunately there’s not a lot we can do. We met with our providers about a week ago to review our current plans and view contingencies, but there weren’t a whole lot of options. There isn’t a low-cost option out there. There isn’t anything that’s been proposed that’s affordable and feasible.

Rodney Anderson, Pancheros Mexican Grill: Anderson is President and Founder of Pancheros Mexican Grill, with 50 independently owned franchises across the US.

How are you reacting to health care reform?
Throughout the industry, people generally feel like they’re behind. There is a lot of uncertainty. We’ve started going through some of the rules, and some are very confusing. How they get applied to individual franchisees and franchisees with separate ownerships, and what accounts for an equivalent full time employee, is all pretty confusing.

On a scale of 1-10, how concerned are you?
I’d say a 5. Somewhere in the middle. It concerns us. It’s also hard to understand the impact on franchising as a whole and what it means at the unit level—and their cash flow. With the drought, are we going to face additional food costs. So I think were going to see increase in prices no matter what. But the combination of health care and these droughts makes things even more uncertain. Adding insurance costs and administrative costs isn’t the type of environment that is going to encourage people to grow their businesses. We would hope for parts of it to be repealed.

Eric Casaburi, Let’s YO! Yogurt: Eric Casaburi is the founder of Let’s YO! Yogurt, with 15 franchises across the East Coast and more than twice as many scheduled to open in the coming year. The company is based in New Jersey.

How are you reacting to health care reform and what steps have you taken to prepare for the changes?
No one I’ve spoken to in the restaurant industry is in favor of the bill, and as it is, New Jersey is an expensive state to get insurance, so that adds to the burden. The impact of this force-your-hand strategy is not going to be taken lightly within the business community. Anyone you talk to says, ‘This is insanity.’ Providing health insurance to employees should be an option that a business owner chooses to do or not to do. But to say that we are going to be subject to fines if we don’t offer insurance? That I’m opposed to.

What will this mean for your business? Have you taken steps to figure out how you will afford it?
I think part of the challenge is that there seems to be so much confusion around it. We’re still waiting to see if it shakes out. Hopefully it will be changed or altered depending on the election.

Were not anti-health insurance, we just don’t think it’s being done correctly. If certain employees want health insurance, then they are going to go to a company that offers it. It’s that simple.

On a scale of 1-10, how concerned are you?
That’s a loaded question. I don’t know if I am concerned. I don’t know if that the right word. I think a good strong healthy business is going to offer some health insurance offerings, but the conservative side of me says that it’s going to be really hard for businesses to add this on top of all of the other things. It’s like they’re kicking you when you’re down.

Adding all of these different taxes is going to have an effect on people’s willingness and interest to start businesses. I think you end up discouraging new entrepreneurs who are on the fence. There are lots of small business owners, and for them every nickel counts. So for those folks, there is a high level of concern.

Geoff Tracy, Chef Geoff’s: Tracy owns five restaurants in the Washington, D.C. area. Once his sixth restaurant opens later this year, he will employ more than 400 people.

Reaction to health care reform?
I was just about to open my fifth restaurant when it got passed, and there was panic, and then when it was upheld there was more panic. These are potentially very large numbers were dealing with. Lots of things are unclear—specific costs. I know what health insurance costs now, and it’s a lot. The White House says that once we have these insurance exchanges, the prices will come down. But who knows? It’s a very vague answer for someone who is trying to run a business.

How will it affect your business?
I’ve only done some quick calculations. From what I understand, the penalty is $2,000 per employee, and my assumption now is that paying for health care for all of my employees would be more. So let’s use $2,000 as the base. Once I open up my sixth restaurant I will have 400 employees, so we’re talking an expense north of $600,000. If I take that of my bottom line, I can’t do that. I can’t come up with $600,000 in profits just by changing my business. If I could, I would!

It would be better to sell five of my restaurants and just go down to one. I’m considering that as one of my options. With one restaurant, I wouldn’t have to pay the penalty, so I could just sell off the other five.
Another option is trying to see if the White House will eventually work out some sort of loophole. The other option I have considered is that maybe I should just take on a $600,000 expense and find ways to offset that with sales.

Are you considering raising prices as an option?
Yes, but the problem is then it creates a weird dynamic between restaurants who pay and restaurants who don’t pay. If I could increase my profit by $600,000 a year with a price increase that wouldn’t affect my customers, I would. But I don’t think that is possible. So some restaurants will pay and offset their costs with price increases while other, smaller restaurants aren’t paying and won’t have to raise prices. Those dynamics are going to make the marketplace really messy. I think there will be a massive shake up. Some people will raise prices. And some will go out of business because of it.

Will it help employee retention, etc.?
The thing about health care is it’s a scary thing to have dropped on your plate when you work in an industry that is as challenging as the restaurant business. It’s a weird situation because the government is manipulating the marketplace. I actually provide health care for a number of my employees—including management or I will cover a percentage of health insurance for people who have been with me for a while. Those are benefits that I am able to offer to entice them to work for me because I’ve been successful. But all of a sudden that benefit that I was able to afford is no longer relevant because it’s mandated. It’s required. I think it’s very important for people to have health care. I just don’t understand why I have to pay for it.

Another strategy I’ve heard mentioned is manipulating hours. The hours per week for full-time is 30 for this plan. And you don’t have to pay for employees who work less than full time. So some have talked about how 30 is the new 40. Restaurateurs who can’t afford health insurance will schedule everybody for less time. Most restaurant workers already work two jobs, but now they will really need a second job. I don’t think that’s all that great for anybody.

Some people ask me, ‘Wouldn’t you just drop pay?’ But if you work sauté in a busy kitchen, you are working hard—and the money doesn’t equate to the difficulty of the work now. And to think of going up to them and saying, ‘You know what, because of this we have to lower pay.” I can’t imagine doing that.

On a scale of 1-10, how concerned are you?
My concern level is 8 to 9. I’m a little bit of wait-and-see guy. As the hard numbers come down, the rational side of my brain says they’ll have to figure something out. I live in D.C., so I see politicians around a lot. Sometimes they come up with irrational policy, and I don’t think this is a very reasonable policy—certainly not for people in my situation. In an industry where we’re already working so hard to make it work, this sees like another kick in the gut.

Jamie Richardson, White Castle: Richardson is Vice President of White Castle, with more than 420 outlets across the U.S.

How are you reacting to health care reform?
Well, our starting point is unique in that we’ve more than 10,000 employees. We’ve been around for 91 years and offered health care to our employees for about 88 years. We have a robust system already, so the challenge for us is how to adapt what we already have to the new regulations. The biggest thing we’re facing with our plans in terms of the new law is that it will increase our cost by a minimum of 25% in 2014.

Have you looked at possible options in terms of altering your business?
Were examining all of our options right now. When you look at it, we’re left with the choice of violating our conscience by not providing insurance or violating other core aspects of our business. For instance, we’ve considered for decades that 35 hours is full time but the new law would make it 30, so we would have to account for that first and foremost.

I can’t say concretely what we will do, but we are going to see what the best thing is for our team members and that will definitely determine our plan. If anything, it’s going to make it harder to maintain what we already do and what our founder believes in, which is being loyal to the members of our team. It’s not going to make it easier to provide benefits; it’s going to make it harder.

On a scale of 1-10, how concerned are you?
It’s the law of the land, so whether we like it or not we need to be compliant. But nothing happens in a vacuum, so if you consider that we’ve been in the worst economy since the great depression, things are already bad. We know that in other arenas, food costs are rising with the drought. It’s paradoxical: Anyone in the restaurant business is optimistic by nature because you have to be to be in this business. But it’s hard to find as many points of hope as we would like.

 

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