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Restaurants re-engineer ops, benefits to counter labor spike

Restaurants are turning a sharp eye on operations and benefits policies as they hunt for ways of preserving margins from mounting labor pressures.

Red Robin is a case in point. The chain revealed this week that it’s erasing a busser’s position in its casual restaurants after eliminating the post of kitchen expediter during the fourth quarter of 2017. Both eradications are expected to save the franchisor $8 million annually.

“We have a number of additional phases going forward, some afforded by technology changes, some not,” CFO Guy Constant said at the ICR Conference, a gathering of finance officials in Orlando, Fla. “We need to do that in order to address the labor increases that we’re seeing.”

The minimum wages of 18 states rose as of Jan. 1, as did the base hourly pay of 20 major municipalities, to a high of $15.45 in Seattle for large companies that do not provide health benefits. The mandated increases have added momentum to upward pressure from market conditions and a tight supply of entry-level workers, a primary target of restaurants.

In addition, a number of states and local jurisdictions adopted or increased the benefits of paid leave laws.

The other side of the squeeze is a prolonged sales slowdown. Operators are loath to pass along the increases by raising prices because of fears consumers will further curb their visits and spending.

Instead, the hunt is on for unrealized savings. Multiconcept operator Ark Restaurants, for instance, no longer accepts credit cards as payment for private events unless the customer agrees to pick up the 3% processing charge. “When you're doing $10 million, that 3% represents several hundred thousand dollars,” CEO Michael Weinstein told financial analysts.

The New York City-based operation has also raised its administrative fees for private events, and no longer forgoes charging sales tax on drinks sold at its bars. The parent of such operations as Sequoia and Bryant Park Grill had been eating the expenses for the sake of speeding transactions, but now calculates and charges the fees specifically as a way of offsetting labor expenses.

Technology is definitely an enabler. Shake Shack has eliminated cashiers' positions at its newest New York City restaurant, with customers required to either order via kiosk or use the chain's proprietary smartphone app. CEO Randy Garutti told ICR attendees this morning that elements of the store will be selectively incorporated into new builds.

The scramble to find savings has not been without its controversies and excesses. So many employers in Ontario have illegally cut back on paid breaks since the minimum wage rose to $14 Canadian dollars that the province is hiring 175 more wage and hour law enforcement agents.

A Tim Hortons franchise run there by the children of founder Ron Joyce has been accused of dropping benefits and informing employees they were no longer entitled to paid breaks. Provincial authorities said they intend to investigate.

Ontario Labor Minister Kevin Flynn revealed that a wage hotline had fielded about 2,000 calls so far this year, or about 30% more than usual. Some callers had phoned to report suspected violations of the new regulations, but the majority were queries about employers’ obligations under the wage hike and related new laws.

The expectation is that labor pressures will intensify as economic conditions improve, more jobs are created and competition for new hires intensifies. Former Carl’s Jr. and Hardee’s chief Andy Puzder, a onetime candidate for secretary of labor in President Trump’s cabinet, sees those pressures as being more manageable than escalation from government-mandated wage hikes.

“With regulatory relief, tax cuts and the increased business that comes from economic growth, employers now have the resources to bid up wages,” the conservative Republican wrote in a Wall Street Journal op-ed that ran Sunday.

But a new political climate in Washington, D.C., has not been felt in every statehouse. Massachusetts has already disclosed plans to put a referendum on the 2018 ballot to raise the state minimum wage to $15 an hour.

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