Restaurateurs adjust to spiking labor costs

The pain from minimum-wage hikes has been acute for restaurateurs in areas that recently raised the pay floor.  Now they’re exploring ways of coping—providing models for colleagues who are facing similar increases in their areas.

Here’s how the sharp rise in costs has affected several operators and what they’re doing in response.
 

Ark Restaurants, the New York City-based multi-concept operator of about 42 restaurants up and down the East Coast, said its labor costs soared by $2 million in 2016 specifically because of the increase in some areas’ minimum wage. 

“We did not think we had that much elasticity to raise prices,” CEO Michael Weinstein told Wall Street. Instead, the company is passing along the costs to customers in a more subtle way.

The bars inside Ark’s restaurants had not been charging sales tax, preferring to eat Uncle Sam’s fees rather than take the time to compute the tax and then count out the coins customers were due in change. Now the establishments are starting to add on the tax, a task made easier because 90% of the bar tabs are now paid with credit card, so no cash is handled.

The Big Daddy’s casual chain was considering sites in Phoenix until Arizona raised the minimum that restaurants would have to pay servers regardless of what they made in tips.  Hiking the minimum from the federal mandate of $2.13 per hour translated into an extra $100,000 in annual labor costs per restaurant, according to Boyd Hoback, CEO of parent company Good Times Restaurants.

Instead, the fledgling chain has decided that Arizona doesn’t make as much business sense. Good Times told financial analysts that it was shifting the development focus of Big Daddy’s to the Midwest and other areas of the Southeast, where the federal tip minimum is still in effect.
 

Several restaurants in San Diego figured they’d pass along the burden of a new $11.50-an-hour minimum wage by levying a 3% to 3.5% surcharge on diners’ tabs. But that didn’t sit well with local government officials, who fielded complaints that customers weren’t alerted beforehand about the charge. Some guests complained they should have been given a heads-up before ordering.

In addition, authorities alleged that some of the participating places didn’t explain why they were levying the additional charge, an assertion the local restaurant community refuted.

San Diego City Attorney Mara Elliott said this week that the practice may be illegal, and is investigating the situation.  

New York’s three-unit Uncle Jack’s Steakhouse chain is facing a $350,000 per year increase in labor costs as a result of changes in the state’s minimum wage. CEO Willie Degel has cut his bus staff, who previously handled five tables each, but that’ll only cover 30% of his increased costs. He’s eating the rest.

The experience has led Degel to draft a proposal that jurisdictions adopt three minimum wages. Which one applied to a restaurant would be determined by the establishment’s sales volumes or other particulars, including whether it was privately or publicly owned. (Look for details in an upcoming story.)
 

The experiences of Dee’s Route 202 Diner in Lebanon, Maine, were spotlighted by a local paper as an example of how restaurants are contending with a $1.50 hike in the state’s minimum wage on Jan. 1 to $9 an hour. Proprietor Olivia Tasker said she’s already been forced to eliminate a position, cut the hours of two staffers, and discontinue dinner service for the winter on Tuesday and Saturday, her slowest days.

Maine’s minimum increases next January by $1 an hour, and by the same amount every year until 2020.