Fight For $15 Is Inevitable, Will Not Kill Restaurants

Above Photo: AP Photo/Mary Altaffer

However you view the $15-an-hour minimum wage issue — it’s the death of the industry or yet another progress barrier that government has thrown in our way that we’ll overcome — it’s real, it’s big and it’s not going away. But will it kill the foodservice industry, as some say?

Here are the relevant facts: Last year, minimum wage increases occurred in 20 states. Cities like Washington, D.C., Seattle, Los Angeles and San Francisco raised the stakes even higher, mandating a $15-an-hour minimum wage by 2018, with their states likely to follow.

Labor unions, distressed at the sharp decline in private sector membership, have shifted their focus to service sector recruiting. The Service Employees International Union (SEIU) is now taking the so-called “Fight for 15” issue local, targeting legislation at the state, county and municipal levels.

Meanwhile, the no-tipping movement is taking flight, mostly in bigger cities and exclusively in full-service restaurants. It results in both higher wages for staff and higher menu prices for customers, and seems to be slowly gaining traction as operators are seeing little pushback from diners. In most cases, the no-tipping restaurants are deploying the menu price hike into paying their teams $15 an hour or more.

But the Fight for 15 is not an issue resolved by fact-finding. It’s fraught with fractious opinion and emotional weight. SEIU organizers are for it for two reasons: a $15 minimum wage means better worker pay, so those workers can now afford the $50 quarterly dues payment that keeps union officials employed.

The NRA is clearly against the $15-an-hour wage because of the additional costs and potential job loss it inflicts on restaurant operators. Speaking on Capitol Hill, National Restaurant Association senior vice president Alfonso Amador recently said, “There seems to be a perception that every job needs to be able to maintain a family of four. Not every job is there to sustain a family of four.”

The battle lines are clearly drawn, but public opinion is weighted to one side: six out of 10 Americans currently say they favor the $15-an-hour wage. This will soon sway and affect legislation at every level.

My intuition says the Fight for 15 isn’t going to go our way. I don’t suggest we roll over, but if we lose this battle, I thought of a few reasons why we needn’t worry as much as we might.

1. It hasn’t killed retail. According to the Wall Street Journal, retail workers in the U.S. earned an average of $14.95 an hour in December 2015, up 3.6 percent from December 2014. At the biggest retailer, Walmart, average hourly earnings are currently $13.88, and they just gave every hourly employee a further 2-percent pay bump systemwide in February. Ironically, the 2-percent additional raise is in response to the escalating “complaints by some longtime workers about Walmart’s more-generous starting wages for new hires,” according to the report.

2. We’re resilient. The foodservice industry’s imminent demise has been predicted by consultants, economists, operators and pundits for years. With apologies to Mark Twain: “The rumors of our demise have been greatly exaggerated.” In the last two decades we’ve survived the 100% Business Meal Deduction, The Atkins Diet, the Cholesterol Scare, Tip Credit Legislation, INS re-regulation, Stricter Blood Alcohol Laws, Affordable Care Act, Smoking Bans, and both Britney Spears and Guy Fieri opening Manhattan restaurants. Historically speaking, we’re tougher than a $2 steak. In fact, many restaurants that already pay their teams north of $13 an hour as a starting wage are not only still in business, but are doing very well, thank you.

3. Customers will not defect. While it’s way too early to determine if non-tipping, full-service restaurants will work in the heartland and suburbs of America, early indicators are that service delivery hasn’t suffered and that customers like the notion of better and equal pay for the people who prepare and serve their food. Plus, they are still tipping an additional 10 percent in some restaurants where prices rose 21 percent to accommodate the no-tipping policy and a higher hourly wage.

4. Employee churn may be considerably curbed. The average hourly turnover in our industry is significant: 66.3 percent annually in 2014, according to the NRA, and 110 percent annually in 2015, according to Black Box Intelligence. Either number is shameful and untenable for long-term success. These sky-high turnover rates result in hard costs that range from $50,000 to $90,000 annually per restaurant. What if we could invest those savings instead into better management pay, training and supervision? We’d reduce turnover while increasing tenure.

5. Vacancies will be filled. With the advent of a $15-an-hour wage, perhaps we deepen the labor pool, and all those dishwasher, buser, host or line cook positions we struggle to fill will be filled. With better candidates to choose from, we also build a stronger bench and future.

6. Management will be less stressed. If the higher wage improves retention rates, our over-worked managers could re-allocate all the hours they currently spend recruiting and re-training into better serving customers and strengthening their teams through training.

7. The NRA is projecting a record year in 2016. As NRN senior finance editor Jonathan Maze recently reported, the National Restaurant Association “is projecting sales of $782.7 billion in 2016. That’s a 5-percent increase over 2015’s sales volume of $745.6 billion. That would be a 2.1-percent increase when adjusted for inflation — the first time in more than a decade that industry sales rose by more than 2 percent in adjusted terms in consecutive years. That sales growth is expected to be largely broad based and split evenly between full-service and limited-service restaurants.” The $15 wage may dampen our growth, but it won’t destroy it.

You could write another column on how the $15-an-hour wage is guaranteed to kill the industry, and your opinion is just as valid as mine. But before you label me a communist or socialist, think of me as a realist. If the Fight for 15 is inevitable, the key is to stay ahead of the change. What if we applied the same amount of time, money and resources we’ve deployed into fighting the wage increase into taking better care of our customers and crew? No one can make lemonade out of lemons better than us.

Jim Sullivan is a popular speaker at foodservice conferences worldwide. The third edition of his bestselling book Fundamentals has just been published. You can get his training catalog at Sullivision.com and follow him on LinkedIn and Twitter@Sullivision.