While some state and local governments have enacted a higher minimum wage in recent years, another round of hikes July 1 by several states and cities is putting even more pressure on local businesses.
San Francisco's minimum wage increased to $15 an hour, reported KOMO.com (June 30), Los Angeles and Chicago implemented hikes, and in Oregon, the minimum wage increased to $10.50 from $10 in rural areas and to $12 from $11.25 in the Portland area, reported Statesman Journal (June 29).
Though not the only ones feeling the pain, restaurants could be among the hardest-hit businesses. Wage increases will likely apply additional pressure at a time when many restaurants are facing slim margins and falling traffic, resulting in companies raising menu prices, reported Bloomberg (July 3).
That becomes a "delicate balance," says Bloomberg Intelligence analyst Jennifer Bartashus. "You can’t raise your prices too much because then you lose customers, and traffic is already under pressure.”
According to MillerPulse data, traffic fell 1.2% in May. Meanwhile, earnings before interest and taxes have been on a downward spiral for eateries, with the median margin dropping to 7.6% as of the first quarter from more than 10% at the end of 2015, Bloomberg Intelligence data show.
The unemployment rate, which now stands at 3.8%, matching April 2000 as the lowest since 1969, is adding to the impact, making it even more challenging for restaurants to find enough staff. “It’s a bit of a double whammy,” Firehouse Subs CEO Don Fox said.
Here are just some of the effects the wage hike is having on some big U.S. restaurant chains:
Time will tell how minimum wage increases will affect other large restaurant brands across the U.S.
Sarah writes for the weekly Food Institute Report and the daily news update, Today in Food. She also writes and edits the Food Institute’s annual publication The Food Industry Review and assists with The Demographics of Consumer Food Spending.
Sarah has more than 15 years of experience as a writer and editor, with a well-rounded knowledge of the food industry and business-to-business research content. Her background includes an editorial role at Convenience Store News magazine, and she has worked for Nielsen, the USA Today Network and Bauer Publishing.
Sarah is currently working on her MBA at Rutgers University. She can be reached at email@example.com to talk about anything food-related.
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