Minimum wage increases don’t have a big impact, right? If you ask some San Diego diners they’d probably tell you’re wrong.
In the wake of labor cost increases, local restaurants have responded with new charges on bills of 3 percent or more, specifically to cover the cost of expensive new regulations.
In preparation for the second minimum wage increase in six months and the fourth in over two years, local San Diego restaurants are implementing surcharges. Beginning this week, the city’s minimum wage jumped from $10.50 per hour to $11.50. The minimum wage increases don’t end here though. By 2020, they’re set to hit $15 an hour, but if businesses are under pressure trying to make $11.50, how will they stay afloat over the next few years?
Instead of merely jacking up prices, some local owners have gotten creative and added a line on the bill for a “government mandate” surcharge to spell out the direct increase that minimum wage hikes have on the costs that diners pay for their meals. And it’s not only because of minimum wage increases, but healthcare costs and other mandates. The surcharges have largely been implemented by a number of San Diego’s higher-end restaurant operators, especially with those whose workers are tipped, but it may become the norm across the board.
Some business say this surcharge is their last resort after trimming other expenses, cutting worker hours, increasing prices and other cost controls. The San Diego Triune reports:
“I can’t get to sleep at night wondering where in the heck am I going to get the dollars I need to pay all my employees,” said Rick DiRienzo, owner of Rockin’ Baja, which operates three restaurants in San Diego County, is about to open a fourth in Mira Mesa, and also has one in Newport Beach.
“My servers are making incredible tips — between $20 and $30 an hour — and with this increase, I can’t continue on and expect to make a living,” DiRienzo said. “Of course, I’m worried about a backlash (from diners), but I can’t think of anything else to do other than raise prices and I’ve already done that for the last two years.”
DiRienzo estimates his company will take a financial hit approaching $200,000 this year across his four Southern California restaurants.
“We’re still giving people raises, and we’re fine paying people $15 an hour, but a restaurant’s bottom line is such that all of a sudden you can’t just absorb that,” said Cohn, who opted for a 3 percent additional charge for San Diego restaurants and 2.5 percent for those outside the city.
“We’re just stating a reality, that costs are going up and this is how we’ve decided to respond to it. If you stay in a hotel, rent a car, there are certain mandated fees.”
San Diego is just one city which kicked off the New Year with minimum wage increases. Some 22 cities and counties and 19 states rang in the New Year with an increase to their minimum wages. California raised its minimum wage to $10.50 for businesses with 26 or more employees. Massachusetts and Washington State have the highest new minimum wages in the country at $11 per hour. New York has a new hodgepodge of wage increases: $11 in New York City, $10.50 for small businesses in the city, $10 in its downstate suburbs, and $9.70 elsewhere. The list of states that hiked wages on January 1st also include Arizona, Maine, Colorado, Arkansas, Connecticut, Hawaii, Michigan, VermontAlaska, Florida, Missouri, Montana, New Jersey, Ohio, and South Dakota. Later in the year, Oregon, Washington, D.C., and Maryland will see their lowest wages rise as well.
If it seems like restaurants and fast food places are more harshly affected by minimum wage increases, they are. They tend to employ lower wage workers to do repetitive, low-skilled or no-skilled jobs and, according to economists, labor costs eat up as much as 35 percent of operating costs compared to about 11 percent for retail.
Surcharges may be a short-term solution to absorb the costs of the new minimum wages and to educate diners on the direct impact of these increases and perhaps to get the attention of lawmakers. However, there comes a point when diners will consider foregoing eating out and cooking at home. For high-end dining, we’ll see if diners are not prices conscious because they can afford it. It may be that the wealthy can afford to swallow the surcharge, but middle class families or singles looking for a night out-on-the-town every once in a while, may take their budgets elsewhere.
Don’t be surprised though, if these restaurants reconsider labor costs altogether and look for ways to invest in automated services such as kiosks to take orders and conveyor belts to deliver food. Many fast food restaurants allow customers to pour their own drinks while sit-down restaurants have kiosks or tablets ready to take orders at the table and send them to the kitchen. Robots are increasingly replacing low-skilled manual labor, because they never need a sick day, don’t need healthcare coverage, and never need a raise.