Restaurants, the countries largest employer of minimum-wage workers, are being swamped by a perfect storm of factors that could submerge their bottom lines and drown their employment roles.
On July 24, the federal minimum wage increases to $6.55 per hour from $5.85. The 70-cent-an-hour increase comes as restaurants are trying to cope with the escalating cost of food, delivery charges, utilities and property taxes and their customers pocketbooks are being emptied by the gas pump.
John Livengood, spokesman for the Indiana Restaurant Association, said the minimum wage increase -- which the industry opposed -- "makes a bad situation worse."
"It's a perfect storm," he said. "It comes as there are record-high food prices and energy costs. Gas prices are affecting how much consumer are spending and decreasing (restaurant) customer counts and their income's going down with significant increases in food, utilities and labor."
The typical full-service restaurant pays about 33 cents of every dollar of sales for wages, salaries and benefits, according to the National Restaurant Association, which says restaurants employ 9 percent of the U.S. work force.
"Most members pay wages above the minimum, but it raises the (wage) bar," Livengood said. "When the bottom goes up, everyone (other employees) expects increases too. Our members will need to figure ways to economize. We're going to see more automation and technology used as restaurants look for ways to cut labor costs."
Food and beverage costs account for another third of each dollar in sales.
"That makes increases in wages and food costs real challenge," Livengood said. "They're significant factors coming at a time when restaurants sales are not going up. Restaurant traffic is down."
John Barney, owner of Crown Point's Barney Enterprises that operates Wendy and Rax restaurants in Northwest Indiana and Indianapolis, said whenever the minimum wage is increased, it creates a problem for a business.
"There are two things to consider, increasing prices or how can you decrease the number of employees to pay for the (per-hour wage) increase," he said. "You have to make hard choices."
Although the average Barney Enterprises employee make significantly more than the minimum wage, most of its workers are hired at close to that level, Barney said.
"When they raise the (wage) base, it decreases the spread between the bottom and the average," he said. "It can't be just paying out more money per hour, that's inflationary, so we have to figure out how to increase productively. It comes at a bad time ... all our costs have gone dramatically."
Jim Angelopoulos, who owns Hammond's Wheel restaurant with his brother Gus, said restaurants are seeing customer spending decrease at a time when restaurant costs are skyrocketing, Traffic at the Hammond family restaurant has been steady but customers are spending less.
"Everything has gone up," he said. "A salesman said it cost more to deliver some items, like potatoes, than they cost. Overall, the cost of the goods has gone up. People are sending less. They're not ordering as large a meal."
Plus the price of gasoline, has customers coming from a distance cutting the number of trips to the Wheel, he said. However, unlike Barney and Livengood, Angelopoulos said the coming hike -- and another 70 cent an hour hike on July 24, 2009 -- in the minimum wage could be beneficial for his eatery.
"The minimum wage will affect our bottom line, but a lot of our clientele are middle class or lower," Angelopoulos said. "They will benefit and will be able to spend more. I don't consider that to be a negative for us."
