The Effects of Minimum Wages in the Foodservice Industry

Picture: Tracy Lee Stark (The Citizen)

There has been much debate over the past couple years about the impact of the minimum wage, particularly as it relates to the foodservice industry. States such as California and New York have instituted a $15.00 per hour minimum wage in each state’s foodservice industry, which has traditionally relied on lower-wage workers.

The movement to increase the minimum wage in other states has now gained traction. If you own a business in the foodservice industry, then take heed and prepare for added human resource costs.

While no one can really predict what will actually happen once foodservice minimum wage increases are implemented, it certainly will be a game changer for many of you. Without an increase in revenue from sales, the increase in payroll expenses will create a burden on your ability to make a profit.

The recent hikes in the food service minimum wage in CA and NY and likely other states will be phased in over time and will, in the short and long term, place burdens on foodservice businesses.

As is the case in many establishments, you, as the business owner will face some tough decisions. You will either have to cut payroll, increase prices, or add some degree of automation to your business plan. It is likely most of foodservice business owners will undertake a combination of the three options.

How to Counteract the Negative Impacts of Minimum Wage

In many instances, automation has begun to be introduced into business plans. The move toward higher minimum foodservice industry wages can only serve to accelerate the implementation of automation plans that are in their infancy. Foodservice business owners have begun to look into replacing workers with such automation technologies as kiosks and table tablets. Unfortunately, many foodservice business owners will be forced to hurt their employees in the long-run if they wish to remain profitable.

There are other options available to you as a foodservice business owner in order to blunt the impact of a higher minimum wage. One is to implement service charges. Such charges can create disgruntled customers who do not like to see any additional charges on their bills. Service charges may lead to fewer employee tips.

Another way is to increase the number of tables wait staff have to handle, or additionally, replace many items once prepared by chefs with processed foods that will reduce costs.

In some markets, however, profits actually rose after an increase in the minimum wage. Some say this is partly due to a thriving economy where people have more disposable income in their pockets. Others say it is just a matter of time before increasing minimum wages begin to adversely impact profit margins.

As more states increase their minimum wages, broader impacts on human resources, as well as on overall business operations, will become much clearer.

It remains to be seen if foodservice business owners will be able to cobble together options to reduce costs without having to slash staff or send customers fleeing out the door because of increased prices.

Many South African restaurants are going through very difficult times. Many are barely able to cover their overheads. A forced increase in the wage bill will likely lead to layoffs or possibly closure of the restaurants.

Now it’s your turn. How has the minimum wage affected your restaurant? Share with us below.

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