Restaurants are feeling the heat as minimum wage increases across the country have been putting a strain on profit margins, leading at least one industry insider to assert that “thousands” of establishments may soon be forced to close.
Eighteen states saw minimum wage increases on Jan. 1, 2018, and while a raise in hourly pay may be beneficial to employees in the short term, the financial hold it places on restaurants could push the industry to the brink, in a similar manner to the so-called “retail apocalypse.”
Willie Degel, host of the TV program “Restaurant Stakeout” and the CEO of Uncle Jack’s Steakhouse, thinks the minimum wage increases could cause many establishments to go out of business.
“I think you’re going to see thousands of restaurants close their doors,” Degel told Fox Business.
“Fine dining is going to go by the wayside.”
Experts like Sonia Riggs have noted that restaurants already produce “slim profit margins,” according to KCNC.
“Restaurants typically make a very slim profit margins, roughly 3 to 6 percent. What this increase does each year is creating a greater disparity between the front of the house and the back of the house,” said Riggs, the president and CEO of the Colorado Restaurant Association.
Riggs was referring to Colorado’s recent minimum wage increase from $9.30 per hour to $10.20.
“What that means is typically servers with their tips tend to be the highest paid people in a restaurant,” she said.
“As this increase is happening each year, the folks already making above minimum wage, like the cooks and the dishwashers, are not required to get a raise at all and the folks that are highest paid people in the restaurant, like the servers, are getting a forced raise.”
Many restaurants are being forced to increase menu prices in order to keep up with the costs of doing business. However, prices can only go so high before a restaurant starts to lose customers.
“When we increase in prices … we see guest count go down,” Degel asserted.
“The consumer is not willing to pay for the experience then.”
With increased prices for sit-down eateries, many are turning to electronic sources like GrubHub to bring food directly to them.
Meanwhile, for those who choose to venture out, technology is changing the way business is done inside of restaurants.
For instance, national chains like Chili’s and Applebee’s both use tablets mounted to tables to aid customers in paying their bills.
At many restaurants, diners are also able to use the devices to order food and play games, which drastically decreases the need for servers.
But with the minimum wage still on its way up in many places around the country, it’s not just technological advancements that are potentially killing jobs.
Red Robin recently announced plans to remove busboy positions at 570 of their restaurants.
Degel also admitted to Fox Business that he had removed busboys from his New York locations, in addition to cutting jobs “across the board.”
“I can’t fire any other people or I can’t even do my business,” he said.
It would appear that the combination of reduced physical service due to budget cuts and more internet-based services could do to the restaurant industry something similar to what e-commerce did to the retail market.
If so, entry-level and low-skilled workers could be hit the hardest.
“I think it’s a real problem for people with low educational attainment and a low basic skills base,” said Iain Murray, vice president for strategy at the Competitive Enterprise Institute.
“That sets you in a trend whereby it’s very difficult … to gain the extra skills to (get) a job even at minimum wage. That sets you in for long-term unemployment.”
Increased mandates on restaurants are not only hurting smaller business owners like Degel — the impacts have been felt by major chains as well.
Bloomin’ Brands, the parent company of Outback Steakhouse and Carrabba’s Italian Grill, recently closed 43 of their restaurants, while Pollo Tropical closed 30 of theirs.
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