Restaurant CFOs sound off on health care concerns

A group of chief financial officers from some of the largest restaurant companies recently discussed their biggest concerns surrounding health care reform, and uncertainty and increased costs topped the list. 

With many details of the Patient Protection and Affordability Care Act still unfolding, the ambiguous future of health care reform hung heavily over this month’s Restaurant Finance & Development Conference. The topic weaved its way into nearly every educational session and networking conversation that occurred during the Nov. 12-14 event in Las Vegas.

Under the law, employers with 50 or more full-time or full-time-equivalent employees are required to offer health insurance to those employees and their dependents or pay a penalty. The minimum penalty is $2,000 per employee. While the mandate to offer coverage does not go into effect until 2014, there are deadlines to meet in the meantime.

A panel of chief financial officers discussed their top concerns about the upcoming health care requirements, as well as steps they are taking now to comply with the 2010 law.

Here are edited responses from four restaurant chief financial officers when asked: “What are your three biggest concerns as related to Obamacare?”

“Cost, cost and cost. There’s significant uncertainty regardless of the size of the organization. There’s a lot of concern over this initiative. What we’ve done is have a benefits consultant run the numbers — it’s shocking.

Then we are looking for ways to deal with it. There will be some management of bringing down staff to part-time.  [But you have to remember that] in the restaurants, the employees have such great relationships with your guests, and you do want that. It’s tough to envision that conversation, but as time progresses, we’ll see how that goes.

We’re looking for certainty, and talking to operators about what’s going to happen if we take the workforce down to part-time status. We’re still assessing that.”
— Richard Peabody, CFO, Corner Bakery Café, a 140-unit fast-casual chain based in Dallas

“We know there’s some impact. We already offer health care to our full-time employees, but there will be a bigger impact to our franchisees. There’s a lack of understanding still today. After the Supreme Court decision [in June], we began educating our franchise community. The day after the election [in November] our phones started ringing. We’re a tight-margin business and the added costs could be significant.

One of our concerns is expansion. We still have a lot of single-unit operators, so they are below the 50-person minimum. But if they start expanding to two or three units, they cross that threshold. For now they are saying, ‘We’re going to hold off.’

We’re also concerned about the cost of administration. We’ve heard how complicated these documents are. You need good legal advice and consultants on the insurance side of the business. Its an18-page document to figure out what constitutes a full-time employee, compared to our six-page Constitution.”
— Joe Koss, CFO, Culver Franchising System, parent company to the 480-unit Culver’s quick-service chain based in Prairie du Sac, Wis.

Hear from Panda Restaurant Group and Darden Restaurants

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“We offer health care to 30-hour a week employees already. We’re concerned about the costs that will be phased in over time. A 24-year-old would rather pay the $29 penalty than for health insurance, but that changes as they age and those costs will be phased in over time.

We have a lot of our hourly people who work over 30 hours. We will not be proactively cutting hours — certainly not in the near term. In terms of health benefits, we didn’t want the change in culture.

The last [concern] comes from being in California. We’re wondering what the trial lawyers are going to find and what happens in a few years.”
— David Landsberg, CFO, Panda Restaurant Group, parent company to the 1,500-unit quick-service Panda Express chain based in Rosemead, Calif.

“The headlines [about Darden moving to more part-time employees] have been sensationalized. We’re an 180,000-plus-employee organization. This is the law. We definitely have health care issues that need to be addressed and the costs of being self-insured have gone up. Our concern is getting a clearer understanding. There are still a lot of unknowns. We need the regulators to move swiftly and consistently.

To me, it’s compliance that will be very challenging. It’s confusing and a massive change. We offer health care to all employees, depending on their needs, and that goes away. There’s a lot employees will have to go through. Compliance will be very significant and very disruptive.

[On the discussion of part-time employees], we’re already a large part-time employer. Seventy-five percent of our employees are part-time already. [Any] policy change will affect employees that work 30 to 35 hours. … Our industry has met the needs of a lot of employees who want to work part time. We as an industry have met that need, and so the economic reality is very, very challenging. They may need to move above 40 [hours] or less than 30. It could be hard to get those folks to move up. … If that’s the reality can we maintain guest satisfaction? Can we maintain employee engagement? We value that significantly. [The answer will] come from surveying our frontline employees. This is where we are today. There are still a lot more rules to understand, and now we have to take time from other things to address them.”
— Brad Richmond, senior vice president and CFO, Darden Restaurants Inc., the Orlando-based operator of more than 2,000 restaurants under the Red Lobster, Olive Garden, LongHorn Steakhouse, and other brands

The Restaurant Finance & Development Conference is produced by Restaurant Finance Monitor and Franchise Times and drew nearly 2,000 attendees.

Contact Robin Lee Allen at [email protected].
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