An increase in the minimum wage is imminent. What’s more, it may be tied to an index, like the Consumer Price Index. It’s not hard to imagine this going a little further, perhaps to the point where foodservice wages are comparable to those for all private-industry employees. If this were to happen, what would be the effect on the price of a burger?
One of the difficulties with increasing the wages of hourly employees is the competitive nature of the industry. Limited-service restaurants seemingly have attempted to engineer labor out; nevertheless, it remains on a par with food cost. Moreover, it could be the most important factor in a market that offers similar products.
Assuming that paying employees the average rate of all workers is a desired end, the questions become: Can higher wages lead to greater consistency and develop brand loyalty to the extent that higher prices can be charged with customer satisfaction? Are product and service quality developed in longevity enough in a highly competitive market?
There are a number of disadvantages with the current approach to labor in foodservice. One of the most troubling aspects is the pay. Current levels may be so low that many do not consider foodservice a viable working alternative or a career path. Specifically, employees may sense their wages correlate with the value management places on their positions or the jobs they perform. If they discern that their jobs are unimportant or trivial, or that management doesn’t care, why should they? Because commitment to an organization may be influenced by pay, it is not hard to imagine that their time is worth more than the amount an employer is willing to pay. In a very real sense, many foodservice employees are little more than transient workers because they are viewed simply as stopgap measures.
There are a number of advantages to paying higher wages. First, higher wages may help reduce the excessively high turnover rates, which would reduce the amount of time managers spend on labor management. Second, employees might develop a deeper commitment to the organization. Also, their skills could be improved, allowing management more flexibility to cultivate existing menus and improve customer satisfaction.
This is not to say that positive changes have not occurred. In the past decade, the average turnover rate for hourly employees in limited-service restaurants has declined while total payroll and benefits—full-time equivalents, or—have increased.
Nonetheless, in a service-oriented industry, high turnover can lead to higher costs and inconsistencies in product quality and service.
As for the price of a burger: Average wages for all private-industry employees in 2004 was $17.25 an hour. Using this amount, computations indicate that compensation for foodservice employees, including current benefits, would be $34,251 per FTE. What’s more, in order to obtain a rate of return that is comparable to current levels, estimates suggest that 40 percent more would have to be charged to cover this increase in wages. For a burger that is priced at $1, a competitive wage price would be $1.40; and an average meal check of $5.50 would be $7.70.
Attention on performance will focus employers and employees on the standards and behaviors that drive the operation, which then will enable both groups to help meet the organization’s long-term goals of growth, profits and customer satisfaction. Employees may stay with organizations that provide a supportive work environment and opportunities to develop and grow. These outcomes are founded on a philosophy that people are an asset, and investing in them with more competitive wages and a policy of retention will bring increased benefits for the entire organization.
Richard Ghiselli is an associate professor at Purdue University’s Department of Hospitality & Tourism Management. Nelson A. Barber is a graduate instructor in the Department of Nutrition, Hospitality and Retailing at Texas Tech University. They can be contacted at [email protected] or [email protected].
