Restaurant response to State of the Union is mixed

President Barack Obama’s call for increasing the federal minimum wage to $10.10 per hour ups the ante from his earlier push to bring it up to $9.

It also falls below efforts by labor organizations and fast-food protesters to increase the wage to $15.

Still, with states taking action, some restaurant chains are still forced to deal with higher labor costs in the next few years.

In his State of the Union address Tuesday, the president offered to lead by example by issuing an executive order that will require federal contractors to pay their employees at least $10.10 per hour. It’s not clear how many people would be impacted, and the order would only apply to new contracts.

Far more workers would be impacted if Congress approves a measure introduced last year by Sen. Tom Harkin, D-Iowa, and Rep. George Miller, D-Calif., which would raise the federal minimum wage to $10.10 per hour and index it to inflation by 2016 — what would amount to a 40-percent increase from the current federal wage of $7.25.

Meanwhile, Obama urged business leaders to act, taking initiative to raise their starting hourly pay above the minimum wage, pointing to companies that contend a higher wage can boost productivity and profit.

The reaction from the business community was mixed. Here’s what some restaurant operators had to say:

Paul Saginaw, co-founding partner of the Zingerman’s Community of Businesses in Ann Arbor, Mich., which includes a deli, bakery, catering company and other associated businesses, said:

“I’m very much in support of the Harkin-Miller bill. In March, we will have been going 32 years. I started with a partner and two employees and we did a little under $100 our first day. Now we’re a community of businesses with 17 partners, and all of them other than my co-founding partner started as regular employees. We now have about 620 permanent employees, though that swells up during the holidays. We’re going to do about $50 million cumulative this fiscal year, and we’ve been profitable 32 out of 32 years. And we’ve never paid anything close to minimum wage. …

“We’re continuing to try and boost entry level wages because we believe that if an employee is not burdened with an enormous amount of financial stress, they’re more likely to perform well and to stay. It lowers the cost of screening, interviewing, on-boarding and training, and ultimately turnover, and that contributes to the bottom line. Our goal is getting (entry wages) up between $12 to $13 within the next 18 to 24 months. It’s a large ship to steer, but we’re on that path. For me, it’s an embarrassment that the food industry has the highest percentage of working people in poverty. We would like to change that.”

More operators weigh in

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John Puckett, co-owner of the eight-unit fast-casual Punch Pizza chain based in Minneapolis, was spotlighted by the president during the State of the Union address. The chain recently announced that it raised its entry-level hourly pay to $10 per hour and had this to say about it:

“Our decision had nothing to do with politics; that’s what makes the recognition by the president and first lady such an honor. Punch made the decision to give raises purely based on what is best for our business and our employees. We believe our investment in our people and training will give us an advantage in quality food and superb service in fast-casual food.”

Don Fox, chief executive of Jacksonville, Fla.-based Firehouse of America LLC, commented on the impact of states raising the minimum wage:

“When a state establishes a minimum wage higher than the federal standard, there is a ripple effect on the entire hourly and salary wage structure in the restaurant. … Many operators then have little choice other than to raise prices in response to an increase in the minimum wage.

“And worst of all, depending upon just how much variation there is in labor costs from state to state, the operator may conclude that operating in some areas is simply not a prudent option.”

Andy Puzder, chief executive of the 3,413-unit Carpinteria, Calif.-based CKE Inc., parent to the Carl’s Jr. and Hardee’s brands, teamed with economist Arthur B. Laffer in an Investors.com column Wednesday titled “Minimum Wage Hike Will Hurt Poor, Young, Minorities.” This is an excerpt:

“Conceptually, of course, there is no question that raising the minimum wage will cost some people their jobs. It will also reduce the hours worked for others, raise the prices of products made by minimum-wage employees and incentivize businesses over the long run to automate and thus eliminate minimum-wage workers.

“Most of all, it will reduce economic growth, the only real long-run hope for alleviating poverty.”

Ron Ruggless contributed to this report.

Contact Lisa Jennings at [email protected].
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