Supporters of a higher minimum wage applauded the Gap’s (GAP) decision last week to increase hourly pay. While Lynn Albright, vice president of the company’s Old Navy brand, told CNN there wouldn’t need to be higher prices if costs can be lowered by, say, reducing staff turnover, the effects of such decisions often do trickle down to customers.
In the restaurant industry, on the other hand, some chains have already prepared to boost menu prices in response to minimum-wage changes in large markets like California, New York, and Washington, D.C. At the national level, of course, Congress and President Obama continue to grapple with the federal minimum wage–and that could bring similar changes to eateries across the country.
Restaurants are a large low-wage employer, and industry executives have grumbled that that wage increases– combined with additional costs resulting from the Affordable Care Act–are driving up the price of doing business.
To maintain profits, a number of chains have recently announced plans to offset the increases–in part–by passing them onto the consumer:
•Jack In The Box (JACK) expects the higher minimum wage in California—where it has about 40 percent of its restaurants—to reduce quarterly operating margins 0.8 percent when it rises from $8 to $9 in July, CFO Jerry Rebel said on an earnings call last week. The state’s minimum wage will rise again to $10 in 2016. To compensate, by 2015 Jack in the Box plans to increase menu prices either 1.4 percent just in California or a little less than 1 percent across all its restaurants. These higher prices would be in addition to any other price increases due to factors like commodities costs.
•As the Cheesecake Factory (CAKE) operates about one-fifth of its restaurants in California, it expects an additional $2 million to $3 million in costs from the state’s new minimum wage. This was part of the chain’s decision to increase prices by 2 percent this year.
•Denny’s (DENN) said it will plan on “an additional modest price increase” at its California restaurants in July, affecting about a quarter of the chain’s restaurants.
•BJ’s Restaurants (BJRI)—which has about half of its units in California—expects a 1.7 percent menu price increase will help cover the change.
•In New York, meanwhile, hot dog purveyor Nathan’s Famous (NATH) said the state increase to $8 per hour, effective as of Dec. 31, 2013, amounted to a 4.6 percent average salary increase for affected employees. The company estimates that this will add 0.5 percent to the cost of sales if prices remain the same. So the costs are clear, even if the impact on menu prices isn’t yet.
The impact of raising the federal minimum wage to the proposed $10.10, compared to the current $7.25, would be more widespread.
Where Wages Are Going Up
| Passed | Where | Change | By |
|---|---|---|---|
| Mar-13 | New York (State) | From $7.25 to $9 | 2015 |
| Jun-13 | Connecticut | From $8.25 to $9 | 2015 |
| Jul-13 | Rhode Island | From $7.75 to $8 | 2014 |
| Sep-13 | California | From $8 to $10 | 2016 |
| Nov-13 | New Jersey | From $7.25 to $8.25 | 2014 |
| Nov-13 | Montgomery County, Maryland | From $7.25 to $11.50 | 2017 |
| Nov-13 | Prince George’s County, Maryland | From $7.25 to $11.50 | 2017 |
| Nov-13 | SeaTac, Washington | From $9.32 to $15 (for airport workers) | 2014 |
| Jan-14 | Washington, D.C. | From $7.25 to $11.50 | 2016 |
| Feb-14 | Delaware State | From $7.25 to $8.25 | 2015 |
(Source: National Employment Law Project)
