A Different Way to Look at the Minimum Wage Increases
Written by David Hopkins
As most people in the restaurant and hospitality industry have witnessed, minimum wage in many parts of North America has risen, considerably, and is projected to continue to increase. However, what does this mean to the continued viability of the industry at-large?
In Canada, the provinces of Ontario and Alberta have been struck the hardest, with increases hovering around 20% over a two-year period. In The United States, California is experiencing a planned 25% accession over the next three years. At The Fifteen Group, our team of industry experts knows from first-hand experience that there is a significant correlation between minimum wage levels and overall hospitality brand health, at both micro and macro levels. Although many employees earn more than minimum wage, most hourly staff salaries (including some management) are steered by regional minimum wage benchmarks.
Back in 2017, I was not against the minimum wage increase itself. I was, however, reluctant to endorse the new standards due to the speed that mandatory wage increases were coming into effect. It was like making a sharp turn with a tractor while travelling 100 miles/hour. As a result, the industry, including the consumer, did not have the time to adjust to a more gradual implementation of the wage adjustments, along with the necessary price increases needed to offset the new regulations.
Looking at this situation from another perspective, within the restaurant and hospitality industry, we continuously discuss consumer value proposition as the most critical factor for brand success. Whether you are operating as a diner or a white table-cloth restaurant, you are providing a value proposition for your guests. The higher the perceived consumer value proposition, the more likely the guest will return, and spread the word on how positive their experience was. The value proposition is the difference between their experience and the price.
Experience
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Value Proposition
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To increase the consumer value proposition, we can either improve the quality of the experience, decrease the price, or execute a combination of the two.
At the core of service and value proposition perception, it is up to your staff to deliver the majority of the guest experience. An establishment can offer an exceptional menu, in theory, but it is the responsibility of a restaurant or hospitality team to execute it, with excellence. One can have an exceedingly well-designed space; however, again, it is your staff that are responsible for maintaining it. No matter how impressive your space looks or feels, it will never be enough to satisfy guest demands if the server is sloppy, forgetful, or inattentive. In conclusion, you can have the best restaurant in the market, but the only way you will succeed is through proper staff execution. Having the best staff possible on your team will undoubtedly help you achieve, and exceed, your bottom line.
What if we paid a premium to all staff to earn the best possible execution? For a moment, forget about minimum wage; what if we paid a considerable premium, let's say 25% over market standards, to ensure that we had the absolute best staff, the top servers, bussers, cooks and hosts? Now that we have a dream team of restaurant staff, we are now executing at a much, much, higher level. It is still essential that one has a great concept, brand, core menu as well as a unique dining atmosphere; however, if you start with all of those variables and have the best staff money can buy, a restaurateur then has the opportunity to increase prices by 10%. When you offer an elevated experience, the average guest check can rise due to the enhanced value proposition, ultimately lifting the experience.
For example, what if you increased your guest count by 15% because of the excellent value proposition you now have? This lift offers your guest a continuous 11 out of 10 experience due to your staff's expert know-how, subsidized by the fact that they are being led by the best managers available, earning a 25% premium. Below, I have included what a financial statement transformation might look like for an average 125 seat restaurant.
Sales Increase 10% Price and 15% Guest Count
Product Cost Percent Decrease Due to Price Increase
Labour Cost 25% Increase and Additional Marginal Labour for Increased Guest Count
As we can tell, paying employees higher wages can transform the value proposition for a variety of hospitality establishments, allowing for both your staff and guests to become your ultimate brand champions.