More Evidence That Rising Minimum Wages Are Going To Crush The Restaurant Industry

Casual dining investors, despite the retail route, have become increasingly optimistic over the past month and a half with several of the largest names in the industry rallying 15-20% into the holiday season. 

As TDn2K points out, part of the optimism is attributable to a recent "acceleration" in average check size across the restaurant space with comps up 2.4% in November and 2.5% in October.  Despite many brands focusing on price promotions to drive sales and traffic amid a decline in mall/retail foot traffic, both figures are higher than the 2.0% check growth experienced the first nine months of the year.

On the other hand, strong pricing has been completely offset by abysmal traffic comps resulting in overall flat sales comps. As TDn2K notes, rolling 3-month traffic comps declined 2.5% in November across the United States, with the Midwest market fairing the worst at -4.1%.

Meanwhile, these steadily declining traffic comps in 2017 compound on lower traffic experienced in 2016 as well.

Of course, the key question that arises from all this is why restaurants continue to hike prices even as customers are clearly rebelling against them? 

As it turns out, to our complete shock mind you, the answer to that question just might lie in those ill-advised minimum wage increases that we've been warning about for years.  With the minimum wages in California, for example, set to rise roughly 10% per year for the next 5 years, restaurants are increasingly trying to offset those increases in price hikes...

“Higher check average increases are risky in a market with steadily decreasing traffic, but brands may be using price to support margins as they face rising labor and operating costs,” said Fernandez.

 

“Our concern is that these improved trends come despite the fact that the industry has not cracked the code on declining guest visits,” commented Victor Fernandez, executive director of insights and knowledge for TDn2K. “Brands have come to rely on rising checks to overcome the steady loss of traffic.” Same-store traffic dipped -2.5 percent in November, a 0.9 percentage point drop from October. It’s been almost three years since restaurants experienced a month of positive guest counts.

...but with price hikes simply being offset by traffic declines it's clearly not working out as well for profits as investors might hope.  The last time we checked, raising prices did little to offset rising costs if traffic declines simply resulted in flat overall revenue trends.

Unfortunately, as we've pointed out numerous times before, given that the restaurant industry clearly has no pricing power, the only way to truly offset the impact of higher minimum wages on their bottom line is to cut staff and pursue automation upgrades where possible.  As we pointed out earlier this year (see: State Minimum Wage Hikes Already Passed Into Law Expected To Cost 2.6 Million Jobs, New Study Finds) a study from the American Action Forum estimated that some 1.8 million people could be at risk of losing their jobs just from minimum wage hikes already passed by states across the country.   

Minimum Wage

Conclusion: You're going to see a lot more "Flippy's" cooking your burgers at Chili's in the years to come...

Comments

Antifaschistische MGTOW_MONERO_XMR Sat, 12/09/2017 - 18:05 Permalink

the single most critical life sustaining factor - food/waterthe worst thing you could do, to advance poverty, is to INCREASE the cost of food/meals.The entire food service, and grocery industry should be exempt from all minimum wage laws, and a host of other burdensome constraints.If you want to deny exemption for high end restaurants with $400 average table bills...fine.  But at least alleviate the pressure on the rest of the market.and while I'm at it...we need to lower the cost of entry into these markets by minimizing the permitting processes.

In reply to by MGTOW_MONERO_XMR

iadr Antifaschistische Sat, 12/09/2017 - 18:16 Permalink

You are nuts.   Restaurant food, even the fastest of fast food, is a luxury. If the whole restaurant industry closed over the next 90 days, society would be better off, economically and health wise.Besides it should take the alcohol industry down with it, which is an even greater priority. And, the whole point of minimum wage laws is to supress immigration. Are you one of those lets import foriegn people by the half million lot type? Well, are you? 

In reply to by Antifaschistische

Not Too Important Mr Hankey Sat, 12/09/2017 - 19:44 Permalink

They'r about to. The well's running dry, the pensions are guaranteed and payroll isn't.

Vallejo in the SF Bay area ended up with two people, one to 'run' the city and the other to collect tax checks and forward it all to CALPers.

Now multiply that x 1,000.

Take the big urban cities, and see what happens when they cut fire and law enforcement.

In reply to by Mr Hankey

Kidbuck iadr Sat, 12/09/2017 - 19:22 Permalink

Total bullshit. Restaurants are a necessity for those of us with other hobbies and jobs besides cooking. Some of us can't afford our own private chefs, yet we still don't want our wives to be menial kitchen help every night. No one can totally enjoy the meal if they have to cook it and then do the dishes.

In reply to by iadr

iadr Kidbuck Sat, 12/09/2017 - 22:28 Permalink

 Aw, I ruffled your feathers, kid? Confronted your childish decadence and eating disorders? not very manly to have eating disorders, is it?Fact- if you have any concern for you health, or your family fuctioning as such, having your meal prepared by your household unit (meaning *gasp* including you LAZY FUCK) should be your number one priority,If you can't enjoy a meal you made and clean dishes... wow... just fucking off yourself you subhuman scum.

In reply to by Kidbuck

robobbob iadr Sat, 12/09/2017 - 20:11 Permalink

perhaps society would be better off, but when did governments get the right to create the conditions to cause that? is that like "necessarily bankrupting" coal plants?raising rates is anti immigration? what bubble are you in? raising the cost of documented workers makes undocumented all the more attractive

In reply to by iadr

iadr robobbob Sat, 12/09/2017 - 22:52 Permalink

Robo--B-bob.. catchy.Failing to understand business models when you have them pointed out, doesn't make you a very functioning member here. OK- I'm not holdng your fucking hand, but THINK:- What happens to growth of businesses following a business model based around paying less than a living wage when that model is sharply discouraged? Discouraged by having the payroll audited- much harder to fake than most aspects of business, and a full order of magnitude harder to fake than checking on citizenship...How are you going to benefit/profit by/cash out of on a monthly basis, the hiring of someone undocumented that you'll pay 6.50 to, when you have to submit your payroll for legal review showing he gets $15? Being discovered doing so, is beyond the pale, the moral judgement of society, when it reaches news.  The popular reaction to money is different than an ephemeral like documention-status. If someone is said to be paid 15 and can prove they only got 6.50, that is large scale riot time. A manager of that business will not leave safely at night.And on the other side of the business, the restaurant  (or produce farm, or meat packing plant) just put the retail prices up. When grocery stores are becoming cheaper by the month, and service is to your door. And you can shop for groceries on your employer's time from your desk. So then, why go to a restaurant anyway? Paradigm shift. Besides, if you pay $15 and up, you'll have real applicants- you won't have to dragnet thum from the underground. Some of them will be white, even. If it's a small enough crew you might even build a community of them.

In reply to by robobbob

iadr RightLineBacker Sat, 12/09/2017 - 23:03 Permalink

 I got sick 15 years ago from a BK, like really sick- all I wanted was for them to acknowledge they missed out on procedure nesscessary in a food prep establishment. I ran my complaint up through company channels until I got who I felt shiuld be the one to come down on that franchise like a ton of bricks. Nope, more interested in denying what had happened- what in in belief I might tell people they admitted error? or tell a lawyer? IDK what his issue was.  So I've told about 1500 people. He should have been modest and shut up, and fixed the store's problem. Any yeah if you touch alcohol, you are sub-fuck-iing human. No one stays in my life if they touch that shit. Moral depravity doesn't even begin to describe what you confess about yourself if you are a drinker.

In reply to by RightLineBacker

August iadr Sun, 12/10/2017 - 00:45 Permalink

>>>Any yeah if you touch alcohol, you are sub-fuck-iing human.  ...Moral depravity doesn't even begin to describe what you confess about yourself if you are a drinker.IMHO, and net-net, alcohol doesn't contribute a lot to civilization, but... I would stop short of "sub-human depravity".You're right about BK, though.

In reply to by iadr

Rapada Antifaschistische Sat, 12/09/2017 - 20:09 Permalink

Hubby is a bartender in Texas, works his ass off for $2.13 an hour trying to make tips so we can pay water and electricity. Works way harder than any POS government worker, or anyone, honestly. Restaurants don't have to even have to pay him minimum wage. You obviously have some personal stake in the profit of the food service industry. He essentially works for free and hopes the patrons pay the expense of his service.

In reply to by Antifaschistische

chubbar FreeEarCandy Sun, 12/10/2017 - 09:59 Permalink

I've cut way down on my restaurant visits. I went last night with the wife to a local bar/restaurant, mostly bar. Ordered a burrito, the special, had 2 twelve ounce drafts and 1 wine. Bill, including tip, about 70 dollars. It's not unaffordable but had we stayed for another round it would have pushed $100. I still remember when that was a lot of money to spend on dinner, especially a fucking burrito, not talking ribeye here folks.I've noticed that mainly the drinks have dramatically increased in price and most of the beers are local craft beers, which I know are produced at a vastly reduced price than the $6-7 they charge for them. I don't know how anyone making minimum wage even affords to eat out. That dinner alone is more than a days pay after taxes. I used to not even think twice about hitting a restaurant, now I actively plan when/where I'm going.Hell, even better examply last weekend, now that I'm thinking about it. Went out with 2 other couples to an Italian joint. Now fucking pasta is a cheap dinner to make, I don't give a shit who you are or where you are buying it. Anyway, long story short, everyone had about 3 drinks throughout the evening and everyone had an entree. The bill was $200 per couple including tip. WTF? I'm not complaining as much as I'm just baffled why the establishment would let their costs get so out of control? Who the fuck wants to go spend that kind of money for a pasta meal?

In reply to by FreeEarCandy

Killdo Antifaschistische Sun, 12/10/2017 - 10:17 Permalink

Restaurants I saw in Australia seem to be doing quite well paying their waiters at least 19$ minimum wage (that was 2 years ago - now it's probably more). I have never seen so many good restaurants all over the place as I did in Melbourne (and they are full all the time). More than in Paris. Also in Australia you don't tip - they get enough money to live on from their wages

In reply to by Antifaschistische

petroglyph FreeEarCandy Sat, 12/09/2017 - 20:38 Permalink

Why all the folk living on assistance programs have to have their own place and an I phone? Jumble up a 4-5 live together like when I started out. Out west here, young uns with nothing jobs got tile roofs and 2 cars, and motorized toys. Them new cars to, they pass me all duh time. Me ant my wife got 82 years of documentable labor, and dey got newer cars'n me. wtf. Fucking burger flippin was never a career choice, was it? Not until state come along and hep out. Now why give a fuck and work your way up, if it pay duh same?

In reply to by FreeEarCandy