Dive Brief:
- Some restaurants have started adding a surcharge to customers' bills to help pay for employees' healthcare coverage and other benefits, like paid time off, according to the Atlanta Journal-Constitution.
- An Austin, Texas, restaurant recently added a healthcare fee after owners started paying for employees’ health insurance, while another added a non-optional, $1 "Community Value Contribution," which goes toward employees' paid-time off.
- Restaurants in cities like Chicago, Minneapolis, Los Angeles and San Francisco also have been adding similar surcharges.
Dive Insight:
Employers in the industry are navigating higher labor costs by raising prices and reducing employee hours, according to a Harri survey. But rising labor costs aren't anything new. Restaurant operators have had to contend with higher wage pressures since about 2012 when the Fight for $15 movement was born. Those minimum wage pressures were compounded around the same time with the introduction of the Affordable Care Act's requirements that employers provide healthcare coverages.
The debate reached an inflection point in 2012 when then-Papa John's CEO John Schnatter told investors that he — like most businesses in the industry — was not supportive of the healthcare act and that the cost of providing insurance would equate to about 14 cents more for a large pizza. Reaction was swift. A study from YouGov BrandIndex released shortly after his comments showed that Papa John's brand perception plummeted from a Buzz Score of 32 to 4 within a month.
As it turns out, consumers may not mind paying a little extra to support low-wage workers. Despite the years-long narrative that higher cost pressures will lead to price increases, a recent Hill-HarrisX poll found that 55% of Americans support increasing the federal minimum wage to $15 an hour, while another 27% said it should be increased but to a lesser amount. Public opinion has perhaps even driven McDonald's to stop lobbying against minimum wage hikes last month.
The federal minimum wage has remained at $7.25 since 2009. Perhaps because of that stagnancy, Fat Rice owner Abraham Conlon told told CBS Chicago that he believes the community will support the surcharge and that it is a risk worth taking. Restaurant owners in Los Angeles told the LA Times that surcharges are more effective than increasing menu prices, which would have to increase more than 3% to include what would be raised by adding a surcharge.
Instead of raising prices, some restaurants have turned instead to fundraising for their employees in need of healthcare. This approach, however, risks reputational damage. Saru Jayaraman, co-founder of the Restaurant Opportunities Center, calls employee fundraisers absurd, telling Eater, "They should just be paying their own people so they can afford to live rather than doing fundraisers for their staff."
Perhaps the bigger challenge for restaurant operators now, however, isn't just covering employee healthcare, but offering a bevy of benefits in general to compete for labor in the tightest labor market in nearly 50 years. Because of this environment, restaurants are pulling out all the stops, offering benefits such as extended parental leave, mentorship programs and college training. The investment in labor can generate a good return if it negates turnover and if it leads to happier workforce. According to the Center for Hospitality Research at Cornell University, turnover costs the average full-service restaurant operator about $146,600 annually. Further, Gallup reports that employees who are engaged are more likely to improve customer relationships, resulting in a 20% increase in sales.
