Restaurant News

Minimum Wage Increase Complicates Matters for Phoenix Food Industry

Chris Bianco sits at a table in his midtown namesake restaurant, his wiry signature salt and pepper hair slightly askew, his hands flying as he speaks.

He reaches over to the basket in the middle of the table, and grabs a stack of sliced bread.

“If anybody thinks that raising the minimum wage will bring more jobs back,” he says, still holding on to the bread, “that it’s a statement in reality, if someone can help me understand how this will keep jobs, I’m all for it.”

He lays three slices on the table like cards.

“Today, you have three slices of bread,” he explains quickly in his husky voice. “Tomorrow, you have four. Yesterday, everything costs three slices of bread, but today, it costs four. How do we make a better life for people? I’m always looking for how to pay people more — but this Band-Aid approach is not good.”

According to the 2016 Bureau of Labor Statistics, “almost two-thirds of workers earning minimum wage or less in 2015 were employed in service occupations, mostly in food preparation and service related jobs,” says Garrick Taylor of the Arizona Chamber of Commerce, which translates that the minimum wage raise is going to hit the restaurant and food service industry particularly hard. Business owners are bracing for possibly devastating consequences, they say.

Why? Putting more money into people’s pockets, especially employees on the lowest end of the income scale, is good, right? Proposition 206, passed by voters in November and taking effect this month by increasing wages from $8.05 an hour to $10.00 initially (with a climb up to $12.00 by 2020) can only make people’s lives better. Right?

It’s a question being asked all over the country, as many states voted to raise the minimum wage.

People make more money, people spend more money. Everybody wins. But that’s not exactly the case, business owners say. With small food-service related businesses, the hike will force already lean staffs to become even smaller, and will eventually lead to layoffs as opposed to the opportunity for increased prosperity for workers. Opposition to 206 was led by the Arizona Restaurant Association; the measure passed by a majority of 60 percent.

The raise has restaurant owners scrambling to figure out how to absorb a nearly $2 increase per hour across the board with most of their employees.

This, according to the ARA, will result in fewer jobs, higher prices, and a lower number of restaurants opening.

Dan Bogart, the ARA’s chief operating officer, says, “It’s a lose-lose situation, and I don’t see anything positive with 206. But we need to get people more focused on the topic as we see prices increase and restaurants close.”

Prop. 206 also requires businesses with at least 15 employees to provide, at the minimum, 40 hours of annual paid sick time effective July 1, including part-time staff.

One local business owner with two locations in the Valley is at a loss as to how she will cover vacation and sick time. She asked to remain anonymous because the issue is so contentious she worries being honest will cost her business.

“The restaurant business is already on a lean margin,” she says. “If anyone is sick, I have to cover for them now. I can’t cover everyone’s time off, and will probably end up paying that time out, and that includes part-time employees who are high school students with no experience. I have full-time employees that have been with me for years. I was starting to offer health insurance, matching contributions to their IRAs — we do a lot to keep our employees happy because I want them to stay with us. But I don’t know how we are going to absorb paid leave and the wage raise.”

This is not about greed, restaurant owners say. They want their workers to earn a livable wage and offer benefits to keep valued employees on staff, but with the wage raise, those goals will be harder to reach.

“My highest employee makes $14 an hour,” the business owner adds. “A lot of my kitchen staff is full-time. But now the gap between a highly skilled worker in the kitchen and the worker with no experience just shrunk. Small businesses are lean. We are tight already, we have no extra room to absorb higher costs, and unfortunately, it’s going to come from the customer. This is tough. People don’t respond well to raising the prices.”

Bill Riddle, owner of Valle Luna, a restaurant that has been operated by his family for three generations and has 277 employees, was one of a few to speak out against 206. He has already received hate mail for his position, and declarations from some customers that he’s lost their business for good. Despite the negative reactions, he is determined to try to make his customer base understand his perspective.

“I have had not one other small business person disagree with our decision to challenge Proposition 206, and many, many that have expressed the utmost of concern about the effects that this will have on their future,” he wrote in an e-mail response to New Times. “Everyone has told me they are increasing menu prices. Most of our employees would already be up to at least the minimum desired $15 an hour if it had not been for the illogical imposition and effects of the editing minimum wage initiatives. The few that wouldn’t be making $12 or $15 would be the teenage, untrained, and unskilled that are just starting out in the workforce.”

In addition, it’s not only raises to hourly wages that restaurant owners will have to contend with; suppliers will also raise prices to absorb the cost of the wage hike for their employees, passing the costs on to them.

The business owner with two locations was planning on opening a third soon; now, those plans are on hold.

“We need to see what happens,” she says. “Restaurants that have more skilled employees may not feel as much of the impact. But I depend so much on high school employees for the counter service. People need to hear the whole story and understand why it is going to be hard for us.”

One thing is likely: higher prices at Arizona restaurants. It may be the only way most will be able to stay in business in an industry that may look lucrative but in fact, according to Chris Bianco, is fairly lean. “No one goes out of the restaurant business counting money,” he says.

“There are all sorts of reasons people go into he restaurant business,” he adds, the four slices of bread still sitting before him. “But most are passion projects. I still work 70 hours a week. I always want to know how we can do better, what is our plan for wellness in the community. My goal was to do everything I could do to keep as many people on payroll as possible. The jury is out if 206 will do that. We have a tight margin; with high food costs, I buy the best ingredients I can. Million-dollar companies will figure out how to save their businesses; but mom-and-pop places will be the the ones to say to their employees, ‘Sorry, we had to close the shop.’ At the end of the day, we’ll do what we have to to survive. There’s cause and effect to any decision. But sign me up to learn how to make a better community. I’m in.”

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Laurie Notaro