Future looks worse with House turning Blue
Demographics Forcing Wages Higher Regardless
Year-to-Date Losses Exceed ALL of 2017
Well, the election is over. Democrats are eager to push a $15 minimum wage bill within the first 100 hours. Higher labor costs are not going away and are likely to get worse in the next few years. Don’t bet the ranch that the Senate still being Red will prevent a law from being passed. The ratio of Republicans to Democrats and Liberal Independents for the next Senate session is 53 to 47. The Democrats only need to flip four moderate Republicans to achieve 51 votes. Even if the Senate negotiates a federal minimum wage of say $10-$12 and sends it back to the House, we are still talking about a 38%-65% increase in labor costs. If a minimum wage of $15 passes it is a 107% increase in labor costs.
Let’s assume legislation on the Federal minimum wage stalls in either the Senate or the House. Democrats won 7 Governorships, changing that ratio from 33:16 to 27:23. There are 20 states that have already mandated increases in the minimum wage, with most starting in January 2019. Increases by State California goes to $15 by 2022 and Massachusetts by 2023. Even without legislation, employers are raising pay for the entry-level worker. Demographics of a shrinking workforce continue to drive wages higher regardless of legislation.
As for the 3Q18, both segments (QSR & Casual Dining) barely improved results from earlier in the year and, from a year ago. Total segment losses of $25.5 million for QSR in the 3Q18 and $33.6 million for Casual Dining bring the year-to-date total to $300 million for the industry. The industry reported $279 million in higher costs due to labor for ALL of 2017. We still have the 4Q18 to report.
The following public companies have reported seven consecutive quarters of higher labor costs:
- QSR segment: Bojangles, El Pollo Loco, Luby’s, Papa Murphy, Potbelly, Wendy’s, & Shake Shack.
- Casual Dining segment: Chuy’s & Texas Roadhouse.
Several companies were acquired as these costs continue to rise.
- In 2017: Bravo Brio, Panera, Fogo de Chao & Buffalo Wild Wings.
- In 2018: Bojangles, Sonic and Zoe’s.
Companies of all sizes, with single or multiple concepts, continue to struggle as labor costs continue to rise. Darden in 2017 reported $11 million in higher labor costs, but has already reported $62 million YTD. Cheesecake Factory’s 3Q18 YTD at $21 million in labor costs is 50% higher than the $14 million they reported in ALL of 2017.
“Fasten your seatbelts. It’s going to be a bumpy night” – Bette Davis in ‘All About Eve’
The preceding information is the work of NRCP. It cannot be copied, or reproduced without the express written consent of NRCP.
National Retail Concept Partners, LLC is a full-service consultancy based in Denver, CO. working with a variety of industries, including the automotive, retail, restaurant and hospitality industries. Partners Larry DeVries and Dean Haskell wrote the preceding post. These recurring posts can be accessed at their LinkedIn profiles. NRCP recently shared its labor optimization success at the Restaurant Finance Conference. The partners can be reached by email at firstname.lastname@example.org email@example.com. Mr. DeVries is based in Denver, Colorado and Mr. Haskell is based in Nashville, Tennessee.