Late last month, New York State officially approved a move that will raise the minimum wage for tipped workers from $5.00 an hour to $7.50. The change immediately sent shockwaves through the restaurant industry — where profit margins are already notoriously tight — as owners reassess their business plans to account for the added labor costs. (Businesses have until the end of the year to enact the new wage.) Grub reached out to Andy Ricker, the James Beard Award-winning chef and owner of multiple Pok Pok restaurants in New York, Oregon, and California, to hear his thoughts on the state’s move. Here’s what he had to say:
This change comes at a time when there are a couple of other new government-mandated, owner-financed burdens on small business (sick leave, health care) that are already having an impact on the bottom line. [The increase in minimum wage] is definitely rough on an industry where a shrinking 7 to 15 percent profit margin is the norm for a well-run operation, and in a city where doing business is already extremely tough. Add soaring real-estate prices (which affect the labor pool as much as they affect the owners, with residential rents skyrocketing and making it harder for folks to live on a cook’s wage, even a very high one) and wholesale food prices to the mix, and you can see why a lot of restaurant owners are worried.
The biggest problem, in my view, is that independently owned and family-run businesses are being painted with the same brush as large corporate chains … which is myopic, unfair, and ultimately may end up hurting the very folks the change is meant to help. It is not uncommon in our sector of the industry for front-of-house staff to go home at the end of a busy shift with several hundreds of dollars in tips, which (absurdly) may not be shared with the back of the house. The cooks, dishwashers, and all back-of-house staff contribute as much to the diners’ experience as the front-of-house workers, and yet may not share in the gratuity that is based on the entire experience.
The wage for an average line cook in this city is between two to three times more than the hourly credited wage of a server, but about a third (total) of what a waiter can make in a shift. The cook works seven to nine hours, and the server works four to six hours. When you decide to become a cook, as I did 35 years ago, that is something that is understood — but it does not make it fair.
In the restaurant industry, the No. 1 expense is labor, usually accounting for around a third of the total cost of operations, with food (25 to 30 percent), beverage (15 to 20 percent), and fixed costs (rent, insurance, loans, utilities, repair, maintenance, credit-card fees — which, in some cases, can be as much as 2.5 to 3 percent of the entire gross take!) making up the balance. When you suddenly increase the front-of-the-house labor cost by 50 percent, it is bound to have an impact. The biggest losers in this scenario are the back-of-house employees, as it freezes or lowers the cap on what they can be paid, lest you go over your labor budget and thereby sink your battleship. It’s a delicate balance, running a restaurant, and if something is out of whack percentage-wise, things can spiral out of control very quickly — as witnessed by the large number of restaurants closing in the city.
The only recourse is to cut costs or raise revenue. To cut costs, you can buy cheaper products, cut down on labor hours, pour weaker drinks, reduce food portion sizes, etc. To increase revenue (all things remaining equal), you can raise prices. These things affect the quality of experience for customers, and, ultimately, can drive business away. It’s a no-win situation for everyone, even the tipped employees who benefit most in the short term. They will most likely have shifts cut, and if the business closes, they are out of jobs.
There is a certain amount of cost-cutting and quality-cutting that the public will tolerate, and a certain amount of price raising that the market will sustain. But, at some point, a wall will be hit for some restaurants. Those at the upper end of the profitability spectrum have wiggle room; those at the lower reaches do not. It is very likely that some business will not be able to survive the new minimum-wage increase. Personally, I do not think an extra $2.50 an hour for front-of-house staffers is going to kill our business (though we are certainly going to have to find creative ways to mitigate it), nor do I think it is apocalyptic for the New York City restaurant industry in general. But if the tip credit is eliminated, and the minimum wage goes the way of Seattle [$15] or San Francisco [$11.05], then you can bet pretty safely that a lot of places — which appear now to be solid — are going to disappear … fast.
One solution is to do away with tipping altogether and move to a service charge. But I do not think the culture can shift that quickly, both from a server’s viewpoint and the dining public’s. Ultimately, the best solution is to simply charge the amount of money it takes to make a small profit and pay a comfortable living wage (which, in New York City, is a pretty stiff five-figure sum). But that would require an entirely new mind-set in our culture — one that seems a long way off from becoming a reality, if ever. Can you imagine paying $27 for a simple green salad at your neighborhood restaurant? Didn’t think so.
The fact of the matter is that our industry is part of a tip culture: It is deeply ingrained in the psyche of the workers, the dining public, and the financial structure of full-service restaurants. Abandoning it wholesale just isn’t going to happen, at least not in the near future.
In my opinion, this isn’t a story of greedy owners making huge profits on the backs of the workers in the restaurant business. It is simple business mathematics and market realities. If the restaurants that are trying to deliver a quality product at a fair price have their thin profit margins wiped out by these new expenses, and the public does not get onboard with the realities of those impacts by being willing to pay for them, the landscape is going to look far different than it does today.