Higher Prices, Reduced Hours: Restaurants & Mininum Wage Hikes
Michael von Massow, 9 Jan 18
       

Chris Stevens, owner of Kaboom Chicken restaurant in Toronto, hands an order to a customer in December. Ontario’s new $14 per hour minimum wage took effect Jan. 1 and Stevens has already taken steps to ensure his restaurant can afford the added expense. THE CANADIAN PRESS/Christopher Katsarov

There is considerable concern in the restaurant industry about minimum wage hikes. A higher minimum wage poses significant challenges for restaurants, although well-run operations should find ways to adapt.

Canada’s iconic and highly profitable chain, Tim Hortons, as well as other restaurants, have already found themselves at the centre of a storm in Ontario for what they say are minimum-wage related cuts.

Ontario’s minimum wage increased on Jan. 1, with further increases coming. Alberta has increased its minimum wage and so have several American jurisdictions. British Columbia has also signalled that increases are coming.

Adapting to the change will be hard for some restaurants. The cost increase will be significant, and the short timeline has not given restaurants much time to prepare.

Most restaurants are not high-margin businesses, so something will have to give. Restaurants Canada, in fact, reports that average profit margins in Canadian restaurants are less than five per cent. That doesn’t leave a lot of room for higher labour costs.

There are studies suggesting that higher minimum wages don’t lead to lower employment. I’ve also seen some anecdotal discussion of specific markets such as Seattle in which a higher minimum wage hasn’t hurt restaurant jobs growth at all a year after it was implemented.

Understanding the dynamics of individual markets is always difficult. There are so many factors at play that it’s difficult to attribute change to a specific measure.

Regardless, increased labour costs will require changes at restaurants. Here are some that are likely in store:

Prices increase, portion sizes decrease

Prices will inevitably go up. There are likely some things that restaurants can do to trim costs, but I suspect that many of these measures have already been taken given food prices have been rising in the past few years.

In some markets, particularly Toronto, escalating rents have also put pressure on restaurants.

But price increases will have to be executed strategically. A 10 per cent, across-the-board hike would be unlikely to yield a 10 per cent increase in how much the average diner spends. People might cut back on appetizers, desserts or drinks in response. And so making price changes strategic is critical for restaurants.

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