Higher Prices, Reduced Hours: Restaurants & Minimum Wage Hikes

By Massow, Michael von; Professor, Associate et al. | The Canadian Press, January 8, 2018 | Go to article overview

Higher Prices, Reduced Hours: Restaurants & Minimum Wage Hikes


Massow, Michael von, Professor, Associate, Food, Guelph, University of, The Canadian Press


Higher prices, reduced hours: Restaurants & minimum wage hikes

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This article was originally published on The Conversation, an independent and nonprofit source of news, analysis and commentary from academic experts. Disclosure information is available on the original site.

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Author: Michael von Massow, Associate Professor, Food Economics, University of Guelph

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.

If prices are hiked too much, it could cause people to eat out less, reducing overall demand due to fewer outings.

Portion sizes may change. The pour of a glass of wine might be less generous. The size of the salmon filet could be skimpier.

Reducing costs could be an alternative to increasing prices. But as mentioned, that's largely already happened. Restaurants also need to be careful to continue to meet consumer value expectations. No one wants to go to a restaurant to be served a tiny portion of a mediocre cut of meat.

Menus will change. Less profitable or more exotic items that aren't ordered often will be removed. We will likely see more non-traditional cuts of meat, less beef and perhaps more vegetarian options, or items with smaller meat portions or with less emphasis on the meat element of a dish.

A demand for plant-based proteins is expected to increase in coming years, and this change in restaurant menus could accelerate the trend to replace or supplement meat proteins.

Operational changes may result

Restaurants may restrict hours. Many restaurants are open on days of the week, or during parts of the day, that simply don't attract a lot of customers and are therefore unprofitable. …

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