It would be an understatement to say these are challenging times for the restaurant business, and, in particular, for the quick service sector.
In fact, Dunkin’ franchise owners find themselves in the midst of a veritable superstorm of new government-mandated overtime rules, minimum wage hikes, family-leave requirements and now “voluntary” sodium disclosures as well.
Possibly the biggest change franchisees face right now is the way government is changing the rules on who gets overtime. It will force franchise owners to think long and hard on how to comply while keeping costs down.
The battle over the minimum wage has also escalated, with activists on a roll. No longer is it just deep-blue cities voting here and there to hike the minimum; now it’s entire states.
On top of it all, an improving economy has made it more difficult to land the best employees, forcing franchise owners to up pay to keep their stores staffed and the donuts, coffee and sandwiches rolling.
“The franchise owners I have talked to are depressed,” says John Gordon, principal at Pacific Management Consulting Group and DDIFO’s restaurant analyst about the growing pressures on franchise owners. “It is troubling all this is happening at the same time wages have been going up.”
Overtime rules loom
The Obama Administration’s new overtime rules are now expected to take effect this coming December.
Under these new rules, franchise owners will be on the hook to pay any manager making less than $47,476 a year overtime pay on any hours over 40 worked in a week. That is more than twice the current limit of $23,660, or $455 a week.
However, pressure from the restaurant industry – and some timely lobbying – has helped blunt the blow a bit. In fact, the requirements are slightly lower than earlier versions, which had pegged the threshold at roughly $50,000 a year.
In another change, franchise owners are also allowed to count bonuses towards meeting the manager pay threshold, capped at 10 percent of the overall salary. Gordon says he has discussed the idea of including bonus pay in the calculations with federal labor officials.
Even so, many franchise owners will be faced with a dilemma when it comes to the pay of their store managers, especially if they are below the $47,476 mark.
Dunkin’ is one of a number of quick service chains, including Burger King, that pay their store managers less than $50,000 according to a recent Piper Jaffray report that tallied up the salaries listed on Glassdoor.
One option, Gordon noted, will be to boost the pay of managers already close to the $47,446 threshold. That may be particularly compelling if the manager in question is already working long hours, with 60 to 70 hours a week not uncommon in the restaurant business.
But as costs go up, franchise owners will need to come up with new strategies to boost the amount of revenue their restaurants bring in per customer. One good place to start is to ban down selling, such as discouraging customers away from ordering items, even if well intentioned.
“If someone is willing to pay more, let’s not overthink it, let’s just take the money,” Gordon urges.
There also needs to be a great push to increase “food attachment,” convincing the customer in for a $2 dollar coffee to add a donut, bagel or sandwich.
“That opportunity is lost once you hit the door – you may not get them back later,” Gordon says.
Wage hikes gaining momentum
It wasn’t so long ago that just a few liberal leaning cities like San Francisco and Seattle were talking about boosting the minimum wage.
Sure such proposals were concerning for franchise owners, but it didn’t seem like the start of a national movement, either.
But union activists – in particular Service Workers International Union – with their “Fight for $15” wage push, have managed to take what was a scattering of local efforts and transform them into a national campaign. Two of the biggest states in the country, California and New York, both took the $15 an hour plunge this spring.
The Golden State next year will start phasing in a series of increases that will top out at $15 an hour in 2022 for businesses with more than 25 employees and 2023 for smaller businesses.
The Empire State followed California with its own big hike, raising the minimum to $15 an hour in New York City by 2019 for businesses with 11 or more employees and 2020 for smaller firms. The suburbs will follow in 2022, with more rural upstate New York slated to hit $12.50 in 2021. After a review of the law’s impact, that number will rise to $15 an hour.
Now Washington D.C. is preparing to join the growing list of cities and states jumping on the $15 an hour bandwagon. D.C. city councilors voted in early June to boost the minimum to $15 by 2020. Currently at $10.50, it was already scheduled to hit $11.50 this July. Under the measure just passed by the City Council, it will increase in phases until it reaches $15.
Nor is it just the minimum wage states are racing to outdo each other in raising.
New York’s minimum wage deal also includes a provision guaranteeing workers across the state 12 weeks paid family leave. That policy will also be phased in, rising from eight weeks at 50 percent pay to 12 weeks in 2018, and then to 67 percent of pay in 2021.
That would make it one of the most generous policies in the country, with New Jersey and California offering six weeks, and Rhode Island four.
But Washington, D.C., in the aftermath of the wage hike vote, is now eyeing a proposal that would guarantee workers four months family leave.
Salt the latest FDA target
What with wake hikes and new overtime rules, there’s never a dull moment these days for franchise owners.
Looking to spice things up even more, the Food and Drug Administration now wants restaurants to start cutting the amount of salt in the food they serve.
The FDA recently released “voluntary” guidelines calling upon restaurants, food service companies and manufacturers to reduce the sodium in 150 different categories of food over the next decade.
The guidelines call for a long-term reduction in sodium in breakfast sandwiches from 736 milligrams today down to a long-term goal of 440. The FDA wants to wring sodium out of bagels as well, with hopes of pushing the sodium count down to 320 from 471 today. And donuts? They would see their sodium content slashed in half, from 365 to 180, under the new FDA guidelines.
The agency’s ultimate goal: Reduce the average American’s sodium consumption form 3,400 milligrams today to 2,300.
The changes coming down the pike for franchise owners are nothing short of fast and furious these days. Decisions are being made each day by federal regulators and state and local officials that could impact your bottom line. The only way to stay ahead of the curve is to stay informed. So follow us here and in the weekly email newsletter, “Small Regular, No Sugar.”