INDUSTRY SNAPSHOT: Restaurants
Of the industries we have identified as low-wage industries in North Carolina, Restaurants & Other Eating Places is the largest, the fastest growing, and pays the lowest average hourly wages at $6.90 per hour, less than the Federal minimum wage. This is reflective of the fact that employers can legally pay tipped workers as little as $2.13 per hour so long as the tips they receive make up the difference to at least $7.25. The lower-than-$7.25 average wage reported may be due to underreporting of tips and/or of problems enforcing the system by which employers are supposed to make up the difference between tips and the minimum wage.
While “low-wage restaurant worker” may conjure images of the drive-through fast food worker, it is important to note that the restaurant industry is in fact much broader, and includes coffee shops, cafeterias, and sit-down restaurants (both chain and independently-owned). In fact, full-service restaurants (“sit-down” establishments) employ more NC workers than limited-service (fast food) ones, as shown in the sub-industry breakdown in the chart below.
What Drives Restaurant Industry Growth?
Population is a main driver of restaurant industry growth. Between 2000 and 2010, NC was the sixth fastest growing state in country, growing by 18.5%, or about double the pace of the U.S. as a whole. During the same decade, NC also gained the fifth most new residents at 1.5 million, replacing New Jersey as the tenth most populous state.
Between 2012 and 2013, 60% of NC counties grew in population, with seven urban counties growing by 3% or greater during that time period. All of these new residents are new potential customers for the restaurant industry. Individual restaurants compete with each other mainly on price (who can give customers the best-priced meal) and convenience, so as new areas urbanize or grow in population, restaurants expand their operations, usually by opening new stores rather than hiring more workers for existing ones. In the decade from 2002 to 2012, NC added more than 4,000 new individual restaurants to accommodate this growth.
In order to stay profitable, restaurants must also compete with one another on price.
Trends in the Restaurant Industry
Industry reports identify several trends that have been changing the restaurant industry in the past decade:
Increased focus on health. Customers increasingly demand healthier options, and many are now willing to pay a bit more for a meal that they think is higher in “value,” which consumers often characterize as the health value of a meal. This trend potentially affects the pay levels and work hours offered to workers in fast food restaurants, which are struggling to keep up with the demand for healthier foods and losing money on unpopular menu items in the process.
Demand for local foods. Primarily affecting locally-owned businesses, the demand for local foods and ingredients may have positive or negative effects for an area’s low-wage workforce. It may be beneficial for bringing increased money into the supply chain for local farmers, food processing workers, distributors, and others involved in growing or transporting the food; however, the typically higher prices of local foods compared to those bought in bulk from faraway locations may drive restaurant owners to cut down on wages or hours for servers and cooks. Many customers are extending the “buy local” trend to the dining establishments they patronize, which is generally good news for workers: for every $1 million in sales, chain restaurants paid out $186,754 in wages to their workers, where locally-owned restaurants paid out $284,698 in wages, nearly time and a half more.
The rise of “quick-casual” dining. The “quick-casual” submarket of restaurants are those that are somewhere in between fast food and casual dining: the meal is usually ordered at a counter and may be brought out by a server, but full table service is not common. Many of the newer chains entering or expanding successfully are of this type, including Chipotle Mexican Grill, Panera, and Noodles & Company. These restaurants typically have healthier options than fast food, and capture a larger range of food genres, including Mexican and Asian cuisine,. Some of these restaurants have become known for treating their employees well, paying well above minimum wage and even offering benefits. Chipotle is typical of this, trying to differentiate itself based on not only high quality food, but also well-paid employees, though earlier this year, former employees of the chain alleged that conditions were in fact unfair, and that practices like inducing unpaid labor were common.
What’s Driving Low Wages in the Restaurant Industry?
Food costs are rising. Corn, beef, coffee, and other staples that make up the primary inputs to many restaurants are increasing in cost. This means that in order to compete on low prices and remain profitable, restaurants must either raise prices or cut costs elsewhere, and often choose to do so by keeping wages low.
The Affordable Care Act. The requirement that restaurants with 50 or more full-time employees add health care is another cost increase that may push restaurant owners to lower wages, delay or eliminate raises, sell off franchises, or cut hours.
Franchise restaurants’ role in the industry. Franchise, or chain, restaurants make up a large share of the restaurant industry and also command millions of dollars of lobbying power. Franchises are also the most impacted by the Affordable Care Act and other industry-wide changes due to their size, and use their lobbying power to fight against policies such as raising the minimum wage.