Big restaurant chains are telling investors that a national minimum wage hike wouldn’t be a big deal — even as their corporate lobbying groups in Washington fight plans for a $15 minimum wage.
“We share your view that a national discussion on wage issues for working Americans is needed — but the Raise the Wage Act is the wrong bill at the wrong time for our nation’s restaurants,” the National Restaurant Association wrote in a letter to congressional leaders in February. “The restaurant industry and our workforce will suffer from a fast-tracked wage increase and elimination of the tip credit.”
The following day, a top executive at Denny’s, one of the association’s members, told investors that gradual increases in the minimum wage haven’t been a problem for the company at all. In fact, California’s law raising the minimum wage to $15 by 2023 has actually been good for the diner chain’s business, according to Denny’s chief financial officer Robert Verostek.
“As they’ve increased their minimum wage kind of in a tempered pace over that time frame, if you look at that time frame from us, California has outperformed the system,” Verostek said on an earnings call. “Over that time frame, they had six consecutive years of positive guest traffic — not just positive sales, but positive guest traffic — as the minimum wage was going up.”
Denny’s is one of several publicly traded restaurant chains whose executives have told investors in recent months that Democrats‘ proposed minimum wage hike is not a real threat to their business and may even be a net positive, according to a Daily Poster review of corporate earnings calls. All of the companies have historically belonged to the restaurant association, which has led the fight against the Raise the Wage Act, legislation from Democrats that would gradually increase the minimum wage to $15 by 2025.
The National Restaurant Association declined the Daily Poster‘s request for comment.
“McDonald’s Will Do Just Fine”
The National Restaurant Association, which represents restaurants around the country, has been a staunch opponent of federal efforts to raise the minimum wage to $15 an hour. Last year, the group spent $2.6 million on federal lobbying, including on lobbying against the Raise the Wage Act.
Other trade associations that have lobbied against a wage hike include the US Chamber of Commerce, the nation’s top business lobby, and the National Small Business Association, according to federal lobbying data.
Fast-food giant McDonald’s told the National Restaurant Association in 2019 that it would no longer participate in the group’s lobbying efforts to oppose increases to the minimum wage at the federal, state, or local level, according to Politico.
In January, McDonald’s CEO Chris Kempczinski told investors the company “developed quite a bit of experience” with minimum wage hikes at the state level, and they haven’t been a problem.
“Our view is the minimum wage is most likely going to be increasing whether that’s federally or at the state level as I referenced. And so long as it’s done . . . in a staged way and in a way that is equitable for everybody, McDonald’s will do just fine through that,” Kempczinski said.
Companies Debunk Industry’s Talking Points
The National Restaurant Association has been saying that restaurants — because they operate on tight margins, rely on tips, and have been hit hard by the pandemic — can’t handle a $15 minimum wage and the elimination of the tipped minimum wage.
However, on recent earnings calls, executives at restaurant chains that belong to the association have explicitly debunked these talking points when answering questions about how a higher minimum wage would impact business.
“Our industry runs on a 3- to 5-percent pre-tax profit margin in a good year — during a pandemic is not the time to impose a triple-digit increase in labor costs. Far too many restaurants will respond by laying off even more workers or closing their doors for good,” the National Restaurant Association said in a January statement on the Raise the Wage Act.
While the group does not currently disclose its members, two companies it previously listed among its national corporate members have recently disputed the idea that $15 an hour is an unaffordable labor cost.
Domino’s Pizza CEO Richard Allison told investors in a February earnings call, “We’ve been able to manage our way through a lot of minimum wage increases across the country. And I’ll tell you, quite honestly, in our corporate store business, we’re not paying the federal minimum wage anyway. You can’t go out there and hire people at that rate anyway. We’re above the minimum wage, both for our folks that work inside the stores and our tip drivers on the road. And then in our supply chain business, we’re in excess of $15 an hour everywhere we operate.”
The company’s response to investor inquiries about a $15 minimum wage is especially notable, given that its employees lean Republican: Domino’s Pizza employees gave more than $654,000 to GOP candidates in the 2020 election cycle.
The Cheesecake Factory is now partially owned by private equity firm Roark Capital Group, whose fast-food chain recently bragged that it helped convince Congress not to include a $15 minimum wage measure in the American Rescue Plan.
Roark Capital has warned its investors that its portfolio companies could be “adversely affected by changes in governmental policies,” including the minimum wage. The firm’s managing director serves on the National Restaurant Association’s board, according to his firm bio.
But a top executive at the Cheesecake Factory told investors in February that raising the minimum wage would not cause problems for the company.
“Labor input is just a cost input,” said Matt Clark, Cheesecake Factory’s chief financial officer. “And you can try to put some technology around it to improve efficiency and such. But at the end of the day, most competition prices for it. And I think that’s the necessity to maintain margin structures that are competitive and attractive for continued investment.”
Clark added that a wage hike could affect some of the company’s competitors, and “ultimately the stronger survive and take market share.”
The comments were hardly anomalous: over the last two months of earnings seasons, top executives from DiamondRock Hospitality, Kroger, HCA Healthcare, Hilton, and Six Flags all downplayed the negative effects of a prospective minimum wage increase, and some have argued it would boost consumer spending. The statements from leaders across various service industry sectors undercut corporate lobbying groups in Washington that have pretended such a wage increase would destroy the economy.
“Many including me are supportive over time that the minimum wage needs to move up,” said Hilton CEO Chris Nassetta in a February earnings call. “I think we should all assume that the minimum wage is going to be going up over time. In fact, because it needs to.”
“To the extent that there is minimum wage increases in certain of our demographics where we operate, that has got a halo effect on the revenue side,” said Six Flags chief financial officer Sandeep Reddy during a February earnings call, in response to a question about whether a higher wage helps boost spending at its parks.
Six Flags’ CEO Michael Spanos added: “We’re roughly half teens and young adults and roughly half families and children. And to Sandeep’s point, we think it absolutely helps in that regard, putting more money in their pockets.”
“We Don’t Really See an Impact to Tips”
The federal minimum wage for jobs that rely on tips, such as restaurant servers, is currently $2.13, although most states require companies to pay more than that. The Raise the Wage Act would phase out this subminimum wage by 2025, and then companies will have to pay tipped workers the federal minimum wage.
A recent study from the Center for American Progress found that workers who are paid the $2.13 federal tipped minimum wage are more likely to live in poverty than tipped workers in states that have eliminated the subminimum wage for such workers.
Last summer, the advocacy group One Fair Wage wrote that the subminimum wage was becoming an even bigger problem during the COVID-19 pandemic. “In numerous states around the country, restaurant workers are reporting that tips are down 50-70 percent,” they wrote.
Nevertheless, the restaurant industry has often tried to argue that ending the tipped wage will be bad for workers and ultimately reduce the amount of money they make. The argument is that customers won’t tip as generously if restaurants are forced to raise their prices, or because customers won’t feel like restaurant workers need their money as desperately as they do now.
The National Restaurant Association, for example, wrote in a press release in January: “The elimination of the tip credit will cut the take-home wages of thousands of tipped employees who make far above the proposed minimum hourly wage.”
There is no evidence that workers are tipped less in states that have eliminated the minimum wage. In February, a top executive at the steakhouse chain Texas Roadhouse said on an earnings call that the company’s employees haven’t been losing out on tip money in states like California and Minnesota, where there’s no subminimum wage for tipped workers, or in Colorado and Arizona where tipped workers must be paid more than $9 an hour.
“We don’t really see an impact to tips for those servers in those higher-wage states,” said Tonya Robinson, Texas Roadhouse’s chief financial officer. “They continue to get [tipped] well, and their overall average wage is pretty high.”