Skip to comments.Will Obamacare Carve Up the Restaurant Industry?
Posted on 03/30/2013 11:18:44 AM PDT by grundle
Because restaurants typically operate on razor-thin margins, President Obama's signature health-care reform law has largely been criticized by the industry for imposing onerous new costs that will potentially wipe out whatever profits they make.
Under the Affordable Care Act, companies with 50 or more employees have to provide them health insurance if they work 30 hours or more, or else face a $2,000-per-employee penalty. That led many restaurant operators, such as the CEO of Olive Garden and Red Lobster parent Darden Restaurant's (NYSE: DRI ) , to say worker hours would have be cut to avoid paying for expensive health-insurance premiums.
Binge eating He was joined in his criticism of the law by other restaurant operators, including pizza-shop chain Papa John's (NASDAQ: PZZA ) and burger joints Wendy's (NASDAQ: WEN ) , McDonald's (NYSE: MCD ) , and Burger King, all of which are chafing at the law's costs.
While Darden eventually walked back its statement and Papa John's CEO says his comments were misconstrued, others continue to assert there will be real damage coming.
McDonald's, for example, maintains that complying with the law will cost it $10,000 to $30,000 per restaurant, and as of the end of last year the fast-food chain operated more than 14,000 restaurants in the United States. The CEO of DineEquity's Applebee's chain hasn't altered his charge that the chain's New York City store alone would be subject to fines of $600,000 a year if it didn't provide insurance, yet the company faces the prospect of tens of millions of dollars in higher costs across the chain if it does.
Some restaurants have seen individual stores begin to make good on the threat. A Wendy's franchise in Nebraska cut all non-management workers to 28 hours a week, as did a Yum! Brands (NYSE: YUM ) Taco Bell franchise in Oklahoma. Others, such as burger joint Five Guys, are starting to raise prices, while RREMC Restaurants, a privately held franchisor of several dozen restaurants including Denny's and Dairy Queen, will begin imposing a 5% surcharge on their menu to cover Obamacare costs.
Someone else's problem Darden may have retreated from its critiques because of the negative publicity it created, while others believe the burden won't be so high because many employees will simply opt to instead pay the $95-a-year penalty for being uninsured. It will be cheaper than paying the monthly premiums associated with the insurance plans companies offer, while others will choose to be covered by the government's Medicaid plan or will sign on to a spouse's policy.
Still, the burden will fall heaviest on the smaller restaurants. McDonald's reported almost $5.5 billion in profits last year, so it can more readily afford to pull its seat up to the table and offer health insurance for its employees. Harder to quantify, however, will be just how many restaurants at around the 50-employee threshold will simply fire a few people to ensure they don't make the cut-off.
Standing in line at the soup kitchen According to the National Restaurant Association, the average restaurant makes between just $0.02 and $0.06 in pre-tax profits on each dollar of sales. While that doesn't even include all the restaurants that never make a profit and go under, it highlights that the added costs of Obamacare will have to come from one of a three sources: lower profits, higher prices, or lower wages. Maybe a combination of all three, because there's simply little room for restaurants to maneuver.
In the end, the real lasting impact of the Affordable Care Act may not be universal health care coverage, as originally promised, but rather a nation of part-time workers paying more for our meals when we go out to eat. If we can afford to.
The whole purpose of Obama’s terms in office is to destroy the United States.
Obamacare is the crown jewel of that effort.
Mobama does not like the dollar menus, so they too must be punished.
Restaurant food is bad for you anyway. Restaurants sell big gulps, serve salty foods and saturated fat.
Realistically, prices will rise to cover the added costs, customers will substantially reduce the number of meals they eat out, and more than half of restaurants will close. Excess restaurant employees will lose their jobs and many owners will lose their businesses, but the surviving establishments will still make a profit. Would any sane person open a restaurant or any other small business with dreams of expanding in this environment?
No one has to go a restaurant. I can’t afford them anymore, and the only fast food I eat is from Panda Express. I love their stir-fired vegetables.
I expect that 50-employee threshold will go to 10 employees very soon.
Actually, the dollar menu at McDonalds is really cheap and very affordable for many people. But it has a lot of fat.
BTW, I love Panda Express.
Raise the minimum wage, that will fix this.
Obama is a full-blooming Marxist idiot. The sooner he and everything he’s touched is flushed down the sewer where it belongs, the better.
Well, that and tax the rich.
Somehow America will survive due to ingenuity and love of freedom.
History will write O’s legacy as the absolute worst president ever.
Per the WSJ yesterday, the restaurants have to OFFER the insurance, but it will be priced so high that most employees will DECLINE it, at least for the initial years.
The “penalty” is low in years 1 and 2 and can only be enforced via withholding income tax refunds.
This is a fiasco in the making.
We’ll probably see a rise of the micro-restaurant. People who can cook offering cheap meals on a porch or deck, because they have no infrastructure and want to make money off the books.
Perhaps it will come down to this for restaurants...
“I expect that 50-employee threshold will go to 10 employees very soon.”
I have a friend who is the owner of a DQ. He was told at a recent seminar, on just this subject, that the # of employees is reduced every year.
I’ve heard that food carts serve some great stuff, although I haven’t visited one (can’t beat the atmosphere of a nice restaurant). I’m sure liberals will find a way to zone or legislate those out of existence too. Or they will have graphics on them like the photo I posted and serve only Moochelle Obama approved stuff that nobody wants.
The solution to the 30-hour limit is to start a “jobs exchange” which matches employers with employees willing to work two 20-hour (or a 20 and a 25 hour) jobs.
I bet the government would come down on this hard and quick.
The article says restaurants operate with a razor-thin profit margin, yet McDonald’s made 5.5 billion in profits last year. Does this mean that it actually costs 95 times 5.5 billion to operate the restaurants (assuming a 5% profit margin)? That seems like a lot, but there ARE a lot of McDonalds in the world.
If the profit margin is so thin, why are there so many restaurants? It must be large enough to entice investors. I’ve never really understood this.
The Obama administration’s goals are to destroy ALL industry, not merely restaurants.
Remember, his goal, as he told Joe the Plumber in 2008, is to redistribute the wealth.
Orange chicken with the taste and texture of pea gravel.
The scary thing is that nobody seems to knows anything for sure.
28 hours will become the new normal for restaurant workers this year. That and/or headcounts of 49. France is like that. I read somewhere that something like 90% of the businesses in France employ 49 people, and that is the direction we’re heading.
The shrimp is pretty good. Good variety.