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Will Obamacare Carve Up the Restaurant Industry?
fool.com ^ | March 30, 2013 | Rich Duprey

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.


TOPICS: Miscellaneous
KEYWORDS: restaurant

1 posted on 03/30/2013 11:18:44 AM PDT by grundle
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To: grundle

The whole purpose of Obama’s terms in office is to destroy the United States.

Obamacare is the crown jewel of that effort.


2 posted on 03/30/2013 11:19:56 AM PDT by SatinDoll (NATURAL BORN CITZEN: BORN IN THE USA OF CITIZEN PARENTS.)
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To: grundle

Mobama does not like the dollar menus, so they too must be punished.


3 posted on 03/30/2013 11:24:22 AM PDT by Slyfox (The Key to Marxism is Medicine ~ Vladimir Lenin)
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To: SatinDoll

Restaurant food is bad for you anyway. Restaurants sell big gulps, serve salty foods and saturated fat.


4 posted on 03/30/2013 11:28:14 AM PDT by dhs12345
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To: grundle
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.

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?

5 posted on 03/30/2013 11:30:15 AM PDT by Pollster1
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To: dhs12345

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.


6 posted on 03/30/2013 11:30:46 AM PDT by SatinDoll (NATURAL BORN CITZEN: BORN IN THE USA OF CITIZEN PARENTS.)
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To: grundle
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.

I expect that 50-employee threshold will go to 10 employees very soon.

7 posted on 03/30/2013 11:39:10 AM PDT by Mr. Jeeves (CTRL-GALT-DELETE)
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To: SatinDoll

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.


8 posted on 03/30/2013 11:39:34 AM PDT by dhs12345
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To: grundle

Raise the minimum wage, that will fix this.


9 posted on 03/30/2013 11:42:04 AM PDT by Vince Ferrer
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To: grundle

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.


10 posted on 03/30/2013 11:45:40 AM PDT by Jim Robinson (Resistance to tyrants is obedience to God!!)
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To: Vince Ferrer
Raise the minimum wage, that will fix this.

Well, that and tax the rich.

11 posted on 03/30/2013 11:53:56 AM PDT by Graybeard58 (_.. ._. .. _. _._ __ ___ ._. . ___ ..._ ._ ._.. _ .. _. .)
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To: Slyfox
Mobama does not like the dollar menus, so they too must be punished.


12 posted on 03/30/2013 11:56:45 AM PDT by LostInBayport (When there are more people riding in the cart than there are pulling it, the cart stops moving...)
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To: grundle
will some places open from 11:30a to 1:30p, close then reopen at 5:00p till 9:00p?
13 posted on 03/30/2013 11:59:15 AM PDT by Chode (Stand UP and Be Counted, or line up and be numbered - *DTOM* -ww- NO Pity for the LAZY)
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To: grundle

Somehow America will survive due to ingenuity and love of freedom.

History will write O’s legacy as the absolute worst president ever.


14 posted on 03/30/2013 12:34:54 PM PDT by Liberty Wins
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To: grundle

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.


15 posted on 03/30/2013 12:37:55 PM PDT by nascarnation (Baraq's economic policy: trickle up poverty)
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To: grundle

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.


16 posted on 03/30/2013 12:44:53 PM PDT by tbw2
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To: LostInBayport
Love that pic you posted. Too funny.

Perhaps it will come down to this for restaurants...


17 posted on 03/30/2013 12:48:27 PM PDT by Jane Long (Background checks? Dandy idea, Mr. President. Shoulda started with yours. - Sarah Palin)
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To: Mr. Jeeves

“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.


18 posted on 03/30/2013 12:55:48 PM PDT by logitech (It is time.)
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To: Jane Long

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.


19 posted on 03/30/2013 1:07:44 PM PDT by LostInBayport (When there are more people riding in the cart than there are pulling it, the cart stops moving...)
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To: grundle

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.


20 posted on 03/30/2013 1:17:03 PM PDT by Pearls Before Swine
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To: grundle

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.


21 posted on 03/30/2013 1:27:09 PM PDT by PinkChampagneonIce
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To: grundle

The Obama administration’s goals are to destroy ALL industry, not merely restaurants.


22 posted on 03/30/2013 2:45:09 PM PDT by Jack Hammer
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To: Jack Hammer
Obama probably thinks that every penny of profit a restaurant or other business makes is stolen from the workers, so if Obamacare erases profits, that's a step towards a perfect society.

Remember, his goal, as he told Joe the Plumber in 2008, is to redistribute the wealth.

23 posted on 03/30/2013 4:59:28 PM PDT by Verginius Rufus
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To: dhs12345
BTW, I love Panda Express.

Orange chicken with the taste and texture of pea gravel.

24 posted on 03/30/2013 7:55:52 PM PDT by Mike Darancette (And winter is coming.)
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To: logitech
He was told at a recent seminar, on just this subject, that the # of employees is reduced every year.

The scary thing is that nobody seems to knows anything for sure.

25 posted on 03/30/2013 8:09:14 PM PDT by Mike Darancette (And winter is coming.)
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To: grundle

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.


26 posted on 03/31/2013 8:55:25 AM PDT by Cyber Liberty (I am a dissident. Will you join me? My name is John....)
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To: Mike Darancette

The shrimp is pretty good. Good variety.


27 posted on 03/31/2013 9:04:00 AM PDT by dhs12345
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