Posted on 04/11/2016 8:07:57 AM PDT by SeekAndFind
‘This is something that’s become a bumper sticker,” Jamie Richardson tells me. “But it hasn’t really been thought through. There is a better way to get people out of poverty than hiking the minimum wage.”
Richardson is a vice president at White Castle, the chain of famously white-painted and turreted burger joints specializing in slider-style hamburgers in the Midwest and Mid Atlantic. (Let me pause for a moment: If you’ve somehow made it through life without visiting this family-owned American treasure, stop reading this article, make like Harold and Kumar, and get yourself to the Castle . . . I’ll wait.)
White Castle, established in 1921 in Wichita, Kan., now operates more than 400 locations, with many in the New York City metropolitan area, which makes the news of New York governor Andrew Cuomo’s signing a bill that steeply hikes the minimum wage deeply personal. The wage will go from $9 to $15 an hour by 2018 in New York City, with the rest of the state seeing a more gradual phase-in schedule.
“We’ve been in New York for a long time,” Richardson says. “Castle No. 2 over on Fordham Road opened in 1930.”
Unfortunately, despite the Castle’s Empire State history, the road ahead may be difficult: “We’re disappointed. What this means for White Castle is we really have to evaluate how we manage our business,” Richardson tells me. “About 30 percent of every sales dollar covers the pay of our hourly workers, and that doesn’t include management.”
“It’s our biggest investment, our biggest cost. And it’s one that if we see increase dramatically through fiat, and we don’t do anything — it’s unsustainable,” Richardson says. “We are in uncharted waters.”
Of course, Cuomo, California governor Jerry Brown, Hillary Clinton, and minimum-wage activists across the country think that dramatically raising the minimum wage will be a boon to workers and that business can handle the cost increases without too much trouble.
“By moving to a $15 statewide minimum wage and enacting the strongest paid-family-leave policy in the nation, New York is showing the way forward on economic justice,” Governor Cuomo said after signing the minimum-wage legislation on April 4. “These policies will not only lift up the current generation of low-wage workers and their families, but ensure fairness for future generations and enable them to climb the ladder of opportunity.”
But Cuomo’s idea of “economic justice” is a long way from the dollars-and-cents reality of running a burger business. If labor costs rise dramatically, White Castle will have to balance its books by raising prices or changing its business model so that it needs less labor.
“Is there any room to raise prices to cover costs?” Richardson muses. “We think we’d need to increase menu prices by something like 50 percent. It’s not something we’ve done before. It’d be catastrophic.”
In fact, Richardson says that White Castle has historically seen its customers react noticeably to even slight increases in menu prices. “Some people think that we can just raise menu prices to cover the increased labor costs,” he says. “But it’s a ripple effect. We’re not the only place to eat, we compete with other restaurants. And people always have ‘L cubed’: Making Leftovers Last Longer.”
Richardson says — and common sense dictates — that if menu prices at fast-food chains shoot up by anywhere near 50 percent, many people will stop eating out as much, replacing trips to White Castle with trips to the grocery store. Customers can always vote with their feet and their dollars.
But thinking through the implications of raising prices to cover increased costs, which could reduce sales, isn’t what irks Richardson the most: To him and to White Castle, New York’s minimum-wage hike is a threat to a culture of opportunity in the neighborhoods that they have always called home.
“Candidly, this could create a whole generation of kids who won’t get their first job,” Richardson laments. “We’re in tough neighborhoods — and White Castle hasn’t abandoned those neighborhoods. On the surface, higher pay seems noble, but it’s not – because it denies the reality of the free-enterprise framework that has allowed small businesses like ours to thrive.”
White Castle is very proud of providing what for many of its workers is the first rung on the ladder of employment. And it loves to promote from within. Richardson tells me that of White Castle’s 450 top employees in restaurant operations, “444 of them started out behind the counter in an hourly job.” Susan Milazzo, the regional director in charge of the 35 Castles in the greater New York City area, is a prime example of a worker who started out on the bottom rung and worked her way up.
But some of White Castle’s successes are even more exceptional: Richardson tells me the story of Jahangir Kabir, a Bangladeshi immigrant who came to America without knowing a word of English. He got a job as a cook at a White Castle and learned the vernacular by interacting with customers. In four years, he was a general manager. On the way to being promoted to district supervisor in charge of eight Castles, Kabir went to school, earning an MBA from St. Joseph’s College in Brooklyn in 2005. Recently he completed a Ph.D. in business administration — and it all started at White Castle, cooking fries.
That’s Jahangir,” Richardson beams. “That’s what we’re all about. It’s a virtuous circle if kids can get that first job. We really believe that. Maybe Jahangir’s story is exceptional, but Suzy’s isn’t — hers is actually pretty common.”
White Castle knows that not all of its hourly team members will, like Kabir and Milazzo, make careers out of White Castle — and it’s just fine with that.
“We know that Millennials aren’t thinking they’ll stay at White Castle for 30 years,” Richardson says. “We view it as the start of the path. That’s true if you stay at White Castle or move on to something else. The skills you gain, you can take to the next role: learning how to apply for and get a job, learning how to show up, learning a work ethic, making a paycheck, and having fun.”
All of this might be in jeopardy if White Castle and other similar business couldn’t afford to hire many entry-level employees. In the hyper-competitive restaurant industry, margins are slim — Richardson says that, in a typical year, White Castle hopes to achieve a net profit of between 1 and 2 percent — and if labor costs go up, many restaurants will turn toward labor-cost-cutting automation or business models that don’t require many employees. That means a lot of kids won’t get that first job. After decades of baggage check-in kiosks at airports, ATMs, and self-check-out lines at the supermarket, is it really so hard to imagine automation replacing the kid behind the counter at burger joints?
But this is about more than wages — White Castle has offered benefits and retirement programs for decades. It’s about the opportunity to work, to take the first step up the ladder of life, to get started.
“Out-of-work kids who don’t have an opportunity to work get in trouble. We want to offer kids jobs, offer kids work,” Richardson says. “There’s dignity in that.”
But if restaurants and other business can’t stay in the black, they won’t be offering many jobs to anyone — short-circuiting the process of building the skills that young workers need to take the next steps in life. New York’s minimum-wage laws purport to offer equality — but at the cost of offering workers opportunity. And minimum-wage hikes mandated by state and local governments aren’t happening in a vacuum: The federal government is unilaterally changing overtime-work rules, also driving up costs. The common theme is that governments at the local, state, and federal levels are presuming to know more about how businesses run than do their operators.
“As a family-owned business, White Castle has been around a long time — but now we have to assess things and ask: Where do we need to be at, by when, to make sure our business remains viable?” Richardson says. “New York says, ‘We’re open for business,’ but sometimes it seems like the only door that’s going to be open is the exit door.”
— Mark Antonio Wright is an assistant editor at National Review.
Oh my goodness! I can't imagine either. I attribute the 'affect' to the generous amount of fried onions. And I love onions! :)
Technically, he wouldn’t have to double sales price to handle a 2/3 labor cost, no. That’s not correct.
To maintain the same margins, he would have to add the 2/3 increase in labor x the percentage of labor cost, as you were attempting to illustrate. This assumes all increased labor costs remain consistent.
Nonetheless, I expect screens (like now at Jack in the Box) will replace order-takers, and they’ll use speech recognition.
At the grocery store, you won’t even check yourself out anymore, nor will there be checkers in the future:
https://www.youtube.com/watch?v=eob532iEpqk
Beef is up over 50% since mid 2000’s. That wasn’t an economic crisis but minimum wage increases are treated as catastrophes. That makes no sense to me. I don’t understand the emotional and hyperbolic responses to the minimum wage discussion.
Most resteraunt chains are set up with the following equation:
30% labor cost
30% food cost
30% utility and building cost
= 10% profit
just raising the labor cost will make these businesses unprofitable
food cost is not going to come down, no matter how draconian the cuts to quality or portion size are.
cost of maintainence, utilities and taxes are only going up.
even well run resteraunts are “feeling the bite”( I crack myself up)
I have 28 years of resteraunt experience. Both as Labor and management.
It’s like the illegal alien / H1B thing.
There are folks that make money off it.
Have a relative that way; way overbought on a house but complains they drive old cars. The extra $400,000 to $500,000 upgrade from their previous house would have bought a couple of nice new cars, and still have $320,000 to $420,000 of less debt (assumes two $40,000 cars - which still, even today, will purchase a new car and a new truck or mid-sized SUV).
Sure, there is extra value in the other home - if you can find somebody wealthy enough to afford it. They don’t seem to be in much of a hurry. Nice land, though.
I’m always amazed at some of the house prices around Atlanta (they’re not there). Some homes that looked like they were $400,000 homes going for $200,000 or so (TV show). Must have been some serious deflation in some areas.
[30% labor cost
30% food cost
30% utility and building cost
= 10% profit]
That sounds about right to me, based on what little experience I have with restaurants.
OTOH, going to KFC, shoot even Popeye’s is way, way up.
KFC, you need to take out a loan before you go there. They had some $5/boxes about 10 years ago (when work was plentiful) - those were great. But I haven’t had their regular bucket “deals” for about 7-10 years now. I gave up.
And Church’s Chicken? Last two sandwiches I got there (one visit) I returned both for a refund. Probably almost never go there again.
BS. Meat/buns go up then the price on the menu goes up accordingly. Somehow the restaurant stays in business. But when wages go up then why don't the prices just go up accordingly? Wages are political, meat costs are not.
Couldn’t give a whit about the Democrats. I’m not getting Social Security because I’m paying for my parents and grandparents. Fair trade.
If labor increases from $9/hr to $15/hr, that’s a 66% (rounded low) increase - closer to 67%. 2/3 increase.
Ok using your assumption a 2/3 increase the new cost basis would be :
.50/1.20 = X / 100 = 42%. A 12% increase over the current 30%. No where near 50% increase...
Actually ..
In order to keep the same ratio of 30/70 , a 66% increase on one side has to be offset by a proportional increase to the total. A 50% increase (original price times 1.5) to the total is indeed correct.
1 + 50% = 150 or 30/.66 (.45) + 70/.66 (1.06) = 1.51 times the original price. A 51% increase.
There's a gas station and market chain here in VA, called "WaWa" (don't know how much they're spread throughout the country)... at the snack line, they use the automated kiosk for meal selection as well. Once you pay for the ticket, you hand it to the person behind the counter who preps it all up. It's very efficient.
The cause for the shortfall isn't the expense that Social Security is supposed to cover, which is to provide enough income so that Seniors who've paid in are guaranteed enough income so that they can live their senior years without ending up dying in the streets from poverty.
It's always had problems. When workers in the worst jobs died before they collected, the money ended up subsidizing "rich old ladies with blue hair and funny drinks with umbrellas in Miami". It became a survival of the fittest transfer of wealth.
Then, all the other stuff got added to it and the payments are much more than just providing a base life just-above-poverty level of income. Then there's the cutoff where high-income people don't pay intro Social Security after they reach an income cutoff.
Another problem is that many people who are spending less of their work years paying in because of job instability.
What's my point? Social Security could be fixed if (1) the economy is fixed and (2) it goes back to being what it was supposed to be, a safety net to stop the elderly from dying in the streets.
Wow, is THAT ever true! And... it's not even as good as once was.
I’ll take the robots over illegal alien drug gangs and terrorists holding “friendly nation” passports any day.
When in Chicago, go to the one off the Dan Ryan at 117th in Blue Island. It's.... interesting (or at least it was a few years back).
Yah, it’s scary. I honestly don’t know how people do it, especially since BamBam rose to power.
But then, I’m not sure how some folks are driving $50,000-$60,000 SUV’s, that get 7-9 miles per gallon, and have $2,000-$4,000 of wheels and tires pull it off, either.
Maybe some of them pull cash in the drug trade on the side....
When I made the most money I ever made I bought a $30,000-$31,000 Ford Explorer at discount and the 0.9% payments were a lot of money with all that I had going out.
Ah, the good old days........
The values of these from a supplier change weekly. Prices
(except for those sold at market value) change reletavly
seldomly. I will acknowledge that prices since 2007 have been
rising. I merely pointed out the formule that resteraunts use as a model for sucess.If you mess with ANY of the first three parts of the equation, it WILL cut into profitability. If a business is not profitable, it is finished. the only question is wether customers will be willing to pay for these increases in cost. I DO agree with you on the point that these manditory labor cost increases are POLITICAL.
I worked for Krystal in my teens, circa 1971-1973.......$1.65 an hour!................
Minimum wage!! Of course Twinkies then were 10 or 12 cents a package. As minimum tripled to $4.95, Twinkies more than followed suit to 50 cents; by the time that minimum wage had gone 5x to $8.25, Twinks were now .79 (6.58x) or .99 (8.25x). Try inserting your favorite kid treat— comic books, baseball cards, popsicles— and see that the difference could be much worse.
By the way, got my first job at the same time, bagging groceries above minimum at $1.72!
I'm not buying it. Labor is the same as meat and electricity. They are simply costs. Beef is up 189% since 2000. Did white castle go out of business?
“If 30% of your expense structure increases in cost by two thirds, your overall expense increases by 20%, not 50%.”
The 30% hourly wages went up... Do you think the management salary won’t go up too? Or the costs of their materials to make the food? Or the costs to clean the restaurant... it keeps going.
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