This post is part of the On the Margin blog.
Now that food costs appear to be easing, finally, after years of commodity inflation, labor costs stand as the next big thing to impact restaurant profits. Higher minimum wages and intensifying competition for workers are expected to conspire to increase the labor line.
But a few companies are deliberately raising wages now, in an effort to get out ahead of these higher labor costs. The goal: To attract and keep better employees. After all, if labor costs are increasing, anyway, why not increase them now, get the hike over with, and improve retention in the process?
Shake Shack Inc., said during the ICR Conference on Tuesday that it is raising starting wages to $12 an hour in “major urban markets.”
“We know $12, $13, $15 an hour is coming,” CEO Randy Garutti said. “We’re going to do it now and get ahead of the curve.”
Over the summer, Shake Shack raised starting wages to $12 an hour in Washington D.C. “Our team is happier, and retention is much better,” Garutti said. Still, he said, the higher wages will result in higher labor costs this year.
Likewise, fast-casual pizza chain MOD Pizza has a minimum wage of at least $10.50 an hour, and in Seattle’s it’s $13. “It’s one of the things we do to take care of our people,” Scott Svenson, MOD’s cofounder and CEO, said in an interview.
“We believe strongly that if you do a good job taking care of your team, you have lower turnover, and a higher quality product,” Svenson said.
That said, to make it work, the business needs to work. Both Shake Shack and MOD Pizza are growth chains generating strong sales and profits, which make it easier to raise those wages.
“We have to have a really successful business,” Svenson said. “We have to have a best-in-class business from a metrics standpoint.”
At the same time, the brands believe that to maintain that success, they have to have a strong workforce that protects the brand and provides better service.
Svenson in the interview also talked about establishing a culture of trust with employees, and the company has established other elements such as a profit sharing plan.
The ultimate goal is to ensure that employees care for the brand, and take care of it as the 92-unit chain expands.
“If we’re going to grow quickly, we’re not going to be in the store every day or every week or every month,” Svenson said. “Our teams need to care as much as we do, if we want the business to succeed as much as we do.”