Transcript of Podcast with John Horne on Impact of $15 Wage Increase to His Restaurant

CM – Welcome back, everyone. I am your host Charles Musgrove of the Answers That Count Podcast and man you have joined in on a great show. We’re just starting a series of shows right now on the $15 per hour minimum wage change that hits Florida. Now this affects many industries, but particularly this affects the restaurant industry, in the full-service restaurant industry. With that, we have joined with the Florida Restaurant Lodging Association for this series of podcasts we’re doing, and what better association, what better affiliation to have than the FRLA, so that you for that affiliation. And I want to introduce the guest for today is John Horn. John, welcome to the show.

JH – Thanks for having me on. Glad to be here, glad to help represent the Florida Restaurant Lodging Association.

CM – This is going to be great and John is from the, he’s down in the Bradenton, Florida area. He’s got four restaurants, the Anna Marie Oyster Bar, so he is basically at a destination location on the, you get to see the gulf coast too because you got an island restaurant, is that right?

JH – We do. We’re on the intercoastal on the Anna Marie Island in Bradenton Beach and so we’re watching the dolphins jump every day. It’s awesome.

CM – What a great place to be and great food and great hospitality and service there so this is going to be awesome and before we get started with today’s show, we want to make sure to give a special thanks to our sponsor Heartland Payment Systems. They have been awesome to sponsor this show, this podcast, so thank you Heartland. Heartland is the selected, the trusted source for payment solutions that they are representing the Florida Restaurant Lodging Association. So go to frla.org/hearltand and you’ll see all the information about them. They’ve got the answer for payment solutions. They also do payroll and human, human resource services. So check with Heartland. They’re a great sponsor of the FRLA and they’re a great sponsor of this podcast, so thank you so much, Heartland. So John, with that, let’s get this thing going. So we know, this is a wave. So the wave is coming. There is a $15 per hour that’s going to be implemented in the state of Florida where the increases have already started. They started in January and they’re just going to ramp up from there, so this is a fact.

JH – It’s, it’s, it’s coming on us. We’re going to have that tidal wave. It’s going to hit us hard starting September 30th and every year subsequent to the point where we’re paying and you know we’re already paying our back of the house people well over minimum wage. Nobody in the restaurant industry has ever not wanted to pay our people properly. Where the problem comes in for our industry is with  tipped employees and that’s who’s going to be affected. You’re, you’re going to go from paying $5.63 all the way up to $11.98. You’re going to be paying servers, bartenders 12 bucks an hour plus tips. Right, so the increase is just, it’s dramatic and, and, there’s you know it’s already passed by a constitutional amendment and there’s nothing you can do to change that, the 302 tip credits in the constitution. So, we’re going to be paying tipped employees who are making currently 30 dollars an hour, we’re going to be paying them $11.98 an hour and that’s where it’s going to affect the restaurant tours and, and the hoteliers. It’s going to affect the hospitality industry drastically. Yeah, I mean drastic.

CM – It really will. This is a, this is a graph that shows the increases and, uh, if you can go to that next chart. This, this shows the in. This, this is very hard to read but John the increase is 116 percent over that period of time between now and 2026. That 116 percent so that, is that’s, that’s a dramatic increase in the cost.

JH – It is, Charles, and it’s unheard of. I mean no one has taken a minimum wage and increased it 116% in that span of time. Um, and, and like I say it’s for people that, that are already making well over the minimum wage. Um, we’re not even talking about compression. We’ll get to that I’m sure.

CM – Sure.

JH – But we’re just talking about the basic minimum wage and not to mention you’re, you’re competing with sister state. I mean Georgia is at $2.13 an hour.

CM – Right.

JH – Um, and you know, we’re already double that so, we’re, we’re going to just be out of the, out of the competition if we’re not careful but that’s where it’s coming, there’s nothing we can do about it, about in the past. We’ve got to figure out how can we manage? How can we massage paying tipped employees $11.98 and that’s what we all have to be ready for and we all have to be prepared for. So that’s, that’s what we’re going to try to help get through.

CM – Yeah and this is, uh, like we said at the outset, we may not give you the exact answer but what we’re going to try to do is stimulate thought discussion to consider this. Consider these things that have been tested in the past, consider these barriers or these issues that you need to deal with and plan now. Begin the planning now of how you’re going to deal with these cost increases because they’re going to happen. I mean, this is like we’re saying it’s a fact and to really drill this home is, uh, John and I have worked on this, I think, really as a, as a normal very conservative example of what tipped increase is going to look like. What, what is that cost going to look like in a, in an average, a typical restaurant and John kind of walk us through this. We looked at 1300 tipped hours per week and that tell me how, how that’s a normal, that’s kind of, that’s a normal, that’s not anything crazy.

JH – No, it’s not. I mean that’s 15 shifts, that’s 15 shifts per shift. I mean that’s 15 people all on a shift. I mean that includes your bussers, your hosts, your bartenders and your servers, your expo food runner, whatever you may have. So just that number alone is just for, a, a, normal size restaurant because we’ve at least got 15 on between all of those fields between every one of those job descriptions you’ve got that many people. So, so that works out to 1300 hours a week and so if you take 1300 a week times 52 weeks and then you figure out what you’re going to be paying them and then the increase. I mean going September 30th the wage is going up a dollar 44. You know, as I said before Charles, we used to think minimum wage, we don’t pay minimum wage, you know because our kitchens are high. We do pay minimum wage and that’s the fallacy of thinking well it’s not that big of a deal. Let’s just give everybody a raise but when you take that many hours and everyone is considered minimum wage that’s a tipped employee and then you get to $11.98. So these are true numbers. I mean we just took them what it would be if we kept the same number of staff.

CM – Right.

JH – There’s, there’s the big, there’s the big delta. Will we still need this many staff. So to continue running our operations with the same number of hostesses at the front door, the same bartenders, same food runners, servers, etc., it’s going to increase our payroll when we get to $15 an hour at just one of our stores? $478, right around 478 thousand dollar.

CM – Yeah, and that’s not crazy. Here’s, here’s what’s, um, the, the crazy part about planning is you have to make assumptions when you do that and I know that you’ve done this and other restaurateurs are doing this now is but this now is, but start to change those assumptions and see what the effect is one the, on the cost, so you’ve, you’ve kept everything the same other than the tip wage increase and, and look at that, that’s $478,000 from now that happens in 2026 so that, that’s a dramatic change so that, that’s probably taking if you look at, if you’re used to looking at percentages and you looked at the, the, the tip wage people as a percentage of total sales, you’re probably going from like a 15, 14 or 15% of your sales up to, uh, 30 something percent. So, I mean, if the, if the dollar amount doesn’t hit you, the percentage should hit you. That’s a big deal.

JH – Right. Take that number and divide it by your sales.

CM – Exactly. Yeah.

JH – And that’s coming right off the bottom line.

CM – Yeah.

JH – I mean, that’s you know, that’s nothing but straight off the bottom line so obviously do you know, do I have $478,000 on my bottom line? No. I don’t.

CM – Right. Yeah. Yea and the other thing that, that you need to consider too in your planning process is, that you’re restaurant is not the only entity that’s going to have this increase the people that you buy your food from, that you buy your supplies from, they’re going to have a very similar increase and they’re going to get hit as well.

JH – Every price will go up because just the first increase is $1.44 an hour. So, the people that you’ve got now are going to want to raise.

CM – Right.

JH – So every wage is going to go up. Truck drivers are going to go up, food handlers. I mean when I say handlers, people that pack trucks, people that work in warehouses at our broadliners, beer delivery guys. Everybody’s wages are going to go up. So every price is going to have to go up.

CM – Right.

JH – So, we haven’t even taken into consideration all of our food and our beverage purchases increasing. Everything will increase and that’s something we’ve got to, to look at and to plan on and, and  you’re going to have to account for that because it’s not just labor and then you know you’re paying someone currently $5.00 over minimum wage. Let’s say $13, $14 an hour if minimum wage goes up a $1.44, they’re going to want a raise.

CM – Right.

JH – Everybody’s going to expect a raise; You can’t bring someone in at the same pay rate. You know, when we get to $15, anybody you’ve got currently, uh, at $15, that’s not going to be good enough. So everybody’s will increase.

CM – Right.

JH – So the compression of all rates will go up. So, how do you, how do you, you, know you’ve got all these costs. You’ve got to figure out how are you going to offset those costs because as we said a minute ago, they’re not on your bottom line. You can’t keep chipping away at your bottom line. The bottom line’s already gone when, when you increase just the tipped employees.

CM – Right. So if you look at the  and that’s an interesting way to look at it and I think and accurate way is let’s assume that the, that the employer wants to retain their profitability. That they’re not going to let their profits erode. So if that, if that stays the same, then you’ve got, do you make your operations more efficient between the top line and the bottom line, and, and you look at ways to do that? Do you increase the price to the consumer? Well, certainly they’re going to feel the brunt of some of that, so can they, can they absorb all of that price increase? I don’t know but those are part, those are things that you need to start now planning for how you’re going to deal with that and have sensitivity into that because what you try may not work and you may have to go to plan B, C, and D.

JH – You’ve got to have at least all the way through Plan D.

CM – Exactly.

JH – Because, I mean you can raise your menu, obviously. You know there’s room to move up and as people, as all prices are going up and people are going to the grocery store and their, their weekly bill at Publix is increasing, they’re going to understand some of that.

CM – Right.

JH – They’re not going to understand all of that. And if, if you want to continue it so that your percentages are always the same, I mean we try to run an 18, 19% payroll, I mean just gross payroll, so do I increase 450 divided by 18%? Absolutely not.

CM – Right.

JH – There’s no way I can recoup that to keep my percentages the same.

CM – Right.

JH – Do I just raise my menu to cover $457,000 so then I look at how many customers I have a week and you know, extrapolate that out. So is that a quarter, fifty cents I need to go up on my menu? I can probably get away with that but you’ve, we’ve always been looking inside our PNL’s. We’re looking at all of our cost of goods, we’re looking at all of our expenses. No one’s trimmed everything they can but you can only trim so much. You can only turn the lights out so much. You can only, you know make sure your AC is working. There’s a lot of expenses we’ll be looking at but what other expenses will we be looking at? Obviously, I was talking to somebody and said you’re going to start inventorying labor the same way you inventory food and beverage. You’re going to look at your labor costs and figure out, okay, how can I either trim this or how can I maximize efficiency?

CM – Right.

JH – So you’re going to start looking for the best of the best.

CM – Yeah and you know one of the things that we’ve talked about too and, and it’s uh we’ve seen other, other restaurants try this in other parts of other states is the tip model versus a service charge model and, and you know the old saying that incentives matter. So incentives matter to the employees if they work hard they get more money so they know if they, if they’re, if they can make more money, they provide better service. Incentives matter to the customers, right? They’re willing to pay more if they get better service and obviously it matters to the employer as well.

JH – It matters because if they’re incentivized to, to sell more, to sell better, uh, they’re going to sell more and they’re going to increase their checks if, if they’re based on tips. Cause we’ve been tipping since Miss Kitty was running the Long Branch back on Gunsmoke, so, I mean that’s, that’s been part of our, our history, our fabric of our, our, our hospitality industry.

CM – Right.

JH – And we do that so we can get good service. We do that so that we’re rewarding that person for doing a good job. That’s, that’s why people come into the restaurant. No one steps foot into a restaurant to have a bad experience and bad service. That’s just not what we do. No one has walked in my front door saying “You know what? I’m coming into the Anna Maria Oyster Bar because they’re service is horrible.” People go in for good service. They go in for good food, good atmosphere, good service. So that’s what we’ve got to do. So if we take that incentive away from them or if we tack on a service charge of whatever it may be 18, 20, 25% and, and go to a totally different model, we’re changing everything completely and, and where is the incentive at that point to do a better job. I, I’ve got people that would do an awesome job as servers, no matter what it was. That you know, that’s just in their grain but I think you’re going to chip away at that little by little by little by little by disincentivizing them. Where will our sales go if we are not incentivized by a percentage of sales.

CM – Right.

JH – It’s going to change, you know people think, we, we can just back up. We can go to, um, iPad, we can go to technology, we can, we can use counter servers. We can do all kinds of things. You’re going to chip away at sales, just like you cannot imagine. It’s, it’s been this way. We do it. We do a wonderful job in our hospitality industry by, by, by creating good service. That’s, that’s the model.

CM – Yeah. You know, there’s a, I don’t want to go down this rabbit trail, but I read recently. I actually read it this week, a case study that was done in Washington state and it was around Sierra. It was actually in Seattle and you know, Seattle was an early implementer of the increase in the minimum wage and they do not have the tip credit in Seattle. So different than what Florida is but they went to this was, this was studying a group of restaurants. They changed. When the, when that, when the increase happened, they changed their model from a tip model to basically a service charge model and after they did that for a period of time, they, they made the conclusion that it was not working. That service was suffering, that the customers complained to them that their biggest complaint from the customers was, was because of the confusion over how to compensate the employee and that they wanted to tip the employee because they felt that they got better service. So it just, it drives home that incentives matter and that it affects all of those people in the chain. It affects the customers, the employees, and the employer. So they went back to the tip model, even though they don’t have the tip credit like Florida does. So imagine that. So they’re paying their, their paying their runners, their waitstaff full minimum wage and they get tips.

JH – Well and people like to tip. I mean that’s what people do. They want to show their appreciation. You just gave me awesome service. I want to tip you. I want to say thank you and that’s what you’re doing by that. You’re, you know, you’re not looking at saying “Well, I don’t want to order, uh, a $5.00 dessert because that’s going to be another 20%. I, I don’t, you know, want to give you another $1.00 to bring me a. That’s not what people do.

CM – No.

JH – They, they want to reward their service for, for showing them how much they care about them. So, it affects. You’re right, it affects the customers. It obviously affects the employee and it’s going to affect the employer if we change this model. And the tip share. I’m sorry, the tip credit is probably the most crucial, crucial thing that’s being discussed on a federal level right now that, that could absolutely destroy our industry.

CM – Yeah, I want to go, I want to hit on that just briefly and then I want to, I want to look at an example that you had where you were at a non-tipped environment and you went to a tip method but the FICA Tip Credit and the Tip Credit. That FICA Tip Credit is a big deal because it, it provides an offset to your tax liability, so it’s after tax dollars that you’re dealing with. So it’s like you’re, after you pay all of your bills, you tax liability, that’s the money that’s left over and that’s equivalent to that FICA Tip Credit and if you think about it, John, as the, if you assume that the employee at the end of the day, they’re going to make the same, that $30.00 an hour that you use as an example, as that minimum wage goes up that 116% to $11.98, there’s a, there’s a strong possibility that the tipped amount to decrease to that employee. They may make the same amount of money. They may still make that $30.00 an hour, however, to the employer, you lose the benefit of that FICA Tip Credit as that tip minimum wage goes up. So that’s a, that you have to take that into account as well.

JH – It’s an unknown number at this time but it’s a big, big number, Charles, because that, I mean, people have been tipping, thinking well you, you know, you’re making $2.13 an hour. I need to make sure you’re making plenty of money, you know, and so that’s where they’ve come into where with the tipping. If they start getting the impression that they’re making $15.00 an hour or $12.00 an hour, they’re going to tip a lot less.

CM – Right.

JH – So the server’s going to make a lot less money than they’re making now. And that’s when we’ve had these conversations with our staff about the minimum wage going up, telling them it could possibly hurt their income. It’s not going to help them, it’s going to hurt them.

CM – Right.

JH -. So, and on the business side on that tax credit, it’s, it’s, it’s going to so hurt our restaurants and the restaurateurs and the employers because we get a credit on every tip, on the FIAC of every tip that’s claimed by the servers.

CM – Right.

JH – So, you know, not just the fact if, if we go to a service charge you get zero credits because it’s wages.

CM – That’s right.

JH – It’s not tips.

CM – That’s right.

JH – So, you’ll  get absolutely zero. So, currently the, the IRS gives us a credit now. I mean, that’s not, it’s not, you know, you don’t take it off of your expenses.

CM – Right, it’s not a deduction.

JH – It’s a credit directly to the bottom of, of what your tax, um, liability is to the IRS. You take that directly off of that liability.

CM – Right.

JH – So if you’re an S Corp, it goes to the shareholders. If you’re a C Corp, it comes off of your corporate taxes. But, but, you know, most people are like, well it’s not that big of a number. It’s a huge number. I mean, um, at one of my restaurants, it was $66,000 and 19 when we were in a full year. I’m just using that number because 20 is a whole other ball of wax there. But, that comes off of your personal income tax.

CM – Yeah.

JH – As a credit that’s a huge number.

CM – Yeah.

JH – That’s, that’s, that’s not it, whatever tax bracket the person’s on, the, the owner’s on. It’s not 38%, it’s 100%.

CM – Right, so that’s, that means if, if your tax liability at the bottom on your 1040 which says John, you owe $100,000, well you take that $60,00 and instead of writing a check for a $100,000, you write it for $40,000 because you get to use that $60,000 to offset that. That’s a big deal.

JH – It is. You’ve already paid that money into the IRS.

CM – Yeah.

JH – Where you’re matching FICA. So the IRS is saying you’ve already paid this $66,000 so you don’t have to pay it again. So here’s a credit. That’s what the FICA Tip Credit is. We’re giving the owner or the business credit for already paying that tax because it was a deal to make sure that the staff was claiming all of their tips.

CM – Right.

JH – That’s how the negotiation was years ago so that the, the, the IRS is still getting the 7.65% from the employee and they’re fine with that.

CM – Right.

JH – So it increased the amount of taxes they were getting because so many people back in the day were under, uh, reporting. Now the, the employer is working with the IRS to say we’ll make sure that all are claimed. IRS is giving us credit for that.

CM – Right, and that goes back to hey, you know what, John? We just hit on something. The IRS even knows that incentives matter.

JH – Absolutely.

CM – They gave the incentive to the employer that says okay you report all these tips and we’re going to give you this credit. So it works.

JH – So why take the incentive of tips away from us.

CM – Exactly.

JH – They know incentives work. They incentivize the entire industry to go out and get, get all of the, the, uh, tips claimed.

CM – Right. Great, great, point. I want to.

JH – It’s a great analogy.

CM – I want to show. I want you to describe the example you had. This is a real life example where you were at a non-tipped model because it was counter service and how you made the decision to change that to full service and tip and what it did to your numbers.

JH – Well, when we opened our fourth restaurant we thought you, we, we saw that wages were going up and we’re like, why don’t we try to come up with something that has fewer hours, fewer payroll hours. We’ll do counter service. We’ll take some of our best items. We’ll work on counter service. We’ll pay everyone a flat rate. No tipping in the restaurant whatsoever. We would take the food to the table. You came up. You ordered at the counter. You sat down. We had a name for you. We’d call your name and they’d bring the food to you. You, bartender would serve the food to you. I mean, the bartender serves a drink, would make a drink and a food runner would bring it to you.

CM – Yeah.

JH – And, and we thought you know, this is one way to combat rising labor cost.

CM – Mmhmm.

JH – And I know when we’ve had these conversations in the, uh, in some of our association meetings. People are like well we’ll just go to counter service. You know, we’ll have the same sales and you know, our labor will go down because we’ll go to counter service and everybody’s paid a minimum wage. So when we opened our store five years ago, we ran the first two years at counter service. And we thought I bet we’re leaving sales on the table. You know we’re not getting the second drink, we’re not getting an appetizer, we’re not getting a dessert. And so, we had a chance to switch, um, we had to close for two weeks for a mechanical issue. So, we said when we open back up, we’re going to, we’re going to go with counter. I’m sorry, we’re going back to our traditional table service like we have at our other three locations. And then we said, you know, I think we’ll probably pick up that 20% in sales. Well, we picked up 71% in sales in the first two years.

CM – That’s phenomenal.

JH – It was, it was stupid. I mean, you know, I, I kept going into the bathroom. I kept going in the mirror and I kept yelling at that guy for making such a horrible decision. I’m like, how could you make such a stupid decision, right? So it just showed us but one of the, the things, not just our sales went up. Our labor hours obviously went up. So our labor hours went up because we put more people on. We put servers and bussers and bartenders. We put some more. It wasn’t counter service anymore. So our labor numbers went up and in, in essence the labor dollars went up, because there were more people.

CM – Right.

JH – But it didn’t go up so much, the percentage dropped. I was running, you know, 25% labor before this and I dropped it down to. We’re down to 15% now. I dropped labor 10%.

CM – Right.

JH – 10%. So sales went up 71%, labor went down 10%. Food costs stayed the same.

CM – Yeah.

JH – It, just, it just tells you that going to counter service, going to technology is not necessarily the best way to go. People go into a restaurant, a lot of restaurants. Listen, there’s some great counter service restaurants out there. It’s their thing. But people are going out to dinner for an experience.

CM – Right.

JH – They’re going out for atmosphere, they’re going out for service, they’re going out for food. We’ve got to give them that service. That’s what we want to do. So here’s a perfect example of, I, I went towards full service, but it’ll tell you that, uh, you know, how would you like the, your sales dropped 71% or whatever the inversion of increase is. How would you like your sales to drop that much? I, I don’t want to go backwards.

CM – Yeah.

JH – Absolutely.

CM – I think that’s a, that’s a, consider this moment is. Let’s assume you’re full service now and you do your analysis or you don’t do it and you just do a quick pull and you say let’s go to a quick service model, counter service model and you lose that amount of sales, that would be devastating.

JH – Yeah. Because your labor is going to go up.

CM – Yeah.

JH – It’s you know, it’s and your percentage is going to change 10%.

CM – Right.

JH – So, you’re, you’re, you’re that’s the wrong way to go, absolutely the wrong way to go.

CM – I think that’s such a great lesson and that’s a such a great takeaway is, uh, and, and, we’ve had discussions about that is okay then just like you said, we’ll, we’ll change from a full-service to a quick service to eliminate people and that’s the reason customers to those restaurants is for the service and to have not only the interaction but to have people wait on them, people to provide that, that great service. That’s what they’re there for. \

JH – Bring me another drink. Bring me a dessert, you know, upsell me. Teach me. Tell me what I should eat, not let me look at a digital board over my head while I’m standing at a counter. That’s what people go to restaurants for, is for suggestions. I, you know, we all know that. I mean how many times have you walked up to a table and, and the server will ask you know, what would you like. You tell me what I want. You know, suggest it to me.

CM – Yeah.

JH – That’s what, that’s what they want.

CM – Exactly.

JH – I don’t want to make a decision tonight. You tell me what I want to eat.

CM – That’s uh, John, can you the counter? I can’t see what the clock is. But John, you, that, that’s such a great point. I was, uh, speaking with, um, a restaurant, that restaurant owner from Seattle yesterday and he described that too. He said the way we train our, our staff is they understand the places to go around our restaurant so that, so that when the, when those customers come in, they can just, they can provide that experience. They know what the food tastes like in the restaurant. They know how to, they sell. I know that sounds, sounds bad but they’re selling that experience to the customer.

JH – They are. That’s a whole thing and I, we had Simone Baron from Seattle that helped us when we were, um, working this past summer. She was the perfect example of a, a server. She’d been in the industry her whole life. She’d raise, you know, her son. She had flexibility and then she’s in Seattle. Just what you’re saying. And, and they went to $15.00 an hour. Her hours got cut. Her flexibility, she had to go get another job. Her hour flexibility of having one job, you know, to be able to go to her child’s, um, baseball games, etc. It just changes things.

CM – Right.

JH – That’s, we’ve got to be careful.

CM – Yea, we do. Now let’s look at and we talked about. We know the fact, the fact is the costs are going to increase. So, what do we do with that? So, we talked about we don’t want to jump to, let’s go away from the tip model and go to a quick serve model, um, how do, how other way, what are other ways to pay for this? We talked about is technology, is implementing technology is that a choice? Scheduling, how you do your scheduling? Pricing the individual items on your menu or making menu changes, putting new items on there. Tell me what you’re looking at, what you’ve experimented with in the past and give us a crystal ball on this area.

JH – Yeah, cause mine’s so clear.

CM – Yeah.

JH – I’m the guy that, I’m the guy that started with the, uh, counter service, right? I got a great crystal ball.

CM – Are you saying your crystal ball has a little cloud on it?

JH – What are they calling facets or, yeah. It’s been dinged up quite a bit, yeah. You know, just like what you’ve got up there, technology is going to come in more and more into our industry. We’re already using a, a wait system where you can check in on a no wait app, you can check in on an app. You’re going to see that more and more prevalent and so technology, scheduling, we will raise prices, absolutely, but we’ve always been so nervous about the elasticity of menu pricing in, in our industry. As I said earlier, you go to the grocery store and, my gosh, it cost me an extra $20.00 for my grocery cart this week. It cost me an extra $50.00, right. You still go back to the grocery store next week. If, if you come to the oyster bar and next week, you know, the menu, you see the menus going up, you’re like, well you know it’s good but, okay I’ll be back and then all of a sudden, you’re like, you know what, there’s another place over here. So, there’s a lot of competition for that dollar. There’s not that many grocery stores, but there’s plenty of restaurants.

CM – That’s true.

JH – So the elasticity of a menu item versus the elasticity of a price in the grocery store is completely, completely different. It’s just like, oh costs are going up, milk’s going up. I still got to buy milk.

CM – Well, you know, you’re not going to do away with milk.

JH – You are not, but you may do away with going out twice a week or, or more, or less, so it will, the menu pricing will do it. Will you condense the menu so that you’re more efficient? You know, there’s ghost kitchens. I was talking to a group today that they were talking about a ghost kitchen where you can put five items in a ghost kitchen with other concepts and you know, so things like that are going to come into play.

CM – Right.

JH – You know, can I take my top five items and one employee or two employees, go into a ghost kitchen and create sales there at a lower cost? You’re going to look at things like that and, and it’s a phenomenal concept to look at.

CM – Right.

JH – As I said with the wait app, look at, look at, when you got a hotel, you, you walk up the front door, they say you’re in, you’re in room 218 tonight. Obviously, you go to the second floor, you come off the elevator, it’s like 201 through 210 are this way and 211 through 220 are this way. You walk down there and there’s room number 218. I’ve found my room!

CM – Right.

JH – Did anybody take me to my room? No, unless I’ve got, you know, somebody carrying my bags, but you know, usually I’ve got something over the shoulder. So, I found 218 all by myself. I called and made a reservation at the hotel. I got there. One person took care of me and that’s the desk person.

CM – Right, right.

JH – So, what’s going to happen in hospitality, in, in restaurants. You know, I, we’ve got the no wait. You sign in and then you’ll get an app or you’ll get a text that said “Hey, John, your, your table’s ready. You’re at table 43 tonight”. I walk in the door and there’s a big sign in the front that says “Here’s tables 1 through 10 are this way, 12 through, you know. Will, will we get to that? We’ll probably have to at some degree, Charles, because currently, every restaurant you walk into has two or three high school kids.

CM – Right.

JH – Usually. I mean you’ve got, that are right at the door. It’s their first job ever. You’re teaching people how to be, how to, how, how, the life skills. You teach them how to show up on time. How to comb their hair. How to dress properly. How to deal with nice people. How to deal with not-so-nice people. You’re giving entry level to a, a high school kid.

CM – Right.

JH – And that’s what we’re all about. 1 in 3 Americans started in our industry. We’ve got to keep that. So, anyway, you know, before I get too far off on my rant. But, this app will say, I’m at table 43 tonight. You’ll have a sign that shows. It’ll point ways and we’ll have signs over the table, this is table 43. I’ll seat myself.

CM – Yep.

JH – We’ll have a QR code so you can get a menu on your device. And then a server with a handheld will come up and take your order. So technology is going to be.

CM – It’s going to be real.

JH – It is. It’s going to  be a huge player because with a handheld, can my server now go from four tables to six tables?

CM – Right.

JH – Absolutely. If I’m paying someone $15.00  or $12.98, they better be able to handle six tables. Right?

CM – Right.

JH – So, what level of service is someone that I just increased their station 50% going to give? They went from four tables to six tables. They can’t give that good a service.

CM – Right.

JH – You know, it’s, they’re not going to get the same level. It will diminish.

CM – Right.

JH – Absolutely. Yeah, they got a handheld they can punch in the order that the guest takes, food runner will bring it to them if I can afford one. So a lot of things will change. Technology will change our industry drastically.

CM – It will. Yeah.

JH – Yeah.

CM – That’s, that’s such a good point and one of the things that you started to go down the rabbit hole was the, what this minimum wage is doing is it’s going to, it’s going to have a negative effect on those, those high school kids or those first, first-time job seekers. There, there’s going to be more limited, uh, spaces for them. There’s going to be less opportunity for them to get a job.

JH – It is and again the, the, the minimum wage doesn’t take them into consideration. It doesn’t take training wages into consideration. Don’t take senior wages into consideration. I mean, there’s some people, they’re just looking for you know a job to say below their social security level. They just want to get out of the house.

CM – Right.

JH – And no, we’re not trying to take advantage of anyone by, you know, that’s cheaper labor or anything like that. We’re providing something that is in need. There’s a need for that.

CM – That’s right.

JH – There’s an absolute need to keep people active, to give people their first job. I mean, if, if you can’t learn people, life, all those skills in, in the, in the hospitality industry, there’s nobody else. I mean, if one and three started here, obviously, it’s a good place to start.

CM – Oh, it’s a great training ground.

JH – It is.

CM – And yeah, you know, we talked about technology and there’s certain people that are very good at technology and some that struggle with that and it doesn’t come natural, so, so you kind of see some fallout, potential fallout with that as well.

JH – You know, it, it’s one of the things that worries me drastically because we have a lot of old-school managers and, and, and I, I call them that affectionately as I can be. I’m as old school as they come because my people that, that have worked with me for a long time have not, a lot of them have not embraced technology because it hasn’t come to them. They haven’t needed to. I mean, they’ve been writing schedules on a piece of paper or an Excel spreadsheet for 20 years. They’re, they’re used to that. So, you know, with new technology, um, there’s scheduling apps that, that are all, they’re all technological and you know, you can do a schedule on a, on a web-based scheduling, um, app, in 45 minutes for our restaurants. It takes the, the old school manager four, five, six hours to do that. I mean, it’s just, you know.

CM – Right.

JH – That’s just, just brass tacks. So if, if I’m looking at cutting my management level and that’s who I think is going to be hurt as well as mid-level managers. If I’m looking to, to go from instead of five at every store down to three, I’m going to need three that can do all of this work in 45 minutes instead of five.

CM – Right.

JH – You know, we’re cutting the hours. Is, is that fair to, you know, my, my, my old guard. My old school guys? I don’t know. I mean I’ve got guys and girls have been with me 20 plus years. Yes, we, we can try to, to get them technologically brought you now to the, to this century, but it’s hard to do. So I, I think you’re going to see that the younger ones coming that can handle technology, that can, you know, they’ve been, they’ve been raised on an iPad. They’ve been raised doing things like that. They’re the ones that are going to suffer, are, are going to excel.

CM – Right.

JH – So, we’ve talked about who’s going to excel. The people that are technologically savvy, the people are bilingual, the people, you know, that’s what we’re going to be looking for and that’s why I said earlier, we’re going to be looking for the best of the best. When you start inventorying you’re labor, you’re looking for the best of the best. Who can do, we’ve got all of these tasks that need to be done. I need to schedule every week, I need to, you know, blah, blah, blah, to hire, train. All of these need to be done in x number of hours, because I’m doing it with less people. So who can do it the best.

CM – Right.

JH – And that’s who you’re going to look for.

CM – Yeah. I think you, the, the crystal ball, that, that you painted there is, is, uh, is a very calm one and it’s a measured. You’re looking at measured changes and it’s not we’re going to go in and, and drastically cut out the number of people that we have on staff. It’s a, let’s, let’s squeeze the efficiency. Let’s make sure that we’re most efficient. That we have the best people. That we’re using the technology that’s complementary to our service model and, yes, we, we’re going to look at increases in prices and maybe some menu changes, but we’re going to do that in a measured way, in a way that we can watch it and we may have to pull back and we expect that we’re going to have to change again because, John, I think you, you have great lessons in the restaurant industry and one of them that comes through loud and clear is be ready to make changes. Be aware of what those changes are doing to your, both your people and to the customers in the bottom line. And be willing to make changes as needed.

JH – And you’ve got to make changes both ways. You’ve got to take little bites off of that apple to get the menu where you, where your guests will still feel comfortable with it, but that you’re profitable and then you’ve got to make sure that, that you’re still providing the service and the food and the atmosphere that they feel they’re paying for. There’s got to always be the value for dollar that they are perceiving of what they’re doing and so if, if you’ve extended or you’ve just your service is extended too far and they’re not getting good service, that’s going to factor into it. So you got to say you know I’m going to put all of my savers on six table stations with handhelds. I’ve, I’ve invested in the technology for handhelds. I’m going to go six. Well, if they’re not giving good service, you’ve got to go back to five.

CM – Right.

JH – And you got to go back to four. You’ve got to figure out where is your sweet spot. You’ve got to, you’ve got to be like the mad professor. You’re constantly tweaking your formula.

CM – Right.

JH – Until you’ve given people what they’re, what they’re paying for because you may say, well I, the service isn’t as good, but that’s the way it’s got to be. Well it doesn’t have to be that way and the guests may not have the same philosophy. Like they may not understand the way you do because they’re not looking at your bottom line. They’re not looking at every one of your expenses. So you’ve got to make sure that your guest is, obviously the guest is the most important thing in the world.

CM – Right.

JH – If you don’t have them.

CM – That’s right. So you know if you go back to the first slide we had was the wave is coming. The fact is we know that the minimum wage is going up so prepare now and hopefully we’ve gone through, I think, John, you’ve done a great job of this, of giving us real life examples and things that, that you’ve considered in your business and that’s really what we want to do to the, for the viewing audience is to, is consider this, consider these options, consider these issues that you’re going to have to deal with and you better do it sooner rather than later. Don’t be caught up in that wave is on shore because it could be too late

JH – Right. And, and we’re fortunate because it is a graduated, uh, increase.

CM – Right.

JH – But you’ve got to be, you, you can’t wait until the minimum wage goes up a $1.44. You can’t wait and say, well it’s $11.98 now. What now? What am I, I’ve been letting my bottom line take care of a little by little chunk little, little, time. You cannot. You can’t wait until too late.

CM – Right. And there’s also we didn’t even bring this up, but there’s, there’s external factors that are, that you don’t have control over and that’s the, you know, we’re looking at the dreaded word of inflation and you know, people have been fearing that and, and we’ve heard the, the fed chair and others in the administration say don’t worry inflation is not going to happen. Well we’re seeing that happen now and if you’ve, if you filled up your tank recently with gas, you know you’re experiencing that. You go to the grocery store you know the prices are going up there. When if you try to hire people, you know the, the prices are going up even without the increase in the minimum wage so, we, we see inflation already and I think the, the fed’s going to let that cook along in 21 so I think we, we should expect inflation so what does that mean to the restaurant owner. Well it means you’re going to have prices that go up beyond just that minimum wage increase.

JH – Yeah. And just like you said, you’ve got to plan on inflation. You’ve got to plan on all of these things. You’ve got to plan on a lot of costs going up.

CM – Exactly. John this has been a great episode. I want to thank you so much. I want to thank the Florida Restaurant Lodging Association for participating in this partnership. I think it’s great information we’re given to the restaurant owner and those in other industries that are also affected by this minimum wage increase. Thank you so much.

 

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