Editor's note: An earlier version of this article erroneously cited the per-week cost of the minimum wage increase.
Country Folks Deli in downtown Longview is raising its prices this winter, albeit begrudgingly.
Owner Paige Espinoza said most menu items will cost about $1 more starting in January, a necessary price boost to offset growing operating costs associated with an upcoming minimum wage hike that will increase minimum wage from $12 to $13.50. That boost also takes effect in January.
“I’m not making any more than I was because everything is more expensive (for me),” Espinoza said.
Espinoza said she expects the restaurant’s expenses to go up about $20,000 this year. Already she’s paying more for her wholesale meats and vegetables.
“I have to raise prices. … I have to buckle down,” Espinoza said. “This (minimum wage increase) is going to make a big difference.”
Like Country Folks, businesses across Longview are bracing themselves for steep spikes in operating costs that some owners fear will hurt their business — or even put them under. But the minimum wage hikes aren’t all bad news for businesses, said Jerry Petrick, a business adviser with the Small Business Development Center.
Petrick said the wage boost will create a sort of “economic Darwinism,” where the fittest businesses survive — and end up better off in the long run.
“I see this as an incredible kick in the pants that says, ‘Evaluate your business,’ ” Petrick said last week during his “business boot camp” sponsored by the Kelso-Longview Chamber of Commerce.
“This is an impetus to start to look at your business more critically. ... It’s a reality coming down the pike,” he said. “You have to analyze what that reality means for your business.”
The minimum wage increase is driven by a 2016 voter-approved initiative to raise Washington’s minimum wage from $9.47 to $13.50 over four years. This January is the last and largest round of jumps. (After 2020, Washington’s minimum wage will continue to rise based on a cost of living index.)
The boost will likely put Washington’s minimum wage higher than any other state in 2020, depending on the increase in index-driven states. (Most of those states are well below even the $10 mark now.) With the wage increases, businesses will have to pay about $161 more per week for a full-time, minimum wage employee than they did in 2016.
Initially, most business owners thought they could withstand the four-year minimum wage increase, said Chamber President Bill Marcum. But after the first year, which raised the minimum wage to $11, “probably half of those businesses were much more concerned than they had been,” Marcum said.
That’s because employers soon realized many of their product suppliers offset the wage increase by raising their prices.
The minimum wage increase that year was a double whammy that left local businesses were paying more for both payroll and products, Marcum said.
Espinoza said higher food and delivery prices are part of the reason she’s raising the deli’s prices. She said in the last year the price for a case of chicken breast jumped from $43 to $54 — a 25% hike.
Some of that increase will be passed through to customers in the form of higher meal prices, Espinoza said. But the restaurant can only increase prices so much before driving customers away, she said.
“At what point will it be too much? … People won’t be able to afford to go out and eat,” Espinoza said.
Businesses could also make up for the minimum wage increase by cutting certain services to save money, Marcum said. He pointed to a local Mexican restaurant as an example.
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That restaurant gives out free chips to every table, a practice which costs the business about $23,000 a year, Marcum said. In light of the minimum wage increase, the owner is now considering limiting the number of free baskets per table or charging for the chips.
“(Free chips) are a benefit to go to a Mexican restaurant, but at some point they might need to change that,” Marcum said.
Other employers might tighten shifts, cut back on hours or look for cheaper wholesale distributors to save, he said.
Debbie Sweet, co-owner of the Sweet Spot frozen yogurt shop in Longview, said her business is looking at that data to find ways to “tighten our shifts.”
“When we sit down to do the scheduling, we really, really pay attention to the numbers,” Sweet said. “How many customers walk through the door between 1 and 2, on average? Between 2 and 3? ... An average employee after training should be able to handle at least 40 individuals in the store in an hour. If we expect about 40 customers in that hour, we won’t bring in two people.”
Sweet said that “caution” in scheduling is a regular business practice that has been made even more relevant in light of the minimum wage increases.
“Just like all good business, you just have to keep looking at your numbers and your costs throughout the year and see if there’s anywhere you have an opportunity to save 20 cents here or $2 there,” Sweet said.
She also aims to bring in more customers and raise revenue, so she doesn’t have to pass the cost of the wage hikes on to buyers, she said. She will need to make up about $20,000 to “absorb” the new costs, which means serving five more customers per hour per employee.
“We are hoping to revisit how we use our employees ... and their talents to the fullest. Maybe it’s doing artwork in the store or serving on a committee, like the marketing committee or event committee,” Sweet said, adding that because employees will cost more, Sweet Spot will only hire workers with “upward mobility and more job skills, rather than just being able to take money.”
All told, the minimum wage hike is “going to be hard for businesses,” Marcum said. “But they will just have to weather the storm.”
Proponents for the raise argue that the “storm” won’t be nearly as bad as some businesses expect. Washington State Labor Council Secretary/Treasurer April Sims predicts the minimum wage boost will actually benefit businesses in the long run by increasing their revenue.
“Everyone does better when folks have more money in their pocket,” said Sims, who was the director for the 2016 initiative’s signature-gathering campaign. “If you have more money to spend, that’s more money you are spending on businesses in your community. … Small businesses need customers, and this allows for more customers.”
A 2019 study by the Massachusetts Institute of Technology confirms that people spend more when minimum wage goes up. However, the study notes that spending is “modest.”
Petrick acknowledged that the minimum wage boost might put some shops out of business. But if a $1.50 increase in minimum wage is what puts a business under, then it was probably already close to the “hairy edge” anyway, he said.
He pointed to a 2018 study by the Harvard Business School, which found the effect a minimum wage increase has on a business depends on how close that business was to the “margin of exit” already. The study focused specifically on restaurants.
The lower rating a restaurant had, the more likely a minimum wage boost was to put it out of business. Restaurants with a 3.5-star rating were 14% more likely to fail after a $1 minimum wage increase, while there was “no discernible impact” for a five-start restaurant.
“What they found was if you have a solid business, you do better regardless of the costs,” Petrick said.
And “strong” businesses that survive the minimum wage increase will likely end up with more customers and more talented workers, making them even stronger, Petrick said.
“It’s like the 2008 Recession. If you survive, you are stronger and more profitable because a lot of the competition is wiped out,” Petrick said, adding that it’s “never a bad strategy to run a damn good business.”