As some cities and states vote to raise their minimum wage to double-digit territory, one giant franchisee CEO is already changing his growth strategy as a result. (Tweet this)
"We are altering our expansion strategy, for sure. We are focusing our growth entirely on states that aren't as aggressive as the blue states, typically, that are increasing their minimum wage," said Greg Flynn, founder and CEO of Flynn Restaurant Group.
This does not mean the company is closing locations. Instead, it has raised prices to counteract the added labor costs.
The company, which franchises 475 Applebee's locations and 185 Taco Bell restaurants, ranks as the biggest franchisee group in the country with $1.5 billion in annual sales. It employees roughly 36,000 people (the equivalent of about one-tenth of the total Alaskan civilian workforce) in 28 states.
"We're also trying to become more efficient in every way we can, which unfortunately translates into trying to automate some processes and just be efficient with labor (and) runs contrary to what ought to be the national priority of creating jobs," Flynn said.
"The higher the cost of (employment) gets, the more attractive technology gets," he added. "It's that simple."
While the nationwide minimum hourly wage has remained at $7.25 since mid-2009, some states and cities have been proactively raising their own rates. These jumps are accelerating to new highs as the economy improves.
Los Angeles became the latest state to vote in an increase, pushing the city's wage floor to $15 per hour by 2020.
Separately, there is a push among Democrats in Congress to increase the nationwide rate to $12. One prominent group called Fight for $15 has been lobbying for a raise to $15 per hour along with union rights for fast food workers.
In a report last year, the Congressional Budget Office tallied its estimates for the impact of a possible hike to $9 or $10.10.
Boosting the rate to $10.10 was forecast to result in a loss of 500,000 jobs but boost 900,000 people from below the poverty level. Hiking it to $9 would result in a 100,000 person drop in employment but a 300,000-person drop in the poverty level.
If a push to $15 were successful, Flynn says independent restaurants would bear the brunt of the impact. In this situation, businesses would have to choose whether to absorb the increase, raise prices, reduce labor or choose some combination of these options.
"It will cause a general price increase in all restaurants—and in fact all retailers," he said. "And it will create an incredible margin squeeze on all businesses, but independents run lower margins generally than chains so they'll be the real victims of it."
Hikes also make it more difficult for chains like Applebee's or Taco Bell to take a leap of faith on workers who are trying to land a first job, Flynn said.
"When you try to define the minimum wage as a living wage, it eliminates the ability employers have to take risks on people who aren't very productive at first," he added.