Sept. 8, 2008
As the 2008 presidential election draws closer, operators are thinking more and more about legislative issues and how they impact their businesses. A seemingly innocuous change in a law can have disastrous economic consequences for a restaurant owner.
Pizza Marketplace conducted a reader poll in which nearly 150 respondents ranked the top legislative issues facing pizzeria operators. Those respondents listed minimum wage increases, immigration reform, biofuels, menu labeling and food safety as their top concerns, in that order.
We also asked operators, from the largest chains down to single-unit mom-and-pop outfits, how those issues affected them. Here's what they had to say:
Minimum wage increases
Recent increases in the minimum wage means that many operators are trying to do more with less help.
"Here in Ohio, the minimum wage is tied to the consumer price index, so every January it adjusts," said Michael Shepherd, who operates Michael Angelo's Pizza in Kenton and Rushylvania, Ohio. "I was more than happy to provide a teenager with a starting point, fully understanding that they would not perform as well as our full time help, but not at $7 per hour. I fully believe that in the next 10 years or so, you will see teenagers virtually shut out of the workplace."
From the perspective of the employee, a higher minimum wage makes it harder to find a job initially and harder to earn necessary raises, said Josh Benton, a field consultant with DuBois, Pa.-based Buck's Pizza Franchising Corp.
"Setting a minimum wage does nothing but hinder the ability of an operator to hire the best crew possible," Benton said. "So, while the idea of low wage earners getting a raise sounds nice, that is not the reality for the workers or operators."
The combination of minimum wage increases and an economy in which customers have fewer dollars to spend eating out puts a tremendous amount of pressure on a business, said Andrew Gamm, director of brand development for Dallas-based Pizza Patron.
"We have been forced to tighten our belts and get more efficient with our labor scheduling, which is something we should always be working at anyway," Gamm said.
One of the biggest challenges with minimum wage comes with the states and cities that make themselves "economic islands" by requiring wage levels higher than the federal government, said Domino's spokesman Tim McIntyre.
"This inhibits growth, especially for businesses that hire many entry-level, hourly employees," McIntyre said. "The challenge is that pizza is an industry in which one cannot just simply pass on every cost increase to the customer, because it's such a competitive category."
Despite a soft economy, many restaurant operators are struggling to find willing workers.
The U.S. immigration system doesn't reflect America's need for workers, according to the National Restaurant Association. The U.S. economy provided 134 million jobs last year, but the government makes only 10,000 green cards available for service-industry workers each year.
Over the next decade, the number of jobs in the foodservice business will grow one and a half times as fast as the U.S. labor force, according to the NRA. At the same time, the number of 16- to 24-year-olds in the labor force — half the restaurant industry's workforce — will not grow at all.
Although Pizza Patron targets the Latino demographic more directly than most other concepts, the company faces the same challenges as every other restaurateur, Gamm said. "The immigrant population plays a significant role in the restaurant industry and we hope the reasoned judgment and common sense will accompany any legislation that takes place," he said. "If the right decisions are not made, there will be dramatic ripple effects in the economy throughout the country."
The use of ethanol as a fuel additive has gained tremendous popularity in recent years as a way to combat high gas prices. Unfortunately, increased ethanol use has helped drive up corn prices, which in turn has driven up the cost of items ranging from cheese to paper goods to pizza toppings.
"Government subsidies have caused an increase in the cost of corn, which has had a domino effect on many ingredients that we use in our restaurants," Benton said. "We, of course, cannot bear all of these increased costs, so we have been forced to raise our prices. So, in the end, we and our customers pay to subsidize the corn used for ethanol production."
Still, most operators agree that something needs to be done to address high fuel prices.
"(Fuel prices are) pushing our cost of delivery up and is cutting into the pockets of my customers," Shepherd said. "Many are facing the dilemma of â€˜gas to get to work' or â€˜pizza tonight.'"
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In an effort to address fuel concerns, companies such as Ft. Lauderdale, Fla.-based Pizza Fusion are using hybrid gas/electric cars for deliveries, while Domino's has tested all-electric ZAP cars.
Earlier this year Domino's purchased a fleet of Yarises, a Toyota subcompact that gets up to 30 miles a gallon, for the company's Las Vegas market.
"This is an ongoing test to determine if it's economically feasible to purchase a fleet of cars versus having drivers use their own vehicles for delivery," McIntyre said. "It's too early in the test to have made any meaningful conclusions."
Many cities are considering enacting laws to require restaurant operators to post calorie counts and nutritional information. The NRA fears that one-size-fits-all menu labeling laws may put an undue economic burden on restaurant operators.
"Menu labeling is a challenge for a few reasons, not the least of which is that there are currently 223,000 different ways to order a pizza from Domino's, when you take into consideration four different crusts and three sizes multiplied by our available toppings," McIntyre said.
"We do, of course, believe in providing nutritional information to our customers," he said. "We have - voluntarily - done so for more than 10 years, through our Web site and through printed nutritional guides available at stores. Where we take exception is places like New York City who have targeted the QSR industry."
Still, some operators don't see menu labeling as a make-or-break issue.
"We have some stores in the Los Angeles area which seems to be moving quickly towards new requirements regarding menu labeling," Gamm said. "This will definitely have an economic impact on our business, but I'm confident that restaurant companies will be able to make the necessary adjustments to comply. Providing informed choices to consumers empowers them, and is ultimately good for business."
In the past few years, E. coli outbreaks from contaminated foods have sickened hundreds and forced several operators to close. This year, an outbreak crippled the tomato industry for weeks.
Although the outbreak was eventually traced to contaminated jalapeno peppers, the incident exposed major weaknesses in the food inspection process.
An estimated $2 trillion in imported products entered the United States last year and experts expect that amount to triple by 2015, the NRA said. The organization is pushing for an overhaul of the entire food inspection process.
"Of particular concern is the complexity of the food distribution channels for fresh produce and the challenges presented when a finished product served to consumers, like salsa, contains a number of ingredients," said Donna Garren, the NRA's vice president of health & safety regulatory affairs. "We need a truly farm-to-table approach. Supply-chain collaboration and coordination has taken on a new urgency and new focus."