Restaurants Weigh Pros and Cons of Higher Labor Costs
The CEO of Applebee’s and IHOP says he’s actually optimistic about having to pay employees more.
Dining out is getting more expensive, assuming you trust the U.S. Department of Labor. Last week, USA Today reported that, in December, prices at full-service restaurants saw their largest monthly increase since March 2011 according to the consumer price index, and year-over-year, prices in January were up 2.7 percent, a rate significantly higher than inflation, which is currently at 1.6 percent. As to the cause, one of the biggest culprits is reportedly labor costs — buoyed by a number of factors including some state-by-state minimum wage increases that kicked in on January 1 and low unemployment, which translates to a more competitive job market and better pay.
The easiest reaction to higher restaurant prices is the most common one: freak out. USA Today had no problem finding people willing to say increased tabs could lead them to cut back on their dining habits. Meanwhile, restaurant owners (and corporations) will likely stand at the ready to cite labor costs as an issue if profits begin to shrink. But Steve Joyce — the CEO of Dine Brands, parent company of Applebee’s and IHOP — took a refreshingly different approach. He recently told Business Insider that he believes higher labor costs are a good sign because it’s more money in people’s pockets.
“When we talk to the franchisees I go, ‘Remember they're also our customers,’” the CEO was quoted as saying. “So, if they're making more money, they've got more disposable [income] to come in…. Or, if they weren't working and now they're working, or they went from part-time to full-time, they're going to drive business as well.”
Of course, it’s not hard for a huge restaurant chain worth $1.7 billion and with annual revenue of around $600 million to be optimistic (especially coming off what was considered to be a strong year). They have some wiggle room to absorb a hit to their margins. Other chains and independent restaurants might not be so lucky. And Joyce acknowledged this, telling Business Insider, “When restaurants are empty it's going to start at Del Frisco's…. It's not going to start at Applebee's.”
Still, as CEO of a large company, Joyce is also able to look at the larger picture: Regardless of whether you think higher labor cost and the resulting higher menu prices are a good sign, you certainly half to acknowledge it can be a better sign that it seems on first blush. Needless to say, no news is good for all restaurants because a diner in Topeka is much different from a steakhouse in Manhattan, but at the very least, Joyce offers up the reminder that higher restaurant prices aren’t always a reason to freak out.