Minimum Wage Hikes and Inflation Take Toll on Restaurant Industry

It is a bad time to own a restaurant. In the last several years, many factors driven by new laws and rising costs have forced the restaurant industry to take big cuts in profits. And, since restaurants are known to have slim profit margins anyway, business owners in the industry must try harder than ever to succeed.

Problems in the industry started when the state began raising the minimum wage every year. “In 2016, Colorado voters passed Amendment 70, which raised the minimum wage to $9.30 in 2017 from $8.31 in 2016 and required the state minimum wage increase by $0.90 a year until it reached $12 in 2020,” The Colorado Fiscal Institute reported.

The industry then took a hit in 2020 when the nation was struck by the COVID-19 pandemic. Government-regulated shutdowns for over a month took a toll on sales. And then after the mandated shutdowns, capacity limits imposed by governments caused continued suffering.

Once eateries were able to reopen at total capacity, the nation saw “The Great Resignation,” which caused an employee shortage that affected the hospitality industry more than other types of businesses. And still, in 2022, companies in every industry are having trouble getting enough workers to fill entry-level jobs.

Then recently, the industry was thrown another curveball when inflation caused food prices to skyrocket from what they were pre-pandemic. Local restaurant operators have reported rising costs on just about everything thing they buy with some items doubling in price.

Inflation Causes Food Costs to Rise Significantly in Restaurant Industry

According to an article published on Patch.com, the Bureau of Labor Statistics said that food prices across the country increased 7 percent between January 2021 and January 2022. Prices at grocery stores rose the most, but the prices for food at restaurants still climbed 6.4 percent. And in the Denver metro area, restaurant meals went up by nearly 10 percent.

According to Elijah Murphy, who owns The Historic Ute Inn in Woodland Park, the drastic increase in food costs has become the latest struggle in succeeding in the industry. Murphy said that just about all of the food items the restaurant buys have gone up with some ingredients like eggs and flour increasing by around 200 percent.

Restaurant owners have found ways to cope with increasing costs and most agree that they have been forced to raise their menu prices across the board. However, some restaurants have been offering promotions to battle inflation costs like having sales on smaller portion items or offering deals to those who order online where they will purchase more food items.

One eatery in Colorado Springs chose to add a 5 percent inflation fee to help offset the rising food costs driven by abnormally high inflation levels. The co-owner of Urban Tandoor (the restaurant in Colorado Springs charging the inflation fee) Prit Kaur, told KOAA News5 that the costs of food for the restaurant have gone up 40% to 50% since the pandemic began.

“With what the cost has gone up. It (the inflation fee) still doesn’t cover all of it,” Kaur said. “We just tell customers the truth that costs have gone up and we can’t keep increasing our prices or changing our menus again and again.”

Minimum Wage Increases Continue to Affect Restaurants’ Bottom Line

Many owners and managers in the restaurant industry will tell you that their profits take a hit every time the minimum wage goes up. And even though many restaurants pay above the minimum wage for some workers, where they take a hit is when the tipped worker minimum wage increases because they must dish out more cash to pay employees who can already take home much more than minimum wage with tips.

The CEO of the Colorado Restaurant Association Sonia Riggs told The Pueblo Chieftain that annual increases in the minimum wage could prove to be “catastrophic” for restaurants that may already be on the verge of closure. She also said that restaurants only make an average profit of 3 to 5 percent, which is much lower than other types of businesses. “They spend 95 percent to 97 percent of every dollar earned on the people, place, and food — so any drop in revenue is catastrophic,” Riggs said.

According to an article published in The Coloradoan, restaurant owners have been coming up with ways to adjust to the rising minimum wages. Many have responded by raising prices to pass the burden off to their customers. But, some owners have said that they can only raise prices so much before they will see a drop in customers coming to their eateries.

Many restaurant owners say that they have had to make moves to operate with less staff. Tiffany Helton, the co-owner of Stuft, a burger bar with three locations in Northern Colorado, said that she started implementing tablet ordering systems to reduce the number of servers needed on each shift. “I think what you will see is the integration of technology into the service model wherever possible,” Helton said.

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