KTTH OPINION

Rantz: Panic as Seattle restaurants may not survive massive minimum wage shift

Jul 28, 2024, 11:18 AM | Updated: 11:21 am

Seattle restaurants...

Lunch at Sam's Tavern in South Lake Union. (Photo: Jason Rantz, KTTH)

(Photo: Jason Rantz, KTTH)

Seattle restaurant operators are panicked ahead of an end-of-the-year minimum wage update preventing tips and benefits from being deducted from hourly wages. For some Seattle restaurants, it will add about $45,000 in expenses per month that they don’t have.

When Seattle leaders hastily passed a $15 minimum wage hike, they offered a 10-year ramp-up period for small businesses (those with 500 or fewer employees). Under the current formula, restaurants may pay a $17.25 hourly wage if their employees earn at least $2.72 in tips per hour or in medical benefits. In 2025, this ends and the minimum wage will almost certainly exceed $20.00 an hour.

Restaurants will have few options when navigating this monumental change. They could completely change their business models and keep an hourly wage, though that could come with significant layoffs or major increases in menu prices and new fees on diners. Alternatively, they could make their server positions salaried, but that also comes with risks.

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Why are business owners panicked about the future of Seattle restaurants?

The uncertainty in the industry, especially for those operating in downtown Seattle where employers haven’t yet forced their employees back into the office full-time, is creating a deep sense of panic.

Ethan Stowell operates a number of Seattle’s top restaurants, including How to Cook a Wolf, Staple and Fancy, and Tavolata. The chef and restauranteur moved his hourly positions to salaried and already experienced what local restaurants are about to be hit with. It was a considerable expense and he warns that it’s not an easy adjustment to make.

“I know everybody wants to say, ‘Just raise things [on the menu] a dollar or two,’ and that’s what it’ll be. That’s very simplified math. I wish it was that easy, but it’s not. This is a large increase that’s probably large enough to be equal to or close to what most restaurants in Seattle profit,” Stowell told “The Jason Rantz Show” on KTTH.

Stowell pointed out that customers who complain about tip fatigue should brace for higher menu prices — and even higher tips.

“If everybody has to raise their prices to accommodate higher wages, which is totally how it goes, then tips go up with that as well … every time you raise the prices on your menu, the cost of the customer goes up twofold. One is by the menu price, and two is by the 20% average of tips, you know, so both things go up,” he noted.

Stowell worries that this will mean restaurants see fewer customers which could lead to fewer staff members.

“I don’t blame restaurants for being concerned about affordability because they’re worried that’ll have a negative impact on customers coming through the door in volume. It’s all a tricky situation that needs to get solved,” Stowell said.

Making matters worse? The minimum wage hike isn’t the only added expense restaurants have to worry about.

‘You’re at this breaking point’

Pecos Pit BBQ Director of Operations Jeremy McLachlan worries about the restaurant scene in Seattle.

The BBQ spot decided to ditch cash and now only accepts credit cards after suffering a sixth robbery. This move makes them less of a target for theft, but now they have to cover credit card processing fees ahead of the minimum wage change. As other restaurants feel forced to make the same changes, the already meager profit margin becomes more precarious.

“It’s a huge issue and it does trickle down to the customer, you know, then we have to charge more. And the problem running a fast-casual restaurant is how much can you charge? Now you think you want to go in and pay $20 for a beef brisket sandwich? I mean, you get to a point where you’re at this breaking point,” McLachlan explained to “The Jason Rantz Show” on KTTH. “Some of the fine dining restaurants, you can charge more and create more of an experience, but they’re not going to come back as much. And that’s the issue for us. Running a restaurant, it’s all about frequency and reach and getting people to come in not one time a week, but two times a week, three times a week. That’s how you build a business.”

A new Seattle city council to the rescue?

A new, business-friendly Seattle city council is now in power and they’re set to consider changes to the minimum wage hike.

Councilmember Joy Hollingsworth, who replaced toxic socialist council member Kshama Sawant, proposed a bill last Friday. It would keep the tip credit permanent but would raise the minimum wage by a percentage based on inflation. It is expected to be introduced this week.

Council President Sara Nelson co-founded Fremont Brewing and Council member Tanya Woo’s family owns Kau Kau BBQ. While they’d be expected to support the legislation, they’re under pressure to recuse themselves from the vote because of their ties to the industry. But it’s those very ties that earned them votes and support from constituents who hoped they’d help usher in a new era of business-friendly policies.

As the pressure for recusal mounts, the council will also be competing with Big Labor and their wealthy progressive mouthpieces.

Hypocrite Hanauer weighs in

Venture capitalist Nick Hanauer, who helped negotiate the $15 minimum wage hike while paying $9 an hour to his own employees, argued that “Seattle restaurants have had a decade to plan for this.” You’ll be hard-pressed to find someone more consistently wrong in his ideological arguments and assumptions, yet because he donates big money to local progressive political causes, he has a seat at the table.

“If they can’t figure out how to pay a fair wage in 10 years, then they need to be in a different line of work,” Hanauer, who has never run a restaurant, said on X. “Lots of restaurants have figured this out. We shouldn’t reward the handful of business owners who want to pay substandard wages.

Hanauer provided no data to suggest “lots of restaurants have figured this out.” And Stowell, who is navigating the waters as a large business, is sounding alarms. And left-wing restaurant owners themselves are the ones who, despite being progressive, are warning about what’s to come. They are sounding the alarms not because they don’t want to pay their employees more; it’s that they know the industry better than activists and politicians.

Economic ignorance

Hanauer also doesn’t appear to remember that COVID nearly decimated Seattle’s once-thriving restaurant industry. Scores permanently closed their doors thanks to COVID shutdowns. Other Seattle restaurants are still barely staying alive. Large downtown employers, like the city of Seattle and Amazon, still allow employees to work remotely throughout the week. It’s caused a dramatic drop off in foot traffic to downtown businesses. With homelessness, drug use, and crime getting back to COVID-era crises, downtown restaurants are suffering the costs.

“When you pay people more, they spend more locally, and our economy grows. For 10 years these businesses have profited from that booming growth. It’s time for them to pony up or pack it up,” he concluded.

Actually, many have packed it up. Downtown Seattle has seen a number of business closures, some large and others small, independent operators. And at $16.28 an hour, Washington State has the highest minimum wage in the country. The state’s unemployment rate is 4.9%, higher than the 4.1% national unemployment rate. Seattle metro area’s unemployment is doing as bad as 4.8%.

Where is the money coming from? Seattle restaurants face uncertain future

Echoing concerns over the restaurant industry’s survival is Portage Bay Café co-owner Amy Fair Gunnar.

In The Seattle Times, Fair Gunnar warned that no Seattle restaurants have a large enough profit margin to sustain this change kind of change. She estimates that it’ll cost her business an extra $45,000 a month. She says restaurants will have to “seriously change what they’re doing or they’re going to close their doors.”

So where is the money going to come from in an industry running such low margins? Unless Hanauer plans to offload some of his hundreds of millions to restaurant owners, the industry has to change. And chef and restauranteur Stowell said it can’t just be about raising prices because if they “just raise prices, it won’t go well. I promise that.”

Stowell thinks restaurants will implement a service charge and turn hourly rate employees into salaried. They would “get raises based on the quality of the work they do, their tenure and experience.” The problem is that many restaurants aren’t able to handle that cost burden, even if it’s ten years after a deal struck by labor union activists with the city.

Listen to The Jason Rantz Show on weekday afternoons from 3-7 p.m. on KTTH 770 AM (HD Radio 97.3 FM HD-Channel 3). Subscribe to the podcast here. Follow Jason on X, formerly known as TwitterInstagram and Facebook.

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Rantz: Panic as Seattle restaurants may not survive massive minimum wage shift