Texas-based P. Terry’s increased its employee wages to $15 an hour in the beginning of 2021.
The Southern Influence
Right now, there are few debates as contentious as the minimum wage. The topic has been simmering beneath the surface since at least 2012 when the Fight for $15 organization began pressuring companies to evolve past the $7.25 federal amount put into place in 2009.
Nine years later, that simmer has begun to boil upon President Joe Biden’s promise to get to $15 an hour by 2025. The Raise the Wage Act has earned sharp pushback from some in the restaurant industry, including the National Restaurant Association, which said passage of the bill would lead to “job losses and higher use of labor-reducing equipment and technology.”
“ … During a pandemic is not the time to impose a triple-digit increase in labor costs. Far too many restaurants will respond by laying off even more workers or closing their doors for good. As the pandemic has highlighted, the economic realities of each state are very different. A nationwide increase in the minimum wage will create insurmountable costs for many operators in states where restaurant jobs are most needed for recovery,” the association wrote in a statement in January.
Still, several companies have pushed forward to achieve that $15 minimum, including Starbucks
SBUX
MCD
Texas-based P. Terry’s Burger Stand recently announced its $15-per-hour minimum wage for all of its full-time employees, which is those who work 29.5 hours a week. The wage increase went into effect during the first pay period of January 2021 at all 20 locations, as well as its centralized commissary kitchen and its Taco Ranch location. Notably, the state of Texas’ minimum wage remains at the 2009 $7.25 figure, though 29 states and Washington, DC, have since raised their minimum wages above that number.
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Terry founded his quick-service concept nearly 16 years ago with his wife Kathy. Their first restaurant was run out of a tiny, 527-square-foot building with a walk-up window, and their business plan was simple–to sell high-quality, all-natural burgers, fries and shakes, and to treat their employees well.
“Our idea was to have quality food for a reasonable price. Any jackass can sell a $12 quality hamburger. It takes a special jackass to sell a quality burger for two and a half dollars,” Terry said. “But undoubtedly the most important thing for us was to look at our employees differently–certainly differently than most in the fast food business.”
That means offering employees no-interest emergency loans, giving away grocery gift cards, offering paid-time off to vote and incentivizing them to volunteer.
“In those early days, we were in the stand every day working alongside our employees and it was obvious that if we took care of our employees, they were taking care of our guests,” Terry said.
That was an impetus behind the $15 wage policy. The decision to go to that level became clearer once they started going through the numbers.
“If $15 is the wage that can make a serious change in our employees’ lives–their gasoline bill or utility bill–that is what we were going to look at. We looked at our process and decided it was the number that will allow our people not to have to work two jobs,” Terry said.
That’s not to say it was easy, however. Labor typically makes up about 30% of a restaurant’s balance sheet and quick-service concepts operate on razor-thin margins–3-to-5% during a “good year,” according to the National Restaurant Association. Consequently, several analysts have predicted an increase in wages would drive restaurants to operate on a leaner workforce or replace employees with automated processes.
Terry said neither of those solutions are on the table for his concept, however.
“Automation isn’t realistic any time soon and hiring less people doesn’t make sense if you want to have the people in place to support your business,” he said.
So, P. Terry’s spent much of 2020 reconciling its balance sheets with that $15 target in mind. The solution, implemented in October, was a 2% increase in prices across the menu and the company absorbing the rest. Two percent equates to about a 5-cent increase for fries, a 10-cent increase for a cheeseburger and a 10-cent increase on a milkshake.
The nominal increases in pricing has not deterred customers and the company’s absorption of the balance hasn’t deterred its growth. In fact, the 20-unit company opened three restaurants in 2020 and plans to open five restaurants this year and six to seven next year.
“Obviously we’re running on thin margins just like everyone else in the industry. We did not find it challenging to raise our prices. It just wasn’t that big of a number and many of our customers didn’t even notice. None of this is slowing us down. Our plans haven’t changed because our wages went up by 25%. It has had zero effect,” Terry said.
That the industry’s employees were deemed essential by the federal government in the beginning of the COVID-19 crisis made finding a solution all the more urgent for Terry.
“The crisis shined a light on the importance of our employees and that really drove us to make this work,” he said. “I’m a capitalist. I’m in this business to make money, but I realize if I don’t take care of my employees, I don’t have a business. Will this affect our bottom line? Of course it will. But I don’t think it’s oversimplifying things to say if you put more money in everyone’s pockets, they’ll spend that money.”
Terry points to the post-stimulus-check bump realized by much of the industry as an example.
He adds that increasing wages isn’t only the right thing to do for his employees and company, but that more consumers expect companies to make such an effort. Indeed, a majority of Americans–59%–support the idea of raising the minimum wage to $15 per hour by 2025, according to a new Reuters/Ipsos poll.
That said, Terry understands that right now might not be the best time to jump to $15 for many concepts struggling to survive the COVID-19 crisis. But, he adds, kicking the can down the road might pose a challenge if that road ends.
“It’s inevitable where this is headed and we’ll get to $15 sooner than later. That 2025 proposal feels like plenty of time to make this a viable thing. Right now, I see a lot of excuses as to why companies don’t want to pay their employees more and they’re the same old excuses since the beginning of time. They’re getting old,” he said. “I’m counting on our employees being happier and therefore our customers being happier. I think this launches us into a different level and improves our odds to grow and our odds to be more profitable. I believe this rising tide raises all the boats.”