Is an Increase in Minimum Wage Closing La Belle Vie?

I heard it again today, Dara Moskowitz Grumdahl blaming the state’s increased minimum wage for the closing of several notable Minneapolis restaurants.  I’m just not buying it.

La Belle Vie owner Tim McKee cited Minnesota’s state minimum wage increase aLa Belle Vie Dining Rooms a factor in his decision to close his Minneapolis restaurant.  Dara runs with it.  Today Vincent’s, another favorite fine dining establishment in Minneapolis, announced it will close at the end of the year.  Dara says without question the minimum wage is a factor.

I don’t deny that running a restaurant is a tough business and I won’t claim to know as much about the business as Dara does.  However, I think critics like Dara overly simplify the argument.  An increase in wages is an increased cost, but it is not by any measure the only cost that rises in business, including restaurants.

Wages are one of many expenses at a restaurant.  Supplies, equipment, rent, utilities, maintenance, and more factor into the operation of a restaurant.  A key expense at restaurants — the food they serve — can fluctuate greatly and unexpectedly.  It is part of the business.

What happens, for example, when the price of beef rises, as happens, do steak houses close? Yes, ok, some do, but preemptively?

More likely the restaurant will raise the prices they charge customers.  In the long run, if prices stay high, they have no choice.   Therefore I suppose some restaurants serving beef might be forced to close, however that will be based on whether the steak they serve can attract customers at the higher price.  If they cannot, the price increase can be blamed in part — there still will be questions of value and market — for the closing.  I doubt that is happening at La Belle Vie or Vincent’s.

Across the street from my hypothetical steak house might be a restaurant that serves chicken.  They would not be directly affected by the rise in beef prices.  However, the increase in beef prices could help that restaurant.  Consumers might choose chicken over beef, to the relief of cattle and the benefit of the restaurants specializing in chicken.

Vincent's RestaurantBut this isn’t what is happening with a minimum wage increase.  All restaurants — chicken and beef — face the increase in wage expense.

On the macro level and over the long run, increases in minimum wage could negatively impact the restaurant industry as a whole because the increase in wages will eventually be covered by an increase in prices to consumers.  These increases likely will reduce the number of meals sold in restaurants overall as some consumers opt out.  However, I would expect this to impact marginal restaurants first, those with marginal quality, service, location and so on; restaurants struggling to compete on an even playing field in the first place.

When the minimum wage rises for all restaurants, that playing field isn’t tipped in favor of some against others, it shifts the costs upward for all across the board.  In fact it seems more probable to me that an established, popular, and high-priced restaurant would be better positioned to absorb these costs.

Let’s look at a place like La Belle Vie.

It is safe to say you will spend over $100 on a dinner for two at La Belle Vie.  Add wine and drinks and you can easily double that.  (Or at least I can…)  Let’s stick with the $100 figure.  If you have 10 tables per hour (keeping that math simple) that’s $1000/hour of revenue.  Let’s say you have 40 people working that night and their wage increases $1.00.  That’s a $40 increase in expenses on that $1000 revenue or 4%.

Restaurant Servers WaitersI know…tables don’t always turn on the hour.  I know…not everyone spends $100 (but on average I’ll bet most tables do more dollars)…

So let’s consider the neighborhood bistro that might get less than half as much per table.  Their increase against revenue is 8%  or more using my example.

I expect the high-end restaurant will have an easier time passing along the increase than the lower cost restaurant.   And I think I am being modest in my revenue estimates.  (We haven’t even touched the wine.)  Suppose the price charged for dinner increases on average 4%.  Who will notice?  Really.  Such an increase will be noticed less at a place like La Belle Vie than your neighborhood restaurant.

In fact, I figured when a small diner in Stillwater, Minnesota, started charging a minimum wage increase surcharge, he was making money on the increase, not losing it!

The question not asked or answered is what increase in cost would drive away customers to the point that the restaurant could no longer make a profit.  If these restaurants suddenly saw a drop in revenues because people would not pay increased prices and thus could not make ends meet, that’s a valid argument.  I don’t know that this is the case.  It is not being reported as such.

So, no…I am not convinced that minimum wage is driving fine dining to ruin in Minneapolis.  I am sure the people running those restaurants are not thrilled about the increased cost, but I simply don’t think you can put much blame on it for these restaurants closing.

I believe Dara Moskowtitz’s colleague, Stephanie March, has it right.  She sees a shift in dining options and preferences.  People can enjoy chef-driven fine casual dinning — upscale bistro, burgers, and pizzas — at a lower cost.

People looking for restaurants have many, many more options now.  It has been a nice trend.  However, I doubt — and I hope — that fine dining is not dead in Minneapolis/St. Paul.  It’s just shifting some.

What do you think?

 

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One thought on “Is an Increase in Minimum Wage Closing La Belle Vie?

  1. DK Fennell

    If the argument was: All health inspections must stop because the cost of keeping vermin out of the kitchen and food will force us out of business, I think everyone would say: That restaurant needs to be put out of business. Here we have restaurants catering to the well-to-do saying: Not only must we pay our staff so little that they cannot afford to eat here, we must pay them less than subsistence living. Let them work another job if they want to feed and clothe a family. The answer is the same: That business should be closed down. I guarantee the rich will not starve with one (or many) fewer haute cuisine establishments. It is not they we should worry about.

    Reply

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