Summary
Is your organization experiencing DEATH BY A THOUSAND CUTS?
You know them, the little digs that seem to be occurring daily in today’s retail and restaurants, and aren’t going to let up anytime soon.
Many small businesses suffer from “death by a thousand cuts”, the little digs that seem to be occurring daily in today’s retail and restaurants, and aren’t going to let up anytime soon. Minimum wage increasing every year is one of these cuts and has a domino effect that negatively impacts every aspect of our businesses.
Wages are one of the most important “prices” that impact our operations. How we use labor, how many staff members we can afford, how we deliver our products and guest experience, and how we price and produce our goods and services. This is more than a storm, it will be that final piece that pushes some businesses off the cliff.
I know I have found myself many nights wondering, “Why am I even doing this? Why do I work this hard to move money around? Many days I feel like I work to simply pay everyone else!”
The idea of raising the minimum wage sounds simple and commendable, but it comes with massive consequences. It will ultimately hurt small business and impact the very people it was intended to help.
IT ELIMINATES OR REDUCES ENTRY LEVEL JOBS
I operate businesses on the border of New Hampshire and Massachusetts. On January 1, 2023, Massachusetts minimum wage will go from $14.25 per hour to $15.00 per hour. Many of the clients and colleagues I talk to say, “I will simply stop hiring kids, part-time Moms and people who do not have the availability.”
The value of a minimum wage job is not just about the money. It’s about getting into the workforce and gaining the skills needed to thrive in today’s environment. This is a stepping stone while people figure out what to do next. It is a stepping stone to the next job, to the next opportunity, and this harms the people who require these jobs most. People that need second jobs, have odd availability.
POLITICIANS MISLEAD PEOPLE, PEOPLE WON’T BENEFIT OR GET OUT OF POVERTY
Politicians and the people driving the higher minimum wage only see the problem as a simple one. “People don’t make enough money!” So they pitch a simple solution. “Raise the minimum wage, so businesses are forced to pay people more money!” (Because it doesn’t come out of their pocket)
The Congressional Budget Office (CBO) put out a survey and many economists agree a massive hike in minimum wage will over the long-term costs jobs, $1.7 MM with no increase in overall take home pay.
According to the CBO, this increase won’t “get people out of poverty who are in poverty. They claim studies show most people who live in poverty don’t work at all. In fact, only about 10% of those people work full-time, and this change will make it harder for them to find a job, which is the real ticket out of poverty.
IT’S NOT A “LOW PAYING JOB”, THE GAP IS SHRINKING
Calling today’s wages, low wages, is incorrect. According to PayScale.com. The average yearly wage of a retail or restaurant worker today is between $24,592 and $31,200 per year with tips on top of it. Retail and Restaurant Management is between $45,000 and $85,000 a year. A low ranking Police Officer who risks his or her life daily starts at $30,000 to $34,000 per year. Home Health Care workers with experience are earning around $17 per hour. The gap from skilled to unskilled is closing. Many skilled workers are sitting on top of student loan debt as well.
THE TRIGGERING OF INFLATION
It’s not just minimum wage. It is the halting of the free money that has been handed out to everyone over the past years. Now there is a monolithic correction happening in this country, and I forecast we are only seeing the beginning of it.
ALL the businesses owners that I work with and talk to say, “The problem isn’t just the minimum wage hikes, it’s the difficulty to find workers and the rising prices of food, paper, utilities, and services.”
I receive letters DAILY from vendors saying, “Starting XX, prices will be going up.”
Food vendors, pricing increases from Monday’s order to Thursday order, every single week. We work vigorously to keep our order forms and pricing sheets updated, so we can stay within budgets when planning them. We have not placed a paper order yet in 2022 and the prices match up.
Therefore, wages increase and have a domino effect on everything related. It’s a perfect storm for disaster.
Labor increases, fuel increases, utilities increase and so on- in every industry connected. Food Manufacturers, Paper Manufactures, the manufactures manufacturing the goods and services they use to produce everyone’s products, it is all linked. It costs more to make the board used to make boxes and all manufactures are struggling to find help, which slows down production and availability of goods. The distributors feel the same pressure with no stock of products and often have late deliveries into the locations that need the goods. Same labor issues cause utilities to increase. I am sure I have missed a few links in the chain, but you get the point.
The applied pressure to retailers and restaurants (and everyone) is disproportionately hurting businesses. Many of whom already operate with razor-thin profit margins.
DOES NOT CREATE WEALTH, JUST SHIFTS IT AROUND
As my Coach and Mentor, Garret White would call this, this is a Karmic Cul-de-sac. It is a perpetual loop we get stuck in and continue on like a hamster running on a wheel.
So what do we do to “offset” all these massively hiking costs? We raise prices. We raise prices to make up for all the additional costs. In fear that with increased prices, customers may elect to take their business elsewhere. Losing customers means losing revenue, which will compound the effect of “the death by a thousand cuts” I outlined.
So, now we have raised prices, not to the level we should have in fear of losing customers and there is an additional-hidden impact. Credit Card fee’s rise, taxes including meals tax that are based on sales go up. If you have a Franchise, your Franchise Fee’s go up and commercial percentage rents go up. All of which are based off gross or net sales.
So the raising of the prices to capture the additional increased costs ended up being captured by all the expenses that are based off of sales.
So the new sales number is essentially bulls@&t! It’s a fake, not real number.
People get excited, “did you see the sales” which is essentially irrelevant, it’s an inflated number that means very little. Why you ask? Simply because all the new costs and the bites taken out of it, actually leave less for us to pay our expenses and, well, ourselves. This leads many business owners to question, “Why am I even doing this? I should just go get a job and make all this someone else’s problem.”
The National Restaurant Association says, “businesses costs have risen 16-20% while business pricing has only risen 6.5%.” This is a recipe for disaster.
So the people who needed the additional income the most lose. All the living expenses have increased, so what has been accomplished? NOTHING. Nice job, political cretins.
HELPS BIG BUSINESS CRUSH SMALL BUSINESS
Large corporations with much larger budgets will weigh out these increasing costs and continue to move to technology to displace workers. You know, the people that raising minimum wage for was supposed to help. This trend is becoming the future for the food industry, hospitality, retail, construction, medical, and manufacturing.
Every year, my wife and I rent a house on a lake. The days leading up to heading on vacation are filled with last minute to-dos.
I had to get blood work done my doctor scheduled for me, months earlier, so I went to check it off the list. At the clinic I checked myself in on an iPad, and was instructed by the iPad to provide co-pay payment (credit card only) there were 15 people in the waiting room. Eventually, the sole technician called for me. Once the service was complete, I was instructed to go back to the iPad stand and schedule my next appointment.
Then I had to stop at Home Depot to pick up a couple of things needed for the trip. Again I grabbed what I required and proceeded to the self-checkout.
I then met my wife at the grocery store to pick up some items and again, the checkout line was too long, so we found ourselves in the self-checkout line. After fretting over spending twice the amount I thought it would be, I listened to my wife tell me a story about her trips to Target and Walmart. She found it just easier to use the self-checkout line and get out. It is becoming the norm.
We hit 5-stores, spent $600 and never even talked to a person checking us out. We self-served our own checkout.
Big Businesses can absorb these mandated costs and have the budgets to invest in the technology to make them less dependent on human labor. Small Business can not say the same thing. So big businesses can benefit from government cost increases. Once again, the mom-and-pop stores and smaller chains get hit and cannot sustain. Remember the Globe, Rich’s, Service merchandise and some of your favorite five and dimes? Sad.
MY CONCLUSION
Thomas Sewell, American economist said, “There are no solutions; only trade-offs!”
The minimum wage hikes will ultimately leave American businesses worse off.
Understanding that minimum wage will be routinely raised, the future is to move away from as much labor as possible. Also, the ever-increasing unknown costs associated with labor like insurance will be the death.
Small Businesses with primarily hourly staff will continue to see these hits to their cash flow and bottom line, and owners will have to ultimately figure out how to reduce and pass on labor costs. This will be done mostly by raising prices, reducing hours, overtime, and hours of operation. The big question is, to stay in business, what other changes can be made to make up for it.
I am dedicated to helping businesses with hourly employees take control by changing their methods of attracting, developing, engaging and retaining the right staff. This assures they can offset these continuous cost increases and “Death by a thousand cuts”.
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