California Raises Minimum Wage for Fast-Food Workers

California Governor Gavin Newsom recently signed a new law that raises the minimum wage from $15.50 to $20 per hour for fast-food workers starting April 1, 2024. Chris Simms, CEO and Founder of Lazy Dog, a casual dining restaurant that started in California and spans 49 locations across the US, joins the podcast for a discussion of how this law may impact employees, owners, franchisees, and consumers across the entire food-service industry.  
 
In this podcast, we look (and will continue in future episodes) at compensation from a variety of perspectives. We’ll cover tipping models from convenience stores to fine dining; what happens when wins slant toward some of the workforce and are not shared by all; and how automation figures into the equation.

The “Distinguished” podcast is produced by Boston University School of Hospitality Administration. 

Host: Arun Upneja, Dean
Producer: Mara Littman, Executive Director of Strategic Operations and Corporate Relations
Research and Content Creation: Lu Lan
Editing: Isabella Laikin
Sound Engineer: Andrew Hallock

Music: “Airport Lounge" Kevin MacLeod (incompetech.com)
Licensed under Creative Commons: By Attribution 4.0 License
http://creativecommons.org/licenses/by/4.0

Transcript

SPEAKER_00 0:07

Gavin Newsom, Governor of California, recently signed a new law that will raise the minimum wage from$15.50 to$20 per hour starting April 1, 2024. Interestingly, this raise is limited to fast food workers. This targeted raise was negotiated between the Governor's Office, Service Employees International Union, California, and the fast food chains. Welcome to the Distinguished Podcast produced by Boston University School of Hospitality Administration. I'm Arun Rufneja, Dean of the School, to talk about this issue. Today my guest is Chris Sims, CEO and founder of Lazy Dog, a casual dining restaurant that you started in California and now spans the United States with 49 locations to date. Welcome, Chris, to the Distinguished Podcast, and thank you for joining us from California.

SPEAKER_01 1:00

Thank you very much, Arun. Happy to be here.

What Is Lazy Dog? Scratch Cooking, Innovation, and a Rocky Mountain Theme

SPEAKER_00 1:02

So we have you here to talk about wages in the restaurant and dining sector overall. However, before we jump into a discussion of this law and what it means for the industry, employees, owners, franchisees, and consumers, give us a quick description of lazy dog restaurants.

How the Law Defines "National Fast Food Chain" and the Panera Exception

SPEAKER_01 1:19

Well, uh, let's see, I started Lazy Dog Restaurants about 20 years ago. And uh my goal was uh to start the next generation of casual dining. And so uh what I had seen is I had seen you know a lot of the competitors had had uh had opened their doors, you know, 40, 50 years before. And and so uh I felt like some of them had lost their way. So we decided to open up uh Lazy Dog with a focus on scratch cooking, uh great innovation, uh a people-focused culture uh that that encouraged our teammates to give their all to our guests uh and then and then wrapped it all up in a Rocky Mountain theme, you know, based on my childhood in Jackson Hole, Wyoming.

What the Wage Law Means for Operators: Technology Over Labor

SPEAKER_00 2:05

You know, it interestingly, I was in Houston a couple of weeks ago, and as I was driving, I saw a lazy dog restaurant. So I know you started in California, but you seem to be now um in many parts of the country. So uh congratulations on having all of these restaurants all over the United States. So let's start with the distinction between fast food and rest of the food service. While we all understand generally what fast food is, it's the McDonald's, the Burger King, Taco Bell, and the like. But here is how fast food is defined in terms of this law that we're talking about. So I'm reading. National fast food chain means a set of limited service restaurants consisting of more than 60 establishments nationally that share a common brand or that are characterized by standardized options for decor, marketing, packaging, products, and services, and which are primarily engaged in providing food and beverages for immediate consumption on or off-premises, where patrons generally order or select items and pay before consuming with limited or no-table service. A big exception, those that break bread on site. Panera is a big beneficiary of this exception. So let's talk about how this new law effect might affect all restaurants. So the idea here is to raise the income of some of the lowest paid workers in the state. It also opens up discussions about minimum standards and working conditions. All good. But what I want to ask you is what does this mean for business owners? And we are obviously just talking fast food now, but does this law signal more changes? What might be next?

The Ripple Effect: Will Full-Service Restaurants Face Wage Pressure Too?

SPEAKER_01 3:46

Yeah, I you know, I think from from what I've heard, uh, you know, I've talked with with you know some folks in the fast food industry. Um, you know, I'm obviously uh a change of of this magnitude is is unprecedented. I don't I don't think we've ever seen uh you know one group of of uh of employees you know uh receive this this large of a of an increase in in minimum wage. Um you know, unfortunately, I think what it what it does for employees is it it does encourage uh you know those operators to to uh you know to focus on technology, you know, to potentially uh reduce the number of of people that are needed in in the business. Unfortunately, with with with every you know additional dollar of cost uh that that uh an operator has to has to pay, uh, it becomes more and more uh you know credible to spend that money on technology. And I think we've seen that in a lot of the fast food restaurants here in California, uh, at least in the front, uh with tablets as opposed to to teammates at the counters. Um and from what I understand, you know, that they're they're they're now really focused on on the kitchens uh and and and trying to automate as much in the kitchens as possible uh to save those save those dollars.

SPEAKER_00 5:14

Aaron Powell Yeah, you're right. This is going to sort of give um uh is this gonna accelerate uh use of robots and artificial technology and and you know other kinds of technology to replace labor. Um but you know, the other aspect that I wanted to briefly talk before returning back to replacing labor with robots is um this is gonna have an impact on you and other full-service restaurants because now the kitchen staff can leave full service restaurants and go to fast food and earn that$20 wage. So it does have the impact of raising wages overall for the entire restaurant sector.

High Minimum Wage and the Risk of Pricing Out Lower-Productivity Workers

SPEAKER_01 5:55

Yeah. The way we're looking at it, I mean, our average cooks already make uh you know$20 an hour. So uh I don't think that the impact will be very, very large on our particular business. Um, but I think that I think it could be really hard on a lot of the independent restaurants that that may not be able to pay their you know their kitchen staff um you know that$20 wage. I you know, I I don't think there will be a direct impact, but I think there probably will be a ripple effect uh where you know if if um if my friend is working at a fast food restaurant, they get that type of a raise. Um hey, you know, I I'm now gonna go to my boss and kind of find out what's going on with with with my wages. And I I may not understand the fact that that's you know, that's just limited to uh fast food. Uh, but but you know, for me, hey, if I'm a cook and they're a cook, you know, maybe we should be making the same amount of money. So uh it'll be interesting to see what happens with a lot of the restaurants, full service restaurants here in California, uh, you know, when that ripple effect takes takes place uh when the the minimum wage is increased.

SPEAKER_00 7:10

Aaron Powell Yeah, and and also the um the minimum wage is for someone who's just starting out. So someone if he's been working with a cook for you for five years and says, you you know, I go to fast food and I get$20 day one, and I've been doing five years, I'm much more experienced, so I should probably get more money. So it is, it is good, you're right, it is going to have some ripple effect. You know, the other issue with minimum wage that people generally, many economists uh say is that if you're not as productive with a lower minimum wage, you can still find work. Um but if the minimum wage is set very high, then if you're not as productive, you know, either you have a disability or you are just starting out and you're learning the ropes, or you're a college student just trying to make some pocket money or or some you know, a lot of the opportunities in the long run would dry out with a high minimum wage.

SPEAKER_01 8:06

You know, I think that that definitely makes I mean it definitely makes sense. Um, you know, I think, you know, as as as as an operator decides who the who they're hiring and and the more expensive that you know that person is, then you're right. I I would imagine that uh you know that the standard or the the quality of that individual that you're hiring uh would would go up along with along with the uh uh the wage.

SPEAKER_00 8:33

Right. And this goes along with your previous comment about technology. So restaurants are now going to be investing much more in technology to reduce um the labor. What's gonna happen to costs? Um, have you raised menu prices in the last two or three years, you know, in response to the supply chain and logistics and inflation?

Will Higher Prices Change How Often People Eat Out?

SPEAKER_01 8:55

Uh you know, I think along with everybody, uh, there's definitely been some price increases to uh to cover that additional cost uh you know caused by by inflation. Um that's a it's another thing that probably will impact uh you know the fast food restaurants, you know, as as these wages go up is from what I've heard, you know, a number of them are thinking about um you know some pretty sizable increases to cover that cost. So I think that will it will continue to raise the prices at in fast food, uh even above and beyond where where they've come to uh today.

SPEAKER_00 9:35

And then what does that do to the eating out behavior of people? Does that reduce if you know your people are spending more money going out and eating in restaurants?

California's Upward Spiral: Inflation, Interest Rates, and Now Wages

SPEAKER_01 9:46

I mean, uh, you know, it it uh it it's an interesting it's an interesting uh dynamic because you know obviously I guess some people will be making more money uh and so they'll be able to to afford that that additional price uh on you know on the fast food product. Um but but maybe not everybody's gonna be getting that increase. So uh you know they they will definitely see and and and feel that that increase for those companies that that you know have to have to take price to cover the cost.

SPEAKER_00 10:16

Yeah, you know, there is um you know rise in the interest rate, the mortgage rates, uh the rise in inflation, supply chain issues. It just seems to me that there is a upward spiraling thing, and I don't know where it stops. And now, of course, uh California has put an accelerant into that spiraling inflation by increasing this uh wage.

SPEAKER_01 10:41

Aaron Ross Powell Yeah, you know, the the weather is just too good here in California. You know, I uh and uh and so you know I think we're we're just gonna have to pay pay a little bit more for the for the beautiful weather.

SPEAKER_00 10:56

Exactly, exactly. Although I was just reading in the Wall Street Journal that the biggest um set of people, Texas has seen a huge influx of people from all over the country, and the biggest group of people are fleeing California to come to Texas because of the uh high cost of living in California.

SPEAKER_01 11:15

Aaron Powell I mean, we've seen a number of our uh uh of our teammates decide to to go and and open up restaurants out of out of California uh with us uh at Lazy Dog. And and a lot of them just said we can't afford to live in in California anymore. So uh we want to move with with Lazy Dog to Colorado or Texas, you know, Nevada, uh some of some of the other uh you know uh states.

SPEAKER_00 11:42

So let's talk about the positive side of you know uh of this wage increase. Um a lot of you know um fast food workers don't really need a very high level of education. And and you know, and on one side, we think that this is a starting job where if you're in college or you just finished high school and you won. But there are a big, big group of people who are primary wage earners and working in fast food. So this increase could mean that now they don't have to pick up a second job or a third job to access health insurance or better housing and be able to afford to live in this high-cost state of California.

SPEAKER_01 12:22

You know, I you know, as I said, I you know, I at Lazy Dog, you know, the our average wage is over is over$20. And so I think we you know, we have focused heavily on making sure that you know that our teammates are are properly paid for you know for the work that they do. Um and and obviously the goal is you know to avoid having them to have another job or or uh you know or you know something like that. And so um, you know, we actually we actually tip our kitchen uh teammates uh at Lazy Dog as well. You know, we've developed some technology that enables us to tip out those cooks uh uh on a on a daily basis because we felt like you know we really wanted to make sure that that our our back of house uh kitchen teammates were were fairly compensated, you know, both on a on a on a uh a base salary wage and then uh you know, and additionally, uh as part of that sharing of the tips that that come in from you know from the sales.

How Tip-Sharing Technology Aligns Kitchen and Front-of-House Teams

SPEAKER_00 13:26

That's a very interesting uh point that you raised. And I'm actually interested in tips and how it has the potential to raise uh the wage level. So can you talk a little bit more about how do you do that? How do you make sure that the kitchen staff are getting the tips or some sort of a service charge? How do you sort of manage all of that?

No Subminimum Wage in California: Everyone Earns at Least $15.50

SPEAKER_01 13:45

Yeah, for you know, for us, you know, we we have you know, we have this technology that is able to calculate a certain percentage of the sales uh each each day or each shift. And um, and then we're able to allocate a certain amount of those tips to uh or a certain amount of the uh percentage of those sales to you know to to the uh the teammates in in the kitchen. Um and so uh it really it's great because there's there's multiple benefits to it. Uh for one, it aligns the kitchen teammates and and our service hospitality teammates, because now all of them are you know are encouraged to take extra special care of the guests, to to you know, to cook uh you know only the best food, uh, you know, put out only the perfect product, uh, because everybody is is compensated on the sales that are coming through the front door and the guests that are dining in the restaurant. So I really like the fact that we're able to align those motivations between the kitchen teams and the and the hospital, hospitality teams. And what that looks like in in the restaurant on a daily basis is you know, they're they're working together to take care of of uh you know of the guests. There's there's there's not nearly that conflict that that is traditional in uh in the restaurant business where the kitchen and the hospitality team are fighting uh over uh whose job is more important. You know, instead they're they're aligned, and I I really like the fact that that we've we've uh been able to achieve that.

SPEAKER_00 15:27

So is there like a subminimum wage that exists in many states for tipped employees in California, or everyone has to make that 1550 minimum?

Tip Pooling at Lazy Dog: Who Gets a Share and How It's Calculated

SPEAKER_01 15:36

So in California, everybody makes the 1550 uh minimum wage, uh, whether you're a tipped employee or or uh or not. Um you know that is not the case in a lot of the states uh in the in the country where um they have a tipped income wage that that you make uh that is below that the actual minimum wage. And it basically acknowledges the fact that that that that employee is is making you know is making more than the minimum wage when you include the tips uh that they're that they're collecting.

SPEAKER_00 16:11

Aaron Powell Right. Interesting. So no subminimum wage for tipped employees in California. So the servers really uh collect all the tips. And in your restaurants, are tips pooled in some way? I guess not, since you are paying the back-of-the-house staff uh separately.

State-by-State Variation: Where Tip Pooling With Back of House Is Legal

SPEAKER_01 16:29

Yeah, in in some in some of the states, we you know we're able to share the tips with with the uh with with the kitchen teammates. Uh and and again, we we we've developed our own app that that uh allows um that calculation to take place. Um yeah, that also helps with with uh you know tipping out the support staff for the hospitality side as well, uh including runners and busers and and uh and the like. So um this isn't necessarily a new thing for servers in our restaurants uh um because they they have you know they have traditionally tipped out the support staff since we opened the doors 20 years ago. Uh we just we we have you know we now have the ability to be able to add the kitchen to that uh you know to that process as well, um, you know, helping helping the kitchen teams uh you know make make some more money.

SPEAKER_00 17:22

Yeah, you know, it interestingly in Massachusetts, the law is that you can pool the tips, but they have to be paid out to the front of the house staff. You cannot pool and tip out the back of the house staff.

SPEAKER_01 17:36

Yep, yeah. I think and that's I that is that's consistent in in in some of the states that we operate as well. You know, I think there's some of the states that we we are not able to pool uh the tips and and tip out kitchen uh because of because of those same laws. So we we're just you know, based on which state we're in, that's that's that's what we uh um you know, we do whatever's uh legally allowed.

SPEAKER_00 17:59

Aaron Powell And so the servers are whatever dips they're making, they're making, you know, they get the dips that they're making in your restaurants then, particularly in California.

SPEAKER_01 18:07

Aaron Powell Yeah, you know, on a just kind of on a typical shift, uh, you know, a server will make uh, I don't know, 20% of of the total sales that they they sell for the day. Um and then out of that 20%, they'll then give a certain amount to the runners, a certain amount to the busers, and uh and a certain amount to the bar, and a certain amount to the to the kitchen. So uh, you know, out of the tips that they make. And that's that's kind of why we felt we felt comfortable with it from the server, because obviously we have to think about each group of teammates. And so we felt comfortable with it, with the servers, um, you know, as as the minimum wage continued to increase for the servers, even though they were tipped employees, we felt we felt comfortable that those you know, those teammates could continue to make more and more money while at the same time, you know, sharing a little bit of those tips with uh you know, with with the with the kitchen team.

SPEAKER_00 19:05

So on a sort of, since we are on tips, I have a slightly different question. Everywhere you go, there are tips. Even when you're picking up a coffee from a counter or picking up a food, they'll turn the iPad around and say, okay, tip. Um in fact, some people have reported tips even on automated machines as well. So what do you make of this proliferation of tipping in the United States?

Pandemic Tipping Culture and the Growing Consumer Backlash

SPEAKER_01 19:34

Um I personally love it because the the the issue with with full service dining for a long time was the fact that it was the only um type of restaurant where tips were were uh a part of the transaction. And so now that I see tipping more prevalent uh in in all of the of the the service industries, uh I I feel like it actually evens the playing field with uh with with casual dining. Uh I think uh you know, I was I was at the gas station and I got a Gatorade and it asked for a tip. And I was like, what? This is crazy. Uh you know, so like huh, I I was the one that went to the refrigerator, I got the Gatorade, I brought it over to the counter. It was it was really interesting. And I think I I think it all started with you know the the necessity for the chip and pin um uh credit card processing. And you know, because all of the credit card processing is now done on uh a piece of technology at checkout, it it provides that opportunity for that last question before, you know, before you finish that transaction. And the question is how much do you want to tip? Um so I I I do believe that there's some backlash coming if if it hasn't started already. Um definitely hearing rumblings where there's a bit of black backlash when when it comes to those types of transactions where there is very minimal service and uh and there's a a tip that that's uh suggested. So I don't know. We'll we'll we'll see. We'll I I would imagine you'll see more companies start to back off of that as as as the consumer becomes a bit more uh concerned with with that with that you know additional charge.

Advice for Keeping Compensation High, Guests Happy, and Restaurants Profitable

SPEAKER_00 21:28

Aaron Powell During the pandemic, you know, people voluntarily were giving tips to all frontline service staff, regardless of what kind of service, even if they were not in typically tipped employees, you know, bell desk staff or restaurant servers. But now it is everywhere, and I agree with you there is some sort of a backlash which is uh accumulating in the society. Okay. So, Chris, uh you've been in this business for a long time. You uh in fact, you grew up in the restaurant business and your grandfather. And your father owned restaurants, and you opened Lazy first Lady's Dog in 2003 with your father. So as we said at the beginning, you're opening your 49th restaurant. So you're obviously doing something right. What advice do you have on keeping compensation level high for workers, making sure your customers are happy while keeping your restaurant profitable?

Closing Remarks & Credits

SPEAKER_01 22:25

Yeah, you know, I think well, you know, obviously we're uh obviously we're always going to make sure that the compensation for our teammates is even more than competitive. You know, we we want to make sure that we're taking great care of our teammates from a compensation perspective. But I think that there's a lot more to it than just the dollars. You know, I think that creating a culture uh in your in your company is is I think it's even more important. You know, a culture where your teammates feel you know cared for, they feel empowered, they feel trusted, uh, they feel like somebody's got their their back and that you know somebody's there to support them. Um I I got that from my grandfather, uh, you know, Arthur J, when he had coffee shops in Hollywood in the 50s. You know, he he believed that if you provided that type of an environment for your teammate, that the teammate would then um turn around and and show that genuine care for your guests. And so my dad learned that. He took it to Mimi's Cafe, I learned it from him. I, you know, I took it to Lazy Dog. I I think that's really, really important because while people obviously deserve to be compensated fairly, even more so, they deserve to be treated fairly and they deserve, you know, deserve to be treated like like a family member.

SPEAKER_00 23:56

Very well said. Thank you, Chris, for joining us for the podcast. It has been an absolute delight to talk to you. If anyone wants to join the conversation and share your thoughts on this subject, please email me at shawdean at bu.edu. That is s-a d-e-a-n at bu.edu. Thank you for joining us today. Special thanks to the team who produces this podcast, Mara Littman, Andy Halleck, Kayla Sawyer, and the entire team at Boston University School of Hospitality Administration. To keep up with distinguished podcasts, be sure to subscribe wherever you listen to your favorite podcasts. You can also learn more about our undergraduate and graduate programs at Boston University School of Hospitality Administration by visiting bu.edu slash hospitality. Have a great day.