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With restaurant prices going up, owners ‘panic’ over new wage law

Expect to see a significant increase in restaurant prices across Western New York next month, triggered by changes in state wage law.

Starting Dec. 31, the minimum wage for bartenders, servers and other tipped workers increases to $7.50 per hour, from $5. To meet that requirement, restaurant owners said, prices must go up.

It has left the industry scrambling.

“I’ve been in the restaurant business for 30 years and I’ve never seen such panic,” said Rob Lederman, owner of Rob’s Comedy Playhouse in Amherst. “This is going to have a huge impact on everyone, and I don’t think customers understand what a big deal it really is.”

Owners are looking for ways to trim costs, exploring new business models and brainstorming other ways to absorb the expense. But with the change just weeks away, and profit margins already paper thin, most owners can’t make the numbers work without raising prices.

Betty’s is a long-established neighborhood favorite on Virginia Street in Buffalo. In anticipation of the new wage law, it has increased prices by between 50 cents and $1.50 per item, and will probably do it again in a few months. The strategy is to soften the blow with two smaller, separate increases, said Carole Simon, a Betty’s co-owner.

The price increase would have been steeper, but the restaurant tried to avoid that by cutting costs elsewhere. It has altered its hours to cut down on payroll costs, opening a half-hour later and closing a half-hour earlier. It has removed two popular but time-consuming dishes from the menu – the jibarito plantain sandwich and the spinach potato pancakes. And it has pared dishes down to their basic elements, listing them with upcharges for extras. That way, customers have the option of ordering the basic eggs, home fries and toast for $5.50, or they can upgrade to vegan sausage and gluten-free bread if they’re willing to pay more.

So far, no one has complained.

“I’ve had my head in this for months trying to figure out how we can survive it without taking anything away from our staff and not giving sticker shock to patrons,” Simon said. “It’s a tightrope walk.”

The New York State Restaurant Association’s Western New York chapter has hosted events about the coming change in the law and offered seminars on how to cut food, labor and operational costs to make up for the higher wage.

Some restaurant owners have considered adding an administrative fee to customer checks, but fear that might ruffle more feathers among customers than just raising prices. That option also has certain legal and tax implications.

Santora’s Pub & Grill in Amherst has instituted a service charge on banquets and eliminated tipping on banquets. That allows the company to use the revenue from the fee to fund a higher wage for banquet servers.

Owners at a meeting Tuesday talked about posting signs or airing public service announcements on the higher prices. “We have to educate consumers about the reasons behind it,” said Paul Santora, the pub and grill’s owner.

At the meeting, Mike Rizzo suggested changing the “suggested gratuity” line on customer checks to read “8 to 10 percent” instead of the current suggestion to tip 15 to 20 percent.

“The expectation shouldn’t be for customers to have to pay higher prices and still leave a higher tip,” said Rizzo, who owns six restaurants including Rizzoto, Banchetti and Rizzo’s.

Owners are considering the idea, but said they would have to implement it collectively and at the same time or risk losing servers who would go to other establishments where they could make higher tips.

Another option that keeps coming up among owners is the possible switch to a no-tipping business model, in which servers would be paid more per hour and customers would no longer be asked to leave tips. It would mean higher credit card transaction fees for owners and an end to an FICA credit associated with the tipped business model.

It’s the norm in most other countries. And restaurateurs said that it may become the norm here, too.

“The way things are going, it looks like it’s going to force people toward the European model of no tipping,” said Dan Garvey, chairman of the board for the New York State Restaurant Association. “It seems to me that’s the way it’s headed.”

Restaurants elsewhere in the country are experimenting with the concept, and Western New York owners are watching them closely.

World-renowned restaurateur Danny Meyer recently eliminated tipping at all of his New York City restaurants, significantly raised prices and increased servers’ wages. Joe’s Crab Shack is piloting a no-tipping program at 18 of its stores across the country. Calling tipping an “antiquated model,” it bumped servers’ wages to $12 and $14 per hour, raised menu prices by 12 to 15 percent, removed the write-in blank for tips on credit card receipts and put up signs to notify customers of the new policy. The company’s Amherst restaurant is not part of the pilot program.

California has led the way, in experimenting with tipless models. Ippuku, in Berkeley, charges each patron $6 per person for service. Also in Berkeley, Comal adds a 20 percent service charge automatically. Two others in San Francisco have added $1.50 and $2.50 surcharges.

But other eateries have already tried the no-tipping model and abandoned it.

Two San Francisco restaurants, Bar Agricole and Trou Normand, eliminated tipping less than a year ago. They recently reinstated it because they had trouble keeping servers willing to work for a flat wage.

For that same reason, local owners said moving to a no-tipping policy would only work if all restaurant owners agreed to implement it at the same time. Even then, there’s a concern that customer service would lag if servers didn’t have the added incentive of a bigger tip.

But there’s no sign that tipping will end in Western New York anytime soon.

“I don’t know if the industry is ready for that yet,” said Ellie Grenauer, president of the Western New York chapter of the NYSRA and owner of the Glen Park Tavern in Williamsville. “It’s going to be a complete change of culture.”

Some restaurateurs have said they may not be able to keep up with the wage increase and may have to close their doors. Only time will tell, but Jerry Newman, a compensation expert at the University at Buffalo, said sweeping closures aren’t likely.

“If you look at history, every time there has been a wage or cost increase, business owners have found a way of adapting,” he said. “The standard ways they do that are to raise prices, reduce workers’ hours and introduce technology to replace employees.”

Either way, there’s no putting the ketchup back into the bottle now.

“We’re all scared that this is happening, but boohoo, we have to get over it,” Grenauer said. “We have to find a way to make it work or get out of the business.”


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