Minimum Wage Increases Will Impact Our Businesses

Over the last few years, franchisees have had to deal with many changes within the 7-Eleven system that have affected our bottom lines. Credit card fees and gasoline commission changes are two that quickly come to mind. But there is one change on the horizon that will severely impact our businesses in the coming months and years, and that is the wave of minimum wage increases sweeping across the country.

In January and throughout the first half of 2015, many states and cities will begin to gradually increase their minimum wages over several years until they reach the set-upon goal. Some of these increases were implemented by local politicians acting to appease their constituents, while other minimum wage hikes were put up for vote and passed by the local populace.

So far, Seattle and San Francisco have the highest increase of any municipality at $15 per hour by 2018. Voters in Alaska, Nebraska, South Dakota and Arkansas elected in November to raise their minimum wage rates to $9.75, $9.00, $8.50 and $8.50, respectively. Chicago is going to raise its minimum wage to $13 per hour by mid-2019, and Oakland is going up to $12.25 starting in March. All of this just happened in the last two months, and the trend is going to continue because it’s a popular thing for legislators to do. No matter the amount of the increase, these higher minimum wages will have a tremendous adverse affect on our businesses.

An example: suppose you have a day with a couple of double coverage shifts and one single coverage shift. That’s a 40-hour payroll day. If the minimum wage goes up a dollar—assuming that you’re paying your employees the minimum, which isn’t the case in most instances—you’re looking at $1,200 to $1,500 per month in increased payroll. That’s $14,000 to $18,000 a year per store, and these are very conservative numbers. Most stores have higher payroll hours per day, and this is just strictly including the day you have double coverage during the day and single coverage at night. I’m not even counting managers or the employees you may be paying above the minimum, who would no doubt also expect a raise to keep them above the minimum wage.

For a store with a net income of $50,000 to $60,000, a payroll increase of $14,000 to $18,000 would mean 25-30 percent off their bottom line. That’s a big hit, and will force many of us to make some choices. The easier choice, or maybe the only choice possible, is to reduce labor hours. However, when you start cutting labor hours, that’s when you start impacting your standards, your image, and your business as a whole. I don’t think that’s a smart way to go about running a business, but faced with financial difficulties, sometimes you have no other choice.

The minimum wage issue has been raised at local FOA meetings, at National Coalition Board meetings, and at a recent meeting with SEI higher ups in Dallas, including Joe DePinto. Our CEO said he understands this is a huge issue and he understands how this is impacting the system, and is committed to putting some resources behind developing a solution. I’m hoping SEI will be open-minded to help stores stay functional and continue to do business, especially the lower-volume stores. There is going to be a pinch, and our franchisor will not be immune because of its corporate stores and because it might very well have to reverse some of its policy changes so franchisees can stay afloat—like the credit card fee. We can only increase our prices so much to compensate for the higher minimum wages, so a creative solution is definitely needed. The only good news is that the minimum wage increases are also affecting our competitors, so they’re in the same boat as we are.

I would love to pay my employees $18-$20 per hour, but the reality is I can’t afford to do so. Unfortunately, this is an industry that consists primarily of a minimum wage workforce. To those franchisees in areas where the minimum wage has already been raised, I recommend you talk to, and team up with, your local FOA. Together you should begin a dialogue with your local SEI management to work on a solution while the National Coalition and SEI executives in Dallas do the same on the national level.

The minimum wage increase trend is a serious issue. I can’t downplay the impact. Many other issues we deal with have some gray area, but this is clearly black and white.