Since these increases have recently taken place, Hoback says, “It’s a bit too early to tell what the impact has been on customers.”
It also contributed to the chain becoming more efficient in its operations. “We’ve become more aggressive on labor efficiency and reducing hours,” he says.
In terms of margins, based on the increase in salaries in Colorado, a typical Bad Daddy’s has seen its annual revenue dip state-wide by about $150,000 a year, a huge hit on its profit.
In Colorado, its average servers are now earning $22– $23 an hour. “It’s ratcheted up the whole playing field on what we have to pay the front of the house,” Hoback notes.
And paying servers more also has a ricochet effect on managers’ salaries. “When the gap between employees and managers narrows, I’m going to have to raise salary levels for managers,” he says.
Raising minimum wage to $12 has its benefits, Hoback adds. “If our employees have more money in their pockets, that’s a good thing,” he says.
But he’d rather have the right to “pay the back of the house staff commensurate with the front of the house.”
In terms of long-term effects, Hoback recommends a federal solution. “Some of this has to be done federally because of the schism from state to state. I’d like to see a federal deal with a core minimum wage but keep the existing tip level by state, so there’s more of a level playing field state to state,” he says.
Ultimately, minimum wage increases have had two effects on Bad Daddy’s: It’s driving the restaurant chain to expand “in states that are more labor friendly. And consumers will have to pay more to dine out. That’s the only alternative,” he says. This past quarter—Q1 of fiscal 2019—Bad Daddy’s same-store sales climbed 0.2 percent over the prior-year’s increase of 0.7 percent.