Michigan restaurant sales were up in the second quarter of 2018, but there are rising concerns about wage inflation and a ballot proposal to hike the minimum wage.
According to a recent survey by the Michigan Restaurant Association, same-store sales from April to June finished up 2.7% compared with a year ago. That is down slightly from the January through March period, when same-store sales were up 2.9% compared with a year ago.
The survey is based on 80 responses from Michigan restaurant companies responsible for $552 million in annual sales and 1,420 sites, according to the group. About 60% of the responses are from single-unit independents, with 16% from multi-unit independents.
The association represents nearly 4,500 Michigan foodservice establishments, which employ more than 440,600 people and record more than $16 billion in annual sales.
Traffic growth in the second quarter (April through June) period was reported up 2.5% and menu prices were 1.3% higher compared with the same quarter a year ago.
Restaurant operators were fairly optimistic, with the consensus that same-store sales were will be up 4.25% for all of 2018, up from 3.9% growth in 2017.
For 2019, the report said operators forecast 4.4% growth.
One foodservice distributor said the Michigan foodservice has been strong.
“The Michigan market is doing fantastic,” said Tom LaGrasso III, owner of LaGrasso Bros. Inc., Detroit, Mich.
“There is a lot of growth from the foodservice sector and new restaurants coming into our markets, and the economy is doing really well,” he said.
For the second quarter, the report said the biggest positive surprises for operators during the quarter were improving sales trends, better weather and the continued strength of the economy.
The low points for operators during the quarter, according to the report, were difficulties in finding and retaining good employees, rising labor costs and increasing utility costs.
Other findings in the report showed:
- Food costs were 31.3% of total sales in the April through June period, similar to the first quarter;
- Labor costs represented 29.5% of total sales in the second quarter, similar to the first quarter; and
- Wage inflation is expected to be up 6.7% for owners during 2018, up from 5% inflation in 2017.
The report said a Michigan ballot proposal on the ballot in November seeks to increase the minimum wage from $9.25 to $12 per hour by 2022.
The ballot proposal would also eliminate the “tip credit” by 2024, which the report said would increase wages for tipped employees from the current rate of $3.52 per hour until it was the same as the full minimum wage. The ballot proposal also would increase the minimum wage annually by the rate of inflation.
The group said the shortage of available labor in the industry is increasing wages, impacting future growth in the industry and tamping down already low profit margins.
“Market forces are naturally driving up wages in the restaurant industry in 2018,” Justin Winslow, president and CEO of the Michigan Restaurant Association, said in a news release.
“Labor shortage and wage inflation are already driving lower profit margins in the industry, and we are starting to see evidence of slower growth as a result. To compound these challenges with rigid wage and benefit mandates — especially through the elimination of the tipped minimum wage — will have a disastrous effect on this industry, including significant job loss and restaurant closures.”
Eight out of 10 restaurant owners in Michigan said the minimum wage proposal would negatively impact their business significantly.
If it passes, 84% of operators said they would raise menu prices, 64% said they would reduce staff through layoffs, 38% said they would implement more technology to streamline operations and 13% said they would close their business.