5 Ways QSRs Can Navigate Minimum Wage Hikes

In 2009, the legal minimum wage to hire someone was $7.25. Fast-forward 15 years, and that’s still the legal wage in 20 states.

Workers in 25 states, however, will see a welcome bump this year. While the minimum wage increase will no doubt be helpful to them and the overall economy, the increases may be a difficult pill to swallow for quick-service restaurants (QSRs) already paying higher wages due to a competitive labor pool.

In years past, the answer (or at least desire) might have been to take a like-for-like increase in price to cover labor costs. In 2024, with prices still at record highs due to inflation, that is assuredly not the move.

For starters, there’s little price left to take after three years of industrywide price increases (up 40% since 2019, according to Revenue Management Solutions research). Not to mention that consumers’ appetite for continuing to pay more to dine out has most certainly waned.

RMS has experience helping restaurant brands navigate wage challenges, such as in 2019, when the last significant nationwide minimum wage hikes occurred. While much of the advice RMS experts provided in the past still applies (refrain from raising menu prices across the board and retain motivated workers by paying staff at a competitive rate), other things have changed in the past five years.

Richard Delvallée, RMS Senior Vice President of Consulting Services, shares five initiatives QSR owners and operators can take as part of an action plan for addressing higher labor costs:

Action 1: Have a Pricing Strategy

Adjust pricing with careful consideration and precision. When it comes to building profit margins, tread carefully and approach change as a sustained strategy — not a swift and rapid overhaul.

With inflation top of mind, restaurant customers will easily spot wholesale menu price increases, potentially leading them to take their business to a competitor. Instead, identify customer purchase patterns using your transactional data and determine price elasticity for each item. This approach not only allows you to raise prices selectively on specific items but also is mindful of the customer’s willingness to pay. After all, the primary aim is to implement price adjustments without negatively impacting customer traffic.

Action 2: Timing Is Everything

In addition to “how much”, “when” is equally as important. Restaurant brands should leverage the timing of any increases. More often than not, minimum wage increases are planned and announced in advance. But with careful planning, you can absorb some of the necessary price increases before the full impact is felt. (For 2024, however, increases in some states went into effect in January.) By being as proactive as possible, you can position your menu more strategically and take less price than your competition.

Action 3: Keep Your Competitors Close and Their Pricing Strategies Closer

Artificial intelligence has become wildly popular and, in some instances, it’s hugely helpful. For years, RMS clients have asked, “How are my competitors pricing their menu items?” Now, with RMS’ AI-driven ,Competitor Price Intelligence, restaurants can answer that, in real time across 170,000 quick-service, fast casual, casual dining and fine dining locations.

For example, if you’re curious about when your competitors changed prices, where and in what category, the solution provides that. Drill down further and compare like-for-like, individual menu items or go broad and track price trends such as changes by product, category, stores and markets. With this level of competitor pricing data and insights, you can easily inform and quickly fine-tune your pricing strategy and be aware of the competition. 

Action 4: Leverage Your POS Data for Strategic Decision-Making

You can’t go wrong with analyzing point-of-sale information. This analysis gives you a deeper understanding of guests’ purchasing habits, including their preferences across locations and by day and time. You should also be able to determine which products are frequently purchased together. Also, keep in mind the importance of minimizing multiple price changes on the same products. Instead, RMS recommends opting for targeted category and item-level adjustments.

Take a two-step approach to determine the pricing percentage needed to offset labor costs.

1. Calculate the carryover pricing benefit for 2024 sales by factoring in the impact of pricing implemented in 2023.

2. Estimate a dollar impact (rather than a percentage) from increased labor costs to arrive at the amount needed to offset remaining costs.

Action 5: Embrace the Noise

Let the news cycle work in your favor. Restaurant operators can take advantage of the media coverage around minimum wage increases. For example, is changing price on value offers part of your broader strategy? If so, it makes sense to raise the price on these items during publicized wage increases, on the specific day or week of the effective wage change. As mentioned above, if you proactively absorb some price, the price increase won’t have such an extraordinary impact.

Successfully Navigating Minimum Wage Increases

While rising minimum wages cannot be ignored, you can take steps to offset some of the impact. With planning and analysis, real-time monitoring of competitor pricing and benchmarking, you can arm your restaurant brand with data that’s actionable (even finding up to a 4% profit margin per location) for the most profitable path forward. That’s exactly what RMS has been doing for 30 years — and we can do the same for you. If you’re ready to get started, contact our team today.

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