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I see gullibility continues to run high around here. I briefly read that article about the "success" of Ivar's, and I couldn't determine if the author of the story didn't understand basic economics or if they were cherry picking data to create the image of something that's not based in reality. Let's look at some numbers.
They raised prices by 21%. But revenue only rose by 20%. In a vacuum, that means that at best, revenues are down 1%.
But we don't live in a vacuum. We live in a world of inflation. Let's peg inflation at 3%. That means revenues are actually down 4%
Now what are those revenues? Are they top-line (gross) revenues, or are they bottom line (net) revenues? If Ivar's was paying all of its workers $10 an hour before, and are now paying $15 after, that's a 50% increase in labour expense. As any restauranteur will tell you, labour costs eat 40% of a business's gross revenue. Food is another 30%, insurance, the space, maintenance etc. will run you another 25-27%, meaning your total bottom line revenue is typically 3-5%, if you manage to be profitable at all. But if they are only "up" 20% on the top line of revenue, that means that their net revenue is *way* down to the point of not being at all profitable unless they are taking the tips from unsuspecting tourists who don't know that tipping is optional at Ivar's - as now their labour overhead is running in the mid-high 50% range.
Also, from what point are these undescribed "revenues" up from? The same point last year, or from the moment they implemented this change in policy? Because they implemented the change in policy before tourist season started in earnest, so an increase of 20% in top-line revenue from that point would be anything but successful. This data isn't fed to us, and it seems fairly obvious why it's not being provided. Anecdotally, I drove past their waterfront restaurant last Friday night, and the parking lot was anything but packed. A quick Opentable search finds that there are NO points where Ivar's doesn't have open reservations - during high tourist season.
The most likely scenario that's going on here is that the sit-down restaurants have become vessels of bleeding red ink, and the Ivar's chain is being buoyed by the fast food restaurants that operate at significantly higher volumes and margins and other entities that they haven't implemented this new wage at. Further, since Ivar's owns a lot of its land, the rise in property values alone are enough to provide an image of profitability whether or not it happens over the course of conducting business. And if that works for the Ivar's chain of restaurants in some capacity, they can call it anything they like, success or otherwise.
But do not think for one second that this remotely translates to your typical restaurant owner who has precisely one property and can't spread their risk around amongst various investments or holdings, and is ekeing out an industry-average 3-4% worth of net profits, or even that this new wage these select employees are enjoying ahead of schedule are going to be the panacea they're currently claiming once everybody is on a level playing field and inflation kicks in, putting them in the exact same situation they were in before their supposedly hard-earned raises.
It's all simple economics and, not to make a bad pun, anybody with an inkling of economic knowledge and logical deduction can tell something about this smells fishy. At best what we have done is further eroded the middle class and dropped them into the bucket of the lowest common denominator. At worst...well, it'll be 20-24 months after the $15 wage is fully vested throughout the city that we'll see the end result of this little science experiment.
Agreed. Excellent post.
Another thing that the article *conveniently* doesn't mention is what happens to the employees who were making $15+ per hour before the raise in pay. Did they get a raise that is comparable? Or are they now valued at the same level as the non-educated hourly labor who suddenly got a big raise?
I see gullibility continues to run high around here. I briefly read that article about the "success" of Ivar's, and I couldn't determine if the author of the story didn't understand basic economics or if they were cherry picking data to create the image of something that's not based in reality. Let's look at some numbers.
They raised prices by 21%. But revenue only rose by 20%. In a vacuum, that means that at best, revenues are down 1%.
But we don't live in a vacuum. We live in a world of inflation. Let's peg inflation at 3%. That means revenues are actually down 4%
Now what are those revenues? Are they top-line (gross) revenues, or are they bottom line (net) revenues? If Ivar's was paying all of its workers $10 an hour before, and are now paying $15 after, that's a 50% increase in labour expense. As any restauranteur will tell you, labour costs eat 40% of a business's gross revenue. Food is another 30%, insurance, the space, maintenance etc. will run you another 25-27%, meaning your total bottom line revenue is typically 3-5%, if you manage to be profitable at all. But if they are only "up" 20% on the top line of revenue, that means that their net revenue is *way* down to the point of not being at all profitable unless they are taking the tips from unsuspecting tourists who don't know that tipping is optional at Ivar's - as now their labour overhead is running in the mid-high 50% range.
Also, from what point are these undescribed "revenues" up from? The same point last year, or from the moment they implemented this change in policy? Because they implemented the change in policy before tourist season started in earnest, so an increase of 20% in top-line revenue from that point would be anything but successful. This data isn't fed to us, and it seems fairly obvious why it's not being provided. Anecdotally, I drove past their waterfront restaurant last Friday night, and the parking lot was anything but packed. A quick Opentable search finds that there are NO points where Ivar's doesn't have open reservations - during high tourist season.
The most likely scenario that's going on here is that the sit-down restaurants have become vessels of bleeding red ink, and the Ivar's chain is being buoyed by the fast food restaurants that operate at significantly higher volumes and margins and other entities that they haven't implemented this new wage at. Further, since Ivar's owns a lot of its land, the rise in property values alone are enough to provide an image of profitability whether or not it happens over the course of conducting business. And if that works for the Ivar's chain of restaurants in some capacity, they can call it anything they like, success or otherwise.
But do not think for one second that this remotely translates to your typical restaurant owner who has precisely one property and can't spread their risk around amongst various investments or holdings, and is ekeing out an industry-average 3-4% worth of net profits, or even that this new wage these select employees are enjoying ahead of schedule are going to be the panacea they're currently claiming once everybody is on a level playing field and inflation kicks in, putting them in the exact same situation they were in before their supposedly hard-earned raises.
It's all simple economics and, not to make a bad pun, anybody with an inkling of economic knowledge and logical deduction can tell something about this smells fishy. At best what we have done is further eroded the middle class and dropped them into the bucket of the lowest common denominator. At worst...well, it'll be 20-24 months after the $15 wage is fully vested throughout the city that we'll see the end result of this little science experiment.
What evidence do you have of any of this?
Literally, right after this was posted, I forwarded along some information about a food truck that is expanding in the area and looking to hire more people. How could any of that be happening if they weren't making more money?
It's not just that one food truck, either. Restaurants are desperate to get more people hired. The unemployment rate is so low that employees are following the money, and places that don't pay more don't get to keep workers. It's just that simple.
Unemployment in the area is less than 4% -- for all intents and purposes, that's full employment.
One more thing: the difference between the Seattle minimum wage and the state minimum wage right now is a paltry $1.53/hour. I do not think that cost represents a sizable barrier to companies (especially since that difference will remain more or less steady since the minimum wage is pegged in inflation in Washington state) and the low unemployment rate and strong hiring rate more or less confirm this.
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
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Ivar's Salmon House goes straight to $15/hr
another GOOD reason to not patronize this crummy place..
...caving to public pressure and forcing social agenda in the workplace rather than providing a quality product to customers, AT&T was the worst to start this detrimental slide in the 1980's. It showed immediately in their earnings, service, employees, and market innovations (FLAT)... eventually they died (good riddance). Many companies followed / still follow this path. (social agenda rather than maintaining their business expertise). Millions of under / unemployed now, due to this. My 'innovation company' shed 300,000 engineers due to their focus shift and change of values (from a profitable business model to one that chases and forces social agendas down the throat of employees and customers). How petty... reeks of 'boycotts!'
Y(T)MMV
choices... we all make them.
Imagine how hard it is to be an employer in WA!! I shudder every time I have to hire a new employee... WHAT is their hidden agenda? What is my risk when saying 'yes' to them!
They raised prices by 21%. But revenue only rose by 20%. In a vacuum, that means that at best, revenues are down 1%.
After a base wage increase of 36%, if we just figure going from $11 (minimum wage as of 4/15) to $15. If we figure going from $9.47 (minimum wage before 4/15), that's an increase of 59%. Doing that with a 21% price increase and a projected 20% increase in revenues, is pretty darn good.
Since the standard tip (15%?) is now folded into the price increase (with tipped employees receiving a portion - one poster here said 8%), that means that gross payments from customers are actually up more like 5% plus voluntary tips. That points to increased business, rather than just a price increase, paying for the lion's share of the wage increase.
A lot of factors likely go into this, such as increased tourist business, increased local customer base (from growing population in SLU, etc.), and increased income of that customer base (from the influx of high-pay Amazon and other workers). As I stated earlier, how this will work out for other businesses, with higher or lower prices and more or fewer minimum wage and/or tipped workers, or benefiting less from tourism or the Amazon influx, remains to be seen. I do think that many of the Jeremiads being expressed are the result of static reasoning that fails to account for a dynamically changing reality.
Last edited by CrazyDonkey; 08-06-2015 at 11:44 AM..
IDK about y'all, but IMO Ivar's food really isn't worth the additional 21%. It really isn't that special. But if people are willing to pay, I guess that's all that counts.
Literally, right after this was posted, I forwarded along some information about a food truck that is expanding in the area and looking to hire more people. How could any of that be happening if they weren't making more money?
It's not just that one food truck, either. Restaurants are desperate to get more people hired. The unemployment rate is so low that employees are following the money, and places that don't pay more don't get to keep workers. It's just that simple.
Unemployment in the area is less than 4% -- for all intents and purposes, that's full employment.
One more thing: the difference between the Seattle minimum wage and the state minimum wage right now is a paltry $1.53/hour. I do not think that cost represents a sizable barrier to companies (especially since that difference will remain more or less steady since the minimum wage is pegged in inflation in Washington state) and the low unemployment rate and strong hiring rate more or less confirm this.
I provided hard numbers, industry standard data, and posed many questions. YOU, on the other hand, provided nothing but hyperbole and attempted to deflect the conversation to a random food truck (which doesn't have to pay $15 an hour...or even have to pay rent, electricity, or any of the other myriad of costs a brick and mortar establishment has to have) and unemployment numbers which have more to do with the booming tech sector than it does the food service industry and the unskilled labour pool. You are just as guilty as the author of this article as it pertains to attempting to cherry pick data and fit that peg into a hole in order to call what you've presented a cohesive argument.
Which one of us do you think has presented the more compelling argument? Here's a hint: Your argument failed.
After a base wage increase of 36%, if we just figure going from $11 (minimum wage as of 4/15) to $15. If we figure going from $9.70 (minimum wage before 4/15), that's an increase of 55%. Doing that with a 21% price increase and a projected 20% increase in revenues, is pretty darn good.
In what world is raising prices by 21% in order to partially counterbalance overhead increases between 36 and 55%...and then LOSING and additional 1% of revenue (unadjusted for inflation) "pretty darn good"?
Quote:
Since the standard tip (15%?) is now folded into the price increase (with tipped employees receiving a portion - one poster here said 8%), that means that gross payments from customers are actually up more like 5% plus voluntary tips. That points to increased business, rather than just a price increase, paying for the lion's share of the wage increase.
One poster said 8% of tips provided ON TOP OF the base price. In other words, tourists who still give 15% on top of their completely outrageous bill because they don't know any better. 8% goes into the server's pocket, the other 7% is split amongst...something (likely back of house). You are trying to roll in tips that the business itself does not receive into overall revenue, which....if I have to explain to you why that is without question one of the absolute worst, dumbest arguments that could possibly be made, we can't continue this conversation. You are now actively manipulating and falsifying data to fit a narrative.
Your last paragraph I'm going to just purge entirely rather than respond to in any detail, because we both know the moment one starts talking about "dynamically changing realities" it's just a way to present qualitative hunches as quantitative data and fits, at best, as a pseudo-intellectual specious argument.
IDK about y'all, but IMO Ivar's food really isn't worth the additional 21%. It really isn't that special. But if people are willing to pay, I guess that's all that counts.
Well, assuming you normally tip (15-20%?) and don't feel compelled to pay an additional voluntary tip at Ivar's (since the normal tip is folded into the price increase), you're not paying an additional 21%, but an additional 1-6%, depending on what percentage you normally tip.
As to whether the food is worth the price, you have to figure that many of their customers are tourists or immigrants who don't know what really good seafood is. The same can largely be said of other mainstream "fish houses" (Anthony's, Chinook's, etc.). Want really good seafood? Cook it yourself (hint: if you can smell it cooking, it's done!) or pay two to three times the cost at Ray's, etc. On the other hand, if you want really good Mexican food, go find a truck...
In other words, tourists who still give 15% on top of their completely outrageous bill because they don't know any better.
Customers are informed, on the menu I presume, if not also on signage, that the standard tip is included in the price. If they choose to pay an additional tip on top of that, it is entirely voluntary. If you normally pay a 15% tip, there is really no reason to pay a tip. If you normally pay 20%, then pay an additional 5%, if 25%, an additional 10%. Anyone plunking down a 15% tip under that circumstance either can't read, is very generous, or really liked the food. I'd be surprised if additional voluntary tips amount to more than 5%.
Tipped employees are getting a portion of the price increase (8%?) + any voluntary tips (5%?) + a 36% wage increase. Non-tipped employees are just getting the wage increase.
My clear argument was that it is increased business that is covering the lion's share of the wage increase. See my statement about "static reasoning".
Last edited by CrazyDonkey; 08-06-2015 at 12:44 PM..
Customers are informed, on the menu I presume, if not also on signage, that the standard tip is included in the price. If they choose to pay an additional tip on top of that, it is entirely voluntary. If you normally pay a 15% tip, there is really no reason to pay a tip. If you normally pay 20%, then pay an additional 5%, if 25%, an additional 10%. Anyone plunking down a 15% tip under that circumstance either can't read, is very generous, or really liked the food. I'd be surprised if additional voluntary tips amount to more than 5%.
Tipped employees are getting a portion of the price increase (8%?) + any voluntary tips (5%?) + a 36% wage increase. Non-tipped employees are just getting the wage increase.
My clear argument was that it is increased business that is covering the lion's share of the wage increase. See my statement about "static reasoning".
On point 1: Ivar's themselves admits that one of their challenges has been educating customers that they don't have to tip. Sure, it's likely posted...somewhere. And it's also completely glossed over by MOST people who walk through the door, who don't want to read a bunch of fine print or historical context of the restaurant or whatever else is cluttering up the menu, aside from menu items.
On point 2: You're doubling down on malformed information and selective manipulation of data, and I'm simply not going to engage an argument that won't use holistic data because they either do not wish to or cannot grok the idea their platform is flawed.
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