I got curious about why people are still opening restaurants in Seattle, since they know the minimum wage is going up. When they do the projections, how can it still pencil out?
So I built a very simple model. Assume a restaurant has 15% operating margin in 2014, with costs as shown. Suppose labor cost goes up with the minimum wage, and I'm using the $11/hr for 2015. Suppose food cost goes up 2%/yr (inflation), other costs go up 2%/yr. How much do sales have to go up, to maintain the same profit margin?
It looks like sales have to go up 5%/yr. If that increase is entirely from price increases, then a menu item that was $10.00 in 2014 would be $12.70 in 2019, when the minimum wage tops out.
Of course, this is a grossly simplified model. And different types of restaurants have different cost structures. For example, McDonalds' franchises usually have labor costs that are 20% of revenue, lower than the 30% in this model.
That McDonald's Salary Study Gets It Wrong - Restaurant Industry Insight, News and Analysis - July 2013 A fancy French restaurant usually has labor costs that are a higher percent of revenue. And, in the McDonalds, most of the employees might be making minimum wage, while at the fancy place, few of them will be.