| Local small business owners fearing the worst from new minimum wage law
Next month, Vacaville’s Journey Coffee Co. owner Morne Van Staden will open a second store in Fairfield.
“Every year there’s been significant growth,” he explained. “We’ve had phenomenal support from the community.”
For any business owner, even ones of successful businesses like Journey’s Coffee, the prospects of expansion can be daunting.
In addition to the routine complications of business operations, in July, Van Staden will encounter another roadblock.
As a result of the California Legislature’s Senate Bill 3, signed into law by Governor Jerry Brown in April 2016, Van Staden will be forced to increase the minimum wage of his employees from $10 to $10.50 per hour.
The small increase is one of many gradual implementations that by 2022 or 2023, will bring the statewide minimum wage to $15 per hour, depending on the size of the business. “To me, it’s really sad because I don’t see it as a win for anyone,” said Van Staden. “With minimum wage going up, one of two things have two have to happen, either we raise our prices or we adjust our staffing. According to SB 3, on Jan. 1, 2018, businesses like Journey’s Coffee Co., with 25 employees or less will jump from a $10 per hour minimum wage to $10.50 per hour minimum wage, while business with 26 or more employees will move from $10.50 per hour to $11 per hour. Each year after 2018, businesses will increase their minimum wages by one dollar, with businesses with 26 or more employees reaching a $15 minimum wage in 2022, and businesses with few employees reaching that mark in 2023.
Brown noted that the law includes “off-ramps” that allow the governor to stop a scheduled wage increase if the Department of Finance forecasters anticipate job losses, falling retail sales or a budget deficit of more than 1 percent of annual revenue, SF Gate reported following the bill’s passage.
Van Staden admits he doesn’t see any advantages of the new law.
“When the minimum wage is high, it’s harder to find ways to promote people who want to work harder and take on more responsibility,” he said. “The differentiation now between someone who has worked for several years and someone who has just started is like two dollars. It doesn’t allow us to give that incentive.” Currently, Journey’s Coffee Co. has 24 employees in total, with 14 of them full-time and the rest part-time, though once the Fairfield location is fully functional, it will jump to 25-40, according to Van Staden.
Though past minimum wage increases have forced Van Staden to cut staff, the changes haven’t slowed Journey’s growth or success. In what began as a coffee truck on Black Friday 2013, quickly moved into its current Vacaville location the following year with the help of a modest $15,000 loan. By the first year’s end, all debts were paid off, Van Staden boasted. “We’ve extended all the expansions with capital that we made,” he claimed. “That’s definitely a model we can’t continue as we grow. We don’t want to grow unless we really have to.”
One local business mulling over the possibility of opening up another store, Napoli Pizzeria — with locations in Vacaville, Vallejo, and Benicia — also opposes the new minimum wage law.
“The fact is, a 50 cents more per hour for 30 people working 30 plus hours per week will cost us $2000 plus per month more in payroll alone,” said Tiffany Guerrera, who owns the Vacaville Napoli Pizzeria with her husband, Michael. “That doesn’t include the various taxes we pay for the privilege of employing people.” The Vacaville Napoli Pizzeria, which has 32 employees, though less than 10 are full-time, is already accustomed to adjusting to minimum wage increases.
“We just raised our prices for the first time in five years,” revealed Guerrera. “There were two minimum wage increases before we touched prices. But it got to a point where we were running 30-40 percent labor costs, so we had no choice but to raise them.” According to Guerrera, she and her husband had no other choice. “If we let seven people go I’d be under 26 employees and I wouldn’t have to raise my minimum wage for my new hires.” Even for Guerrera, who boasts decades of experience in the foodservice industry, acknowledged that simply cutting staff isn’t always the obvious course of action. “You can understand how that’s going to affect morale,” she said. “Who would want to work here?”
Guerrera revealed a smaller staff wouldn’t benefit Napoli, as the businesses top two priorities are quality of food and service. “The business justifies having the number of employees we have here,” she said. “We have the most complicated model, as being that we offer delivery, pickup, and dine-in service.” Guerrera acknowledged like restaurants such as her and her husband’s are becoming relics of the past, a result largely of wage requirements and improvements in technology.
“I’m a foodservice junkie. I love good service,” said Guerrera. “What is happening now is we’re getting away from any type of real service. I fear table service is going to go away.” Guerrera noted the rise of “fast casual” restaurants — businesses in the model of Chipotle — that have led to the decline of traditional dine-in establishments.
Carol Pruett, Chief Administrator of the Dixon Chamber of Commerce, agrees with Guerrera’s assessment. Pruett cited the growing trend of fast food restaurants turning to kiosk systems in place of employees as an example in expressing her disapproval of the new minimum wage law. “It (the minimum wage law) can be crippling to smaller businesses,” said Pruett. “Larger businesses can usually absorb it much better.” According to Pruett, given California’s high taxes, the idea that the minimum wage increase will help its residents cope with the cost of living is dubious. “I don’t know how it’s going to play out,” she said.
Taxes, Guerrera stated, play a huge factor on top of employee wages. “What people don’t realize is that every small business gets treated like a blue collar worker but we get taxed as a major corporation,” she explained.
Another veteran of the foodservice industry, co-owner of Vacaville’s Diggers Deli, Gigi Warshawsky, is another strong opposer of the new minimum wage law.
“Minimum wage was ever meant to be an earning wage. It was meant to be a stepping stone to go on to bigger and better things,” said Warshawsky. “As a small business owner, it really does impact us. People don’t realize that minimum wage goes up 10%, and if you only make 3-5% profit, with the average for a restaurant is 3%, which is not a lot, you really have to do something to compensate.”
When Warshawsky and her husband Peter Vessels bought the longstanding deli almost five years ago, Diggers had 15 employees and paid a minimum wage of $8 per hour.
Warshawsky, who also owns a catering business, said the wage increases have forced her and her husband to become more productive and creative with fewer resources at her disposal. “I pull more shifts,” she said. “Rather than just being an owner or managing, I actually work shifts to compensate,” Warshawsky explained that methods to save money range from lowering the store’s thermostat temperature a few degrees to decreasing staff, though she said she maintained a careful balance in prices, stating there is a need to stay competitive with other businesses, but that an increase in prices can also backfire, as it could lead to a drop in customers.
“You have to realize that a minimum wage increase means your wages go up, then payroll goes up, and when your payroll goes up, Workman’s Compensation is directly from payroll costs, so if payroll goes up, that also goes up,” she divulged. “As a business owner, I feel I have to work smarter so I can keep my staff, keep them happy and not raise our prices.”
Robert Eyler, Professor and Chair of Economics at Sonoma State University and President and Head of Research at Economic Forensics and Analytics, holds a more optimistic outlook on the new minimum wage law.
“The spirit of these laws are good: lifting up the lowest wage workers by force and also setting a floor,” he proclaimed.
“Like any other market, when a floor is set, it may or may not be effective. Assuming it helps low wage workers, it is likely to make some employers and industries think twice about an expansion of hiring or locating in California with labor-intensive businesses. This is probably the largest long-term threat: will businesses convert to more use of machines (capital) versus labor or simply locate workers and perhaps businesses outside CA?”
The main benefit, according to Eyler, will help low wage workers in California. “Assuming such wage increases do not affect statewide inflation differentially versus neighboring states, the effects may be small versus the income and spending gains. The number of workers at minimum wage in CA and the percentage of overall spending coming from those folks is also not known with certainty but is likely small,” he predicted. Long-term, however, Eyler admitted the law could lead to less job growth for California, as well as a rise in wages for all, but that job losses could also be much smaller than predicted.
For business owners like Van Staden and Guerrera, barriers to expansion could be disastrous. In addition to the 6,000 square foot establishment equipped with a roasting facility set to open next month in Fairfield, Van Staden unveiled his vision for five stores in total five years from now. Despite the minimum wage law, which Van Staden said will force him to raise prices on certain items in June, the South African native is continuing to make necessary hires and revealed his Vacaville store will soon evolve to serving homemade ice cream on top of its existing products, while the larger Chadbourne Drive location in Fairfield will specialize in baked goods.
Still, Van Staden, who moved to California to get his commercial license for flying, refers to the future as “scary” with the state minimum wage increase law.
“This is what America was built on, people doing what I’m doing now,” he voiced proudly. “For me to be from South Africa and living out my dream, sadly it’s just not going to be a reality for a lot of people. I’m disappointed.”
For Warshawky, who predicts the minimum wage law will lead to several “Mom and Pop” shops going out of business, her concerns extend to her employees as well.
“We are family and I don’t want to see the impact. I don’t want to give them fewer hours or fire or lay off anyone because of it (the minimum wage law),” she said. “It’s not fair but I can’t do anything about except to work within it and do the best I can.
Guerrera and her husband, Michael, though disappointed with the minimum wage increase, are unwavering in their devotion to her homemade food and stellar customer service. Guerrera revealed she and her husband are ready to roll with the punches, and that their new strategy moving forward is to invest more time and effort into training and retention, as they ponder consider whether or not to open another location. The Guerrera’s, they claim, are used to sacrificing for their business. “We chose to grow our business and live on less,” said Guerrera. Small business owners like the Guerrera’s perhaps aren’t the only ones in store for future sacrifices. “We need to brace ourselves for longer lines, longer waits, and longer lines,” she predicted.
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