Taco Bell’s $100,000-salary test could set off a domino effect, forcing fast-food giants to increase pay

Taco Bell is testing a $US100,000 manager salary. It could help create a ‘domino effect’ of higher pay across the industry. Taco Bell

ORLANDO, Florida – Restaurant-industry experts and executives at this year’s ICR Conference are bracing for labour costs to be a top challenge in 2020.

Concerns about the cost of paying workers have dominated the conference in years past, as chains attempted to cut back on costs by deploying robots and raising menu prices in 2019. This year, industry insiders are predicting that wages will continue to rise, especially as chains attempt to compete with higher-paying rivals.

Last week, Taco Bell announced it would test a $US100,000 salary for the general managers of certain company-owned locations later this year. According to Bart Shuldman, the CEO of TransAct, which has a back-of-house automation service called BOHA, the six-figure test will force Taco Bell’s rivals to consider how to keep up.

“It’s a domino effect,” Shuldman told Business Insider on Monday.

“The restaurant next door is going to say, well, my people want to go work there because they’re going to get $US50,000 a year in wages,” Shuldman continued. “It’s the beginning. It’s going to be the story of 2020 and 2021.”

Meanwhile, Shuldman and other experts said that rising wages would likely force restaurants to cut their employee headcounts or hours available.

“It’s a great idea, and that is to hold on to their people,” Shuldman said. “But you’ve got to believe that [Taco Bell is] thinking about taking one or two people out, unless you can raise revenue that high to overcome that cost – and that’s a serious cost.”

Hiring and retaining workers is the biggest challenge in the restaurant industry

Mcdonald's fast food worker
A McDonald’s employee passing an order to a customer at a drive-thru in Los Angeles. Lucy Nicholson/Reuters

Shuldman was far from the only industry insider who said they saw affording, hiring, and retaining employees as a top challenge in the new year, amid historically low unemployment rates.

In May 2018, the mean hourly wage in food preparation and service in the US was $US12.30, according to Bureau of Labour Statistics data, up from $US11.88 in May 2017 and $US11.47 in May 2016. The rising cost of labour can quickly cut into profitability at restaurants with already thin profit margins.

TGI Fridays CEO Ray Blanchette told Business Insider that higher wages were forcing restaurants to cut back on jobs and hours that employees work. Blanchette said he thinks the restaurant industry should have worked with the Obama administration to raise the federal minimum wage to $US10 – preventing the current push for $US15 – as well as worked harder to demand immigrant reform.

“We need immigration reform,” Blanchette said in an interview on Monday. “Think about who we serve, who our team members are, and having access to healthy flow of talent.”

Gene Lee, the CEO of Darden Restaurants, the parent company of Olive Garden and Longhorn Steakhouse, said in a fireside chat at the conference on Monday that the biggest challenge in the restaurant industry today “is the human-resource part of it.”

Fred LeFranc, the CEO of the restaurant-industry consulting firm Results Thru Strategy, told Business Insider that many companies were seeking new ways to cut turnover and trim the amount of labour required. Tech such as collaborative robots, or “cobots,” can take on a portion of employees’ jobs, like monitoring burgers as they grill or automatically starting an oven to roast beef.

“We’re going to see more and more pressure on labour,” LeFranc told Business Insider. “That’s not going to go away. It’s going to get worse as minimum-wage increases that have been legislated keep on kicking in.”

Shuldman said restaurant chains often seek BOHA by TransAct’s services as they attempt to reduce labour hours, using automation to cut back on tasks such as taking inventory and checking temperatures.

“We have a very low unemployment rate,” Shuldman said. “So restaurants are seeing growth from some of their initiatives” such as delivery and customers ordering via kiosks, he added, “but their costs are going up.”

The retail industry is already seeing companies raise wages to keep up with the competition; in recent years, Amazon, Target, and Costco have boosted their minimum pay. 2020 may be the year that more restaurants end up doing the same as they fight with rivals to win over workers.