Survey: Restaurants “Extraordinarily Vulnerable,” Tip Credit Loss Would Devastate Industry

Recession-like economic conditions and soaring costs are limiting restaurant operations and further disrupting the industry in Michigan, according to a report released today of state-specific results of a recent nationwide restaurant business conditions survey, according to the Michigan Restaurant & Lodging Association in Lansing.
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The restaurant industry in Michigan is still hurting, and striking down the tipped wage credit would cause even worse problems according to the MRLA survey. // Stock Photo
The restaurant industry in Michigan is still hurting, and striking down the tipped wage credit would cause even worse problems according to the MRLA survey. // Stock Photo

Recession-like economic conditions and soaring costs are limiting restaurant operations and further disrupting the industry in Michigan, according to a report released today of state-specific results of a recent nationwide restaurant business conditions survey, according to the Michigan Restaurant & Lodging Association in Lansing.

The data comes amidst an uncertain time for Michigan restaurants, particularly full-service restaurants that employ tipped servers. A recent Court of Claims ruling would, if upheld, make Michigan one of just eight states to operate without a tipped minimum wage.

In recent weeks, Michigan Court of Claims Judge Douglas Shapiro agreed to stay his ruling that the adopt-and-amend strategy that was utilized during the 2018 legislative session for the Minimum Wage and Paid Sick Leave ballot proposals was unconstitutional until February 19, 2023.

This means that no requirements change as of now until February 19, 2023. More specifically:

  • Minimum wage remains at $9.87 per hour, not the $12 per hour that would have taken effect without the stay
  • Tipped minimum wage remains at $3.75 per hour, not the $9.60 per hour it would go to without a stay
  • No changes to paid sick leave requirements

The challenge for operators is exacerbated in that it would happen suddenly, without time to transition, increasing their labor costs 156 percent overnight.

“The restaurant industry has been ever-resilient over the last two and a half years, repeatedly reinventing itself to adapt to unprecedented challenges that continue to this day,” says Justin Winslow, president and CEO of the MLRA. “The clearest takeaway from this data is that the industry remains extraordinarily vulnerable and that another external shock, such as the immediate loss of the tip credit would have catastrophic consequences.”

Survey highlights include:

  • 91 percent of operators say their other operating costs (supplies, general and administrative expenses, etc.) are higher than 2019.
  • 90 percent of operators say their restaurant is less profitable than it was in 2019.
  • 89 percent of operators said their total food and beverage costs are higher than 2019 and across the board, many other costs are up.
  • 67 percent of operators say their total utility costs are higher than 2019.
  • 57 percent of operators say their total occupancy costs are higher than 2019.
  • 42 percent of operators say business conditions for their restaurant are worse now than they were three months ago.

“Thousands of independent restaurants struggle to operate profitably right now, and many remain saddled with debt from the pandemic, so their ability to pivot to a new business model that would increase their cost of business 156 percent overnight simply does not exist. Tens of thousands of jobs would be lost and hundreds, perhaps more, restaurants would be forced to close their doors,” Winslow says.

A large majority of Michigan restaurants are still understaffed and actively seeking to fill positions — even as they face building headwinds of a slowing economy, caused, in part, by poor government policies that have contributed to rising debt.

  • 93 percent of operators say their restaurant currently has job openings that are difficult to fill.
  • 92 percent of operators say they will likely hire additional employees during the next six months.
  • 73 percent of Michigan operators report not having enough employees to support customer demand.
  • 67 percent of full-service operators say their restaurant is currently more than 10 percent below necessary staffing levels.
  • 20 percent of limited-service operators say their restaurant is more than 20 percent below required staffing levels.

The survey was conducted July 14 – August 15 by the National Restaurant Association (NRA) and included responses from 4,200 restaurant operators nationally. The above data reflects Michigan-specific responses extracted from the NRA survey. 

Founded in 1921, the MLRA represents more than 5,000 Michigan foodservice and lodging establishments. The industry plays an integral role in Michigan’s economy, employing more than 595,000 people and creating nearly $40 billion in annual sales.

For more information, visit www.mrla.org and www.detroitrla.org

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