City and state minimum wage increases are impacting the foodservice industry across the United States, so it was no surprise that Seattle, Wash.-based institution Ivar’s generated strong reactions when it raised the hourly wage of employees at its two full-service restaurants in Seattle to USD 15 (EUR 13.85) on April 1. It also raised menu prices and changed its tipping policy to “No tips, please.” It is likely the only restaurant chain in the nation to suggest that its customers should not tip, and has also fashioned a different way of dealing with Seattle’s gradual minimum wage increase to USD 15.
Bob Donegan, CEO of Ivar’s, which operates 50 restaurants and sells chowder and other products in grocery stores nationwide, talked with SeafoodSource about how the new program will impact Ivar’s sales and how seafood commodity prices will affect sales this year.
Blank: Tell us about the minimum wage changes in Seattle.
Donegan: A year ago, a committee of 24 appointed by the mayor came together to form recommendations on how to get the minimum wage up to USD 15 in Seattle. The number of years businesses have to implement the minimum wage depends on the size of the organization and type of benefits offered. Ivar’s is considered a “large” employer – we have 864 today and that goes up to around 1,250 during the summer months – that offers health benefits, so we have four years to get to the USD 15 mark. For our quick-service locations, we decided to take a three-year path, so we will implement USD 15 per hour minimum wage in 2017.
So what is your new policy for Ivar’s two Seattle full-service restaurants?
At Ivar’s Salmon House and Acres of Clams, which is being expanded to 650 seats and will re-open in July, we decided to take all employees to US 15 per hour on April 1. Everyone who was below USD 15 an hour got a raise to USD 15. Very few of our employees are at minimum wage, which is USD 9.47 (EUR 8.74) an hour in Seattle. We pay better than other restaurants and higher than minimum wage, because we find that we get a better employee. The people who do earn USD 9.47 an hour are servers and bartenders, because they get tips. The average server earns USD 18.03 (EUR 16.65) per hour on top of minimum wage and the average bartender earns USD 18.81 (EUR 17.37) per hour on top of the minimum wage at Ivar’s full-service locations.
However, there is an internal equity problem in the restaurants: The kitchen staff or the back-of-the house make less than half of those in the front of the house. Your meal’s success is determined as much by what happens in the back of the house as the front. So, we decided to raise all employees’ minimum wage to USD 15 and share the tips with people who work in the kitchen. The average customer tips our servers and bartenders 17 percent. If we just took the average 17 percent tip to share with everyone in the restaurant, we still couldn’t get to equal pay. So our conclusion was to raise menu prices. We raised prices 21 percent [at our full-service restaurants] and we discourage people from tipping. We share that 21 percent evenly with hostesses, dishwaters and everyone. Servers and bartenders still get the greatest percentage of that menu increase. Our menus state, “No tipping please,” but it also explains that, if customers would like to leave a tip, they can write that amount on their receipt and the tip will go directly to the server or bartender.
What types of reactions have you had to the menu price increases and no-tipping policy?
We are tracking all the comments we get from the employees, customers, comment cards, letters and emails, and the comments are running five to one in favor of it. Sales at Ivar’s Salmon House were up 15 percent last week. We were on every radio and TV station, so it could be the free advertising. Or, are people coming out to eat with us because we have this program? We think it will take around six months to figure it all out. We haven’t seen anyone quit so far, but it has only been six days. The most common complaint I have heard from customers will surprise you. They want to tip – particularly certain servers – more than the 21 percent menu price increase and believe we have taken that away. Once we explain it to them, they understand.
However, this is a very polarizing issue. A conservative radio host said he is never coming back and an anonymous person said Ivar’s is rolling over in his grave. Then, about half a dozen people sent emails saying they had never eaten here before but came in to eat because they really appreciate what we are doing.
Menu prices are increasing because of the minimum wage change. How are seafood commodity prices impacting the company?
We saw huge increases in the cost of Dungeness crab and halibut in 2014 over 2013 and 2012. Three years ago, picked Dungeness crab was in the USD 13 (EUR 12) to USD 14 (EUR 12.93) range [wholesale] and last week it was USD 28 (EUR 25.86) a pound. However, the forecast from Alaska is that we are going to have a very strong salmon season; therefore, we expect costs to be reasonable. And there is a good harvest of cod going on right now. We use roughly 1 million pounds of cod and whitefish a year, so that allows us to keep our fish and chips prices reasonable. In our quick-service locations, we have just implemented a 3 percent increase in menu prices for the year, which is about typical. That takes into account product costs, labor and everything.
