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

taco bell Employees


ORLANDO, FLORIDA - Restaurant industry experts and executives are bracing for labor costs to be a top challenge in 2020 at this year's ICR Conference in Orlando, Florida.

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 $100,000 salary for the general managers of certain company-owned locations later this year. According to Bart Shuldman, CEO of back-of-house automation service BOHA! by TransAct, the six-figure test is going to 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 $50,000 a year in wages," Shuldman continued. "It's the beginning. It's going to be the story of 2020 and 2021."

At the same time, Shuldman and other experts said that rising wages will likely force restaurants to cut their employee headcounts or hours available.

"It's a great idea, and that is to hold onto 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

Shuldman was far from the only industry insider that sees affording, hiring, and retaining employees as a top challenge in the new year, amidst record-setting low unemployment rates.

As of May 2018, the mean hourly wage in food preparation and service in the US was $12.30, according to Bureau of Labor data, up from $11.88 in May 2017 and $11.47 in May 2016. The rising cost of labor can quickly cut into profitability at restaurants with already thin profit margins.

TGI Fridays CEO Ray Blanchette told Business Insider that rising wages are forcing restaurants to cut back on jobs and hours that employees work. Blanchette believes the restaurant industry should have worked with the Obama administration to raise federal minimum wage to $10, preventing the current push to $15, 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 Olive Garden and Longhorn Steakhouse parent company Darden Restaurants, 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, CEO of restaurant industry consulting firm Results Thru Strategy, told Business Insider that many companies are seeking new ways to cut turnover, as well as trim the amount of labor required. Tech such as "cobots," or collaborative robots, can take on a portion of employees' jobs, whether that be by monitoring burgers as they grill or automatically starting an oven to roast beef.
"We're going to see more and more pressure on labor," 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 says restaurant chains often seek BOHA! by TransAct's services as they attempt to cut back on labor hours, using automation to cut back on tasks such as inventory and temperature check.

"We have a very low unemployment rate," Shuldman said. "So restaurants are seeing growth from some of their initiatives, delivery, things like that kiosk. But their costs are going up."

The retail industry is already seeing companies raise wages to keep up with the competition. In recent years, companies including 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.