Will Obamacare Carve Up the Restaurant Industry?

Because restaurants typically operate on razor-thin margins, President Obama's signature health-care reform law has largely been criticized by the industry for imposing onerous new costs that will potentially wipe out whatever profits they make.

Under the Affordable Care Act, companies with 50 or more employees have to provide them health insurance if they work 30 hours or more, or else face a $2,000-per-employee penalty. That led many restaurant operators, such as the CEO of Olive Garden and Red Lobster parent Darden Restaurant's (NYSE: DRI  ) , to say worker hours would have be cut to avoid paying for expensive health-insurance premiums.

Binge eating
He was joined in his criticism of the law by other restaurant operators, including pizza-shop chain Papa John's (NASDAQ: PZZA  ) and burger joints Wendy's  (NASDAQ: WEN  ) , McDonald's (NYSE: MCD  ) , and Burger King, all of which are chafing at the law's costs.

While Darden eventually walked back its statement and Papa John's CEO says his comments were misconstrued, others continue to assert there will be real damage coming.

McDonald's, for example, maintains that complying with the law will cost it $10,000 to $30,000 per restaurant, and as of the end of last year the fast-food chain operated more than 14,000 restaurants in the United States. The CEO of DineEquity's Applebee's chain hasn't altered his charge that the chain's New York City store alone would be subject to fines of $600,000 a year if it didn't provide insurance, yet the company faces the prospect of tens of millions of dollars in higher costs across the chain if it does.

Some restaurants have seen individual stores begin to make good on the threat. A Wendy's franchise in Nebraska cut all non-management workers to 28 hours a week, as did a Yum! Brands (NYSE: YUM  ) Taco Bell franchise in Oklahoma. Others, such as burger joint Five Guys, are starting to raise prices, while RREMC Restaurants, a privately held franchisor of several dozen restaurants including Denny's and Dairy Queen, will begin imposing a 5% surcharge on their menu to cover Obamacare costs.

Someone else's problem
Darden may have retreated from its critiques because of the negative publicity it created, while others believe the burden won't be so high because many employees will simply opt to instead pay the $95-a-year penalty for being uninsured. It will be cheaper than paying the monthly premiums associated with the insurance plans companies offer, while others will choose to be covered by the government's Medicaid plan or will sign on to a spouse's policy.

Still, the burden will fall heaviest on the smaller restaurants. McDonald's reported almost $5.5 billion in profits last year, so it can more readily afford to pull its seat up to the table and offer health insurance for its employees. Harder to quantify, however, will be just how many restaurants at around the 50-employee threshold will simply fire a few people to ensure they don't make the cut-off.

Standing in line at the soup kitchen
According to the National Restaurant Association, the average restaurant makes between just $0.02 and $0.06 in pre-tax profits on each dollar of sales. While that doesn't even include all the restaurants that never make a profit and go under, it highlights that the added costs of Obamacare will have to come from one of a three sources: lower profits, higher prices, or lower wages. Maybe a combination of all three, because there's simply little room for restaurants to maneuver.

In the end, the real lasting impact of the Affordable Care Act may not be universal health care coverage, as originally promised, but rather a nation of part-time workers paying more for our meals when we go out to eat. If we can afford to.

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  • Report this Comment On March 30, 2013, at 2:27 PM, 1armadillo wrote:

    all employers should be required to provide at least minimal health care coverage to all employees regardless of how many hours they work or how many people are employed. Owners and execurives have health care coverage, Are their lives more important than their employees. As you do to the least of these you also do unto the Lord

  • Report this Comment On March 30, 2013, at 2:34 PM, ArmyofOne wrote:

    Ther is a very easy way for copanies to avoid this insurance requirement. Simply keep all employees under 30 hours per week. There are several companies that have been doing this for years so that their employees are not entitled to paid vacation, pensions, 401K matching, health benefits etc. There is nothing new about this style of company profiting.

  • Report this Comment On March 30, 2013, at 2:37 PM, GT6 wrote:

    2 days ago we saw an article where fast food giant, Wendy's recalculated the cost of Obamacare to about 1% of gross sales. That's 3 cents a hamburger, folks.

  • Report this Comment On March 30, 2013, at 2:40 PM, obummercare1 wrote:

    Fairly certain its only 95$ in 2014, then it goes up to $325 I believe and then in 2016 its up over $600. Which is a tax. No matter how you look at it. On everyone. Not just the "wealthy". So much for the no new taxes on the middle class. Can't wait to see what shape this country is in come 2016. I sure hope its not what I'm imagining right now.

  • Report this Comment On March 30, 2013, at 2:42 PM, Ronmc2 wrote:

    "Wendy's franchise in Nebraska cut all non-management workers to 28 hours a week. Others are starting to raise prices, or will begin imposing a 5% surcharge on their menu to cover Obamacare costs."

    Thank Goodness Obama now has Business to Blame for Unemployment, and Inflation, rather than ObamaCare.

  • Report this Comment On March 30, 2013, at 2:51 PM, massuez99 wrote:

    Maybe the restaurant industry would save some do-re-mi by cutting down portion sizes of the food they serve. Added bonus: they've just also addressed the obesity problem we are suffering from. Seriously, the easiest way to solve this problem is to divorce healthcare from employment. By making it a true "free-market" for insurance, no one will be able to afford $600 premiums and the insurance companies will have to respond. We may not have the cadillac coverage we want, but people will be more conscious of their own health care and the real costs to themselves.

  • Report this Comment On March 30, 2013, at 2:53 PM, illinoisboy wrote:

    This is just an indictment of the healthcare system we now have. Every other modern country in the world has realized employer based coverage doesn't work. How much longer are we going to play this game?

  • Report this Comment On March 30, 2013, at 3:08 PM, Ronmc2 wrote:

    It is Obvious that 1armadillo works for a W-2.

  • Report this Comment On March 30, 2013, at 3:13 PM, Ronmc2 wrote:

    Illinoisboy-And most other modern countries in the world is in worse economic shape than we are.

    Yeah, let's have the Gov't pay for Healthcare. Because most everything else that they touch is golden.

  • Report this Comment On March 30, 2013, at 3:22 PM, hardcorerobot wrote:

    I have yet to work in a restaurant where the margin was "only" 2-6 cents per dollar.

    Domino's, for example, operates on a 54% margin on sales.

    I'm pretty sure these companies can afford to take care of their workers better if the CEOs are being given Gulf Streams left and right to fly to their weekly golf outings.

    By cutting hours they are just cutting their own throats since low wage workers probably make up a fair percentage of their customers.

    Idiots.

  • Report this Comment On March 30, 2013, at 3:53 PM, garagehero wrote:

    John Schnatter made his orignal comments very clear, and now he''s spending a lot of money trying to weasel out of those statements. The bottom line is, he's raising prices for something he hasnt been charged with yet and cutting the hours of his already underpaid employees.... and pocketing the money. I can tell you one thing, the South Pasadena soccer and softball teams have stopped eating there, and hopefully more youth organizations in SoCal with stop patronizing this jerk as well. Their pizza sucked anyway

  • Report this Comment On March 30, 2013, at 3:56 PM, illinoisboy wrote:

    Our healthcare costs are out of control. Obamacare does not address that and the Republicans want to pretend the problem doesn't exist.

  • Report this Comment On March 30, 2013, at 4:08 PM, CTC423 wrote:

    Oh what a shame, low brown restaurants monopolies are complaining.

  • Report this Comment On March 30, 2013, at 4:55 PM, joltrider wrote:

    The guy that owns businesses in this town that had the best health insurance, got rid of all the insurance he provided to his workers cause each business has less than 50 employees... Thank You Mr. President for decreasing our quality of life !

  • Report this Comment On March 30, 2013, at 4:56 PM, warpig6558 wrote:

    GT6 wrote:

    2 days ago we saw an article where fast food giant, Wendy's recalculated the cost of Obamacare to about 1% of gross sales. That's 3 cents a hamburger, folks.

    And according to the National Restaurant Association, the average restaurant makes between just $0.02 and $0.06 in pre-tax profits on each dollar of sales.

    So whats your point? It still looks like Obamacare is a huge burden.

  • Report this Comment On March 30, 2013, at 5:21 PM, rdmcdonald48 wrote:

    If you are a person who is "waitstaff", then 2 jobs of 21 to 28 hours will be all that will be available.

    All of the "people" who bought into this line of garbage that Congress and this President just had to pass before anyone could read it should be the one's who suffer the most. It's only fitting that all of those individuals who think this President is filled with nothing but good intentions find out, the hard way, that he has no clue as to what he's doing and that this "country" is not a Chicago neighborhood that he could organize.

  • Report this Comment On March 30, 2013, at 6:01 PM, hardcorerobot wrote:

    As far as I'm concerned if places like Denny's are going to add 5% on the bill then I will go eat elsewhere.

    Places like In n' Out don't have trouble paying their employees.

    When I learned that Papa John's and Domino's were stealing from their employees by claiming a "tip credit" I stopped ordering from them. A "tip credit" is just an employee subsidy for the company - legal theft, but, theft nevertheless when you are dipping into employees' pockets to run your business.

    Perhaps Five Guys, Darden, Papa John's, and Domino's could learn a thing or two from the success of In n' Out: happy employees are productive and take care of their customers better - this makes the experience better and results in return business.

  • Report this Comment On March 30, 2013, at 6:03 PM, hardcorerobot wrote:

    "2 days ago we saw an article where fast food giant, Wendy's recalculated the cost of Obamacare to about 1% of gross sales. That's 3 cents a hamburger, folks.

    And according to the National Restaurant Association, the average restaurant makes between just $0.02 and $0.06 in pre-tax profits on each dollar of sales.

    So whats your point? It still looks like Obamacare is a huge burden"

    Really?

    So what happens if all these people end up needing Medicare or Medicaid because their wages aren't high enough?

    One way or another the fat cats need to pay up - it used to be that companies took care of their employees - thus the government didn't need to spend tax dollars doing the same thing.

    Now the companies want it both ways: low taxes and no burden to take care of their workers.

  • Report this Comment On March 30, 2013, at 6:11 PM, roykokinasok wrote:

    "all employers should be required to provide at least minimal health care coverage to all employees regardless of how many hours they work or how many people are employed"

    So it's not enough the obammycare tax gets shoved down our throats after months and months of lies, but now some idiots want to mandate coverage beyond the outrageous requirements now. Some of you people do not comprehend that businesses aren't infinite money trees. The sell a service or a product. If it is no longer profitable to do so, they go out of business. What is so hard to comprehend about that?

  • Report this Comment On March 30, 2013, at 6:14 PM, roykokinasok wrote:

    "This is just an indictment of the healthcare system we now have. Every other modern country in the world has realized employer based coverage doesn't work. How much longer are we going to play this game? "

    It worked for working folks for decades. What you mean to say is covering those too lazy and incompetent to provide for themselves isn't economical under this system. We certainly agree on that.

  • Report this Comment On March 30, 2013, at 6:16 PM, roykokinasok wrote:

    "So what happens if all these people end up needing Medicare or Medicaid because their wages aren't high enough?"

    Why would they need medicaid or medicare? Now that it is against the law to not have insurance, everyone will have it, right?

  • Report this Comment On March 30, 2013, at 6:46 PM, bigghunter86 wrote:

    ok so what about the farm hands like me? I only make 10,000$ a year. 1/3 of that goes towards gas to get back and forth to work and the rest is for rent and bills. so how is that fair to people who make low wages? atleast they get tips. I don't. how am I goin to afford this healthcare. I cant afford it. reality check im goin to end up on the streets but they don't give a damn do they? and guess what I don't collect welfare. I don't use the system the system uses me. that extra money im goin to have to pay should be going towards my retirement but now it cant. thanks obama

  • Report this Comment On March 30, 2013, at 6:56 PM, Dadw5boys wrote:

    So you think it's ok for people to get a job and still have to apply for welfare ?

    Pass laws against abortion forcing more poor women to bring babies into poverty ?

    All along you support huge Non Profits that have Billions in Stocks, Bonds and Securities ?

    Heck the way huge non profits operate is like the Gangesters of the 1930 and the Governkment shut them down evewn Unions that made loans were attacked.

    Now Non Profits Executives makes 1/2 Million Dollars loans at zero interest to themselves and no one complains ? Just ask Grover Norquist about his $600,000 loans with zero Interest that he writes off in small amounts each quarter.

  • Report this Comment On March 30, 2013, at 7:06 PM, jordanbene wrote:

    Other types of companies have also already begun cutting the hours of part-time employees. I work for a large grocery chain in Indiana. We are no longer allowed to work more than 27 hours per week. Those of us who put in extra hours during the holiday season have been cut even more to lower our annual average hours. This is not just financially painful, it's humiliating. I would gladly forgo any benefits just to be able to earn my hours back.

  • Report this Comment On March 30, 2013, at 9:15 PM, unclebudd wrote:

    Get rid of omam by impeaching . If enought people get to gather. to impeach him.Then go after congress, who voted for obama care without reading it.

  • Report this Comment On March 30, 2013, at 9:28 PM, JRS54501 wrote:

    The restaurant industry harbors many illegal workers. Many pay cash and keep a skeleton crew that they actually pay taxes and benefits on. This will be a shake out. The immigration reform and the Obama care will redefine this industry. Dishwashers, busboys, - no language skills needed there. Change is good.

  • Report this Comment On March 30, 2013, at 9:28 PM, OBAMAWHAT wrote:

    Obama care has hurt everything....here in Saint albans, wv...Tudor's Bisquit World has NO insurance for it's employees....more than 50 locations and up to 20 employees per location....and they have maybe 1 oe 2 full time employees, rest a all part timers. It's run like thje old Coal Mine stores, you work, you eat at the store, and you MUST put you food purchase on your time card..and they deduct it from your paycheck. Talking about working for less that $3 as hour. this place has it down pat.

    Hire employes and keep them 3-6 months and then let them go and hire more,,,,,no pay raises here. It's lets make the rich richer and make the poor sick, with no real wages and no health insurance.

  • Report this Comment On March 30, 2013, at 10:22 PM, imralph wrote:

    I have been a restraunt emplyee since the age of 13. That's over 40 years. Just to put it in perspective, server wage was $2.13 per hour. It's now $4.77 per hour. In 40 years, I have been given a $2.64 an hour raise. Is there any other industry in this country that can claim such a windfall? If the lawmakers in Washington DC, can provide basic necessities for their families, including healthcare, for just one month on a servers salary I will make it my personal mission to see that they remain in office for the rest of their lives. Unfortunately, it's not something I'm going to have to worry about.

  • Report this Comment On March 30, 2013, at 10:53 PM, bugmenot wrote:

    Obama, Pelosi, and Reid: "we have to pass the bill to see what is in it." Because Democrats can't read or write unemployment will again rise. Face it. Unemployment has not been going down. Obama has made a mess of the economy and nothing will improve until an American Spring ousts him or the voters decide to throw all Democrats out of office. Illinois and California are bankrupt under Democrat Policy. The people in these states will suffer first! Chicago Democrat Drug Gangs already kill people daily! with maybe 10 shootings per day! This is what happens when a state's politicians are corrupt through and through. Heck, the last 4 of 7 Illinois governors are in jail!

  • Report this Comment On March 30, 2013, at 10:57 PM, technoreaper wrote:

    Five Guys is raising prices? Really? Five Guys has been gouging customers from day one. They really think they are so special. It has nothing to do with Obamacare, which, for the record, I think is poorly implemented to begin with. As for the other restaurants claiming they will cut staff, that is baloney. If they do that, their business will suffer. America needs to address the health care monopoly that is jacking prices up sky-high.That is the real problem.

  • Report this Comment On March 30, 2013, at 11:00 PM, karinza wrote:

    I did not start a business so i could pay everyone's health costs. I started a business so I could make money a build a future for my family.

    I offer you money to do a job. You want more then that then I suggest you start your own business.

    I cut everyone back to under 30 hours a week. It is more cost effective to hire two at 20 then one at 40.

    I am so sick of people bitching because I don't "Give" them enough for the privilege of them working for me. You don't like working for me then go somewhere else. If they are stupid enough to give away their profits so be it...I am not.

  • Report this Comment On March 31, 2013, at 12:53 AM, bosoxinny wrote:

    @karinza.....I feel so very, very sorry for the poor fools that currently work for you. Personally, I would tell you to go f*ck yourself. It's probably the only pleasure you'll ever get...lol

  • Report this Comment On March 31, 2013, at 1:20 AM, autochamp wrote:

    Maybe Obama has disappointed his voters by insisting they "pay" for their own healthcare. The restaurant industry is rife with drug use. Let them, employees, use a bit of that money to buy some "legal" drugs and pay a doctor for real healthcare.....or not. It's a choice we all make so don't complain.

    Don't worry about it.......Americans will continue to eat the swill served in the restaurants today AND will fight obesity.

  • Report this Comment On March 31, 2013, at 1:40 AM, Texmez57 wrote:

    If you agree with this Bozzo don't know the damage we have in the restaurant industry talking about small business , the increase of dependenents on unemployment, food stamps and welfare has increase under him , I work in restaurant industry and the lazy people don't want to work because is more easy to get free money, house , phone , energy, food stamps for food form the government than get up and go to work , I own a little restaurant and is all ready difficult to be open , no or low sales , lot of taxes from the city , state and federal and now this Obama ... it , it's incerdible that a person that don't work in a full year can get 5 to 12 thousands dollars in federal return than a person that was productive and make 50 to 60 thousands minus 10 k on taxes, we don't need Al queida to destroy the country , Bush and Obama are doing just fine

  • Report this Comment On March 31, 2013, at 5:58 AM, mzaz86442 wrote:

    Does this really surprise anyone? Rumors about holding off until after the election about the furloughs. Both my brother-in-laws are border patrol agents. They have been at their currant jobs over 15 years. Both are getting furloughed. Friends with over 10 years in currant positions have had 40 hour a week jobs plus OT cut down to 28 hours a week no OT and now no health care. So hows it going for you people that voted for this poser again? Oh yeah, right. You get your freebies. How long before there isn't any money left to give you? Does Germany WW2 ring a bell?

    The BO lies

    “I promise that I support traditional marriage – 1 man – I woman. “

    “I promise NO NEW TAXES on families making less then $250K a year.“

    “I will allow 5 days of public comment before I sign any bills.”

    “I will remove earmarks from PORK projects before I sign any bill.”

    “I will end income tax for seniors making less then $50K a year. “

    “I will bring all our troops home within ONE year. “

    “I’ll put the Health Care negotiations on CSAPAM so everyone can see who is at the table.“

    “I’ll have no lobbyists in my administration.”

    “I’ll close Guantanamo.”

    “I’ll resign if I don’t cut the deficit in half by the end of four years.”

    “I’ll unite the people of this great country.”

    “I promise 100% transparency in my administration.”

    HOWS THAT HOPE AND CHANGE WORKING OUT FOR YOU LIBS?

  • Report this Comment On March 31, 2013, at 6:12 AM, 21Counter wrote:

    hardcorerobot wrote: "When I learned that Papa John's and Domino's were stealing from their employees by claiming a "tip credit" I stopped ordering from them. A "tip credit" is just an employee subsidy for the company - legal theft, but, theft nevertheless when you are dipping into employees' pockets to run your business."

    A tip credit is claimed by every restaurant with wait staff, based on payroll taxes paid when wages plus tips exceed the minimum wage. By claiming the credit, the restaurant also loses the deduction for those taxes paid. That's "stealing from their employees"? All of your posts evidence a lack of knowledge of the subject matter. Thanks for the laughs though.

  • Report this Comment On March 31, 2013, at 6:26 AM, hardcorerobot wrote:

    "I did not start a business so i could pay everyone's health costs. I started a business so I could make money a build a future for my family. I am so sick of people bitching because I don't "Give" them enough for the privilege of them working for me. You don't like working for me then go somewhere else. If they are stupid enough to give away their profits so be it...I am not."

    There is this thing called "fairness" and if you think like that perhaps you would be better off opening up your business in a place where there are no wage laws, no laws protecting the environment, or laws holding you accountable for selling a dangerous product.

    We live in America. You don't get to suck everyone dry and take the ball and go home.

    If you aren't willing to share some of your profits by taking care of your employees (who are part of your family by the way) then it comes time for the government to forcibly remove some of your profits (taxes) so that people get taken care of properly.

    Just because you "opened a business" it doesn't give you the unlimited right to do what you please.

    With your attitude employees would be justified in stealing from your till and your inventory because jerks like you deserve to be drained dry.

  • Report this Comment On March 31, 2013, at 6:33 AM, hardcorerobot wrote:

    "A tip credit is claimed by every restaurant with wait staff, based on payroll taxes paid when wages plus tips exceed the minimum wage. By claiming the credit, the restaurant also loses the deduction for those taxes paid. That's "stealing from their employees"? All of your posts evidence a lack of knowledge of the subject matter. Thanks for the laughs though"

    If it is more profitable for the company NOT to us the tip credit then why does the National Restaurant Association fight for it so hard?

    Why in the world would you think that a pizza delivery place would want to institute a tip credit? You know whose wages go up as a result of a tip credit in a typical Domino's? The management and anyone further up the chain.

    Yes, today's special: steal from the drivers so we can keep selling $5.99 pizzas (which ironically popped up on the menu when tip credit at Domino's became policy).

    At least some drivers are fighting back - I hope that Luiken v. Domino's and Nelson v. Domino's are both successful - these places need to learn to stop screwing their workers.

    Talk about a "lack of knowledge" of the subject matter.

  • Report this Comment On March 31, 2013, at 10:19 AM, zonie77 wrote:

    1armadillo, That's what many restaurants provided, a basic policy. Thanks to Obama they cannot do that! They have to give a "cadillac" policy that fits Ocare guideline, that's what they can't afford.

    The govt is the biggest problem in health care.

  • Report this Comment On April 01, 2013, at 8:18 AM, plenow wrote:

    I would have more confidence in the original article if the author knew that Applebee's does not have a CEO and the CEO of DineEquity, the parent company of Applebee's was female.

  • Report this Comment On April 02, 2013, at 9:44 AM, TopAustrianFool wrote:

    @1armadillo,

    "all employers should be required to provide at least minimal health care coverage to all employees regardless of how many hours they work or how many people are employed."

    Then next time you go to a restaurant leave an extra 5% on the bill to pay for your utopia.

  • Report this Comment On April 02, 2013, at 9:49 AM, TopAustrianFool wrote:

    @hardcorerobot,

    "There is this thing called "fairness" and if you think like that perhaps you would"

    Yes and in a free market the only indication that you are being fair to your costumers and employees is profit.

    There is nothing fair in paying an employee more than he produces, because that robs the employee of the information he needs to improve.

    This is why the poor continue to be poor if you send them a check. If they get paid for not working it tells them they need to change nothing.

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