Higher Pay, Higher Profits
Wetzel Pretzel CEO boasts that higher wages have led to higher profits
As 2017 begins 40 states and municipalities raised their minimum wages. This is the largest number of increases at a single time since the Fight for $15 began 4 years ago. Another 21 states and cities will raise their minimum wage later in 2017. In 7 states, the raises will begin the process of getting to the $12-$15 range that many groups and politicians have advocated for as a living wage. With the increases beginning, economists are looking forward to new data on how the minimum wage affects business, but for one fast food CEO he knows that the increase will mean increased profits.
Bill Phelps is the CEO of Wetzel Pretzels, a pretzel company that has 100 franchises in California. Many of the franchises are in malls. His employees are paid at or near the minimum wage. In an interview with KQED, Phelps said that he was initially nervous that his customers would no longer buy his pretzels if he had to raise his prices to accommodate a wage increase. In 2014, California raised the minimum wage and raised it again on January 1. Currently, California is on track to have a $15 minimum wage by 2022.
Phelps says that when the minimum wage increase was set to rise in 2014, he braced for a downturn. However, he was shocked to see that sales across the state increased. The same scenario played out in 2016 when California raised the wage again. Now Phelps, who says that they need their machines running all day to keep up with production, believes that a higher minimum wage is good for business, especially fast food. He attributes the increase in profit to other low wage workers in the malls having expendable income. Now they are not only buying pretzels but are more willing to buy dipping sauces and drinks to go along with their pretzel. These add-ons add up to big profits for fast food companies.
While the results from Wetzel Pretzel are just one case study and may be helped by the proximity that the franchises have to a large number of low wage workers, the results are a powerful counterargument to the politicians and businesses that say that a higher minimum wage is a job killer. As UCOMM Blog previously reported, cities that have raised the wage, like Seattle, have seen their labor markets thrive. Economists are also hoping that the large number of increases will provide them with better data so that they can more definitively look at the economic impact of raising the minimum wage.
While some states and municipalities have acted to raise the minimum wage, the federal government has stalled at $7.25 and has not raised it in 7 years. Currently 21 states either have no minimum wage or a minimum wage of $7.25. This means that without a federal increase these workers are stuck. The new Secretary of Labor, Andy Puzder, should not be expected to push for an increase. Puzder, the CEO of fast food giants Carls Jr. and Hardees, has opposed minimum wage increases in the past saying that an increase causes a loss of jobs. Maybe Wetzel Pretzel is just better at business then Carls Jr. and Hardees.