WHY HAS KARL STRAUSS IMPLEMENTED A 3% SURCHARGE?
As of March 1st, 2017, we are implementing a 3% surcharge to offset increasing costs triggered by new federal, state and local laws. We appreciate your interest in our thoughts and how we arrived at this difficult decision. It is our hope that you’ll understand our motives are sincere and our course of action is necessary for a sustainable and fair working environment for all of our team members. We appreciate your trust and support as we continue with our commitment to providing you great beer, delicious food, exceptional service and genuine hospitality.
Facts regarding minimum wage increases In California
In 2017, the minimum wage continues to increase at an accelerated rate in California, and select municipalities in which we do business are taking an even more aggressive approach in both the rate and timing of these increases. For instance, the minimum wage in San Diego is now 28% higher than it was in 2015. In coming years, minimum wage will continue to rise above current levels, and by 2020 the state defined minimum wage will be 44% above what it was in 2015, and even higher in select municipalities. This level of cost acceleration in our labor intensive industry requires us to do something in order to remain in business.
Facts regarding California Labor Laws and Appellate court rulings
For those of you interested in the details: The California Labor Code excludes tips as income, even though we must pay payroll taxes on those tips. Furthermore, a court ruling in the 9th Circuit Court of Appeals prohibits kitchen employees to share in those tips. This led to a large and growing income gap between tipped and non-tipped employees, as much as a 300% difference in effective hourly wages. Since tipped employees are the only minimum wage employees our Brewpubs have on staff, they have been the primary beneficiaries of the minimum wage increases. With a surcharge, we’ll be able to not only comply with minimum wage laws but also raise pay for our heart of house (kitchen) staff, who we believe deserve the additional pay for the services they perform.
By the way, it’s not just the minimum wage that is going up. In the last several years, in addition to minimum wage rising, the government has implemented mandatory health benefits and mandatory minimum sick leave benefits for employees. We are happy that our team members can take advantage of these benefits; however, we do not make enough money to pay for all of these increased labor costs in such a labor intensive business as ours.
Why don’t you just pay your people more by making less profit?
The rising costs of minimum wage and other labor-related costs have put us between a rock and a hard place. We operate our business with small profit margins and the unusual spike in wages and benefits threatens our Brewpub operations. In fact, they are threatening the entire restaurant industry in California. Restaurants tend to only average 4-7 cents profit on the dollar after all expenses are paid – and that was before minimum wage started to climb.
Why didn’t you just raise the price of your menu items?
We believe transparency is the right thing to do. These increased labor costs affect the company directly and indirectly through our vendors’ and local suppliers’ increased prices for raw ingredients, supplies, and services. Such costs differ by region and item, resulting in disparity and, in some cases, making favorite menu items cost prohibitive. Raising our menu prices under such conditions is not an accurate reflection of our core value to build authentic relationships based on trust and integrity. We want all of our customers to know the value and quality in the food we serve. We believe this surcharge of 3% distributes the increased costs across all menu items and all customers, allowing us to continue providing you with the highest quality beer, food, and service while helping us responsibly take care of our team members.
What will other companies do about these rising costs?
Our industry will see a lot of changes in the next few years. There’s no perfect way to deal with these cost increase pressures. Some will choose to cut servers, cut portions and quality, or put ordering tablets on the tables. Others will reduce their level of service by having you wait in line and order from a counter. Karl Strauss has no desire to diminish our quality, change our service model or reduce our interactions with our guests. For an independent party’s point of view on this topic check out this recent article published by San Diego Magazine
Our purpose is to make people happy one Karl Strauss beer at a time. Your continued patronage and support allow us to do so. We sincerely thank you for your understanding.
Should you not be satisfied with this explanation and care to reach out to us directly, please send an email to Karl@karlstrauss.com.