WHY HAS KARL STRAUSS IMPLEMENTED A SURCHARGE?
As of March 1st, 2017, we implemented a surcharge to oﬀset increasing operational 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 that 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 INCREASES IN MINIMUM WAGE AND HEALTH INSURANCE IN CALIFORNIA
In 2015, Congress passed the Affordable Care Act requiring “large employers” to offer adequate and affordable health insurance to their employees and their children. We proudly comply with the ACA to support our team members’ health, but the reality is it increases our operational costs. Likewise, in 2017, the minimum wage continued to increase at an accelerated rate in California, and select municipalities 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 some cities. These are just two examples of the level of cost acceleration in our labor intensive industry that 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 more details: The California Labor Code excludes tips as income, even though we must pay payroll taxes on those tips. Furthermore, in February 2016, a 9th Circuit Court of Appeals ruling prohibited kitchen employees from sharing 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. That landscape recently changed in March 2018 with the Consolidated Appropriations Act, which allows some tip sharing with limitation. 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 that benefits our operations budget, we’ll be able to not only comply with minimum wage and health insurance laws but also raise pay for all our non-tipped 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 so we must do something in order to remain in business.
WHY DON’T YOU JUST PAY YOUR PEOPLE MORE BY MAKING LESS PROFIT?
The rising costs of minimum wage, healthcare, 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, beneﬁts, and other operational costs 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 operational costs 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 operational costs affect the company directly and indirectly through our vendors’ and local suppliers’ increased prices for raw ingredients, supplies, and services. They financially impact our Brewpubs differently because costs fluctuate by region, supply and demand, and local ordinances, and the disparity in some cases makes 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 allocates for these variables and distributes the increased operational costs equitably, 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.