The CEO behind IHOP and Applebee's reveals why higher minimum wages are actually a good thing for restaurant chains while the industry panics
- Workers' rising wages are good news for Applebee's and IHOP, according to Steve Joyce, the CEO of parent company Dine Brands.
- While Joyce acknowledged concerns regarding thinner profit margins due to high labor costs, he said lower unemployment and higher pay ultimately help restaurant chains.
- "If they're making more money, they've got more disposable [income] to come in," Joyce told Business Insider.
As unemployment drops and workers' wages rise, not every restaurant industry executive is panicking.
While margins are a growing concern as labor costs rise, Dine Brands CEO Steve Joyce says that higher pay among lower-income workers is ultimately good news for IHOP and Applebee's.
"When we talk to the franchisees I go, 'Remember they're also our customers,'" Joyce told Business Insider.
"So, if they're making more money, they've got more disposable [income] to come in," Joyce continued. "Or, if they weren't working and now they're working, or they went from part-time to full-time, they're going to drive business as well."
In 2019, 21 states and Washington, DC, raised their minimum wages. Pressure to raise the federal minimum wage to $15 per hour — which would more than double it — is mounting. Even without legislation, companies are paying workers more as they scramble to hire and retain talent in a period of low unemployment.
Executives at restaurants including Chipotle, Denny's, and Macaroni Grill have all mentioned labor costs or related issues as a top concern in the restaurant industry in 2019.
"There's no end in sight with the minimum wage," Nishant Machado, Macaroni Grill's CEO, told Business Insider. "It's going to get to a point where there's going to have to be some change, either in the labor models or in the pricing strategy."
Joyce argues that lower-income customers getting paid more is something to celebrate. Joyce previously told Business Insider that typical IHOP and Applebee's customers have a household income of between $70,000 and $75,000. These people, Joyce says, are looking for both a deal and an enjoyable experience when they spend their money to eat out.
"My sense would be that not only are people getting jobs, they're out spending ... Which is partly why we're pretty optimistic about this year," Joyce said.
Joyce acknowledged some concerns that the boost in consumer confidence might not last, as many experts warn of an upcoming economic downturn. However, he said that when people stop eating out, Applebee's and IHOP are "in the space that people leave last."
"When restaurants are empty it's going to start at Del Frisco's," he said. "It's not going to start at Applebee's."
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