Bill Phelps, co-founder and chief executive officer of the California-based Wetzel’s Pretzels franchise, was a prominent advocate for the Golden State’s $15 a hour minimum wage for several years, but has recently changed his opinion. He now says that the rate — which has only just reached $11 — is already squeezing his businesses and hurting workers, and he worries things will likely get worse as minimum wage rises to the $15 level.
“We’ve had a 38 percent increase in the minimum wage from 2013 to now. They’re looking at another 35 percent increase in the minimum wage over the next four years. I think the past increases have been good for employees, our employees, California employees. I think the next increases are going to be bad for employees. I think it is pushing it too far, too fast and I think employees will be hurt by those increases,” Phelps said at a little-seen forum held by Claremont-McKenna College in late March.
Phelps was, by his own admission, far more “bullish” on the increase previously. In a 2016 Forbes op-ed titled, “The Minimum Wage Hike is Good for business,” he argued that there had been no downsides for his business at all. “I’ve paid very close attention to our business as California has raised the minimum wage over the past couple of years. And what I found was stunning. When California increased the state minimum wage from $8 to $9 an hour in July 2014, our same-store sales doubled in the next two weeks and stayed that way for six months. When the minimum increased again in January of this year to $10, the same thing happened; our same-store growth rate more than doubled.”
The comments drew wide attention, prompting follow-up stories by CNBC, Fortune magazine, and local California news media. His comments were often cited by minimum wage advocates to debunk arguments that the increases were hurting the economy.
Phelps now concedes that he didn’t realize the crunch that employers would face and now says the franchise is at a tipping point. “It has been really good for our business up until this year … I see a change happening now. I think fast food in general is flat to declining and you’ve got wage increases and the operators are getting squeezed.”
He said that as the wages are being forced up even for the entry level-positions, that is having the effect of pushing up other wages for more experienced employees, squeezing profit margins. That is pushing the fast food industry toward automation.
“I was very bullish on the minimum wage increase. It was working really well for us. It was working okay for the fast food industry but there is no question you are going to have to see a reduction in the number of restaurants that are out there. You are going to see a reduction in service. And you are going to see more people going to technology to reduce labor costs,” Phelps said.
A spokesperson for Wetzel’s Pretzel’s could not be reached for comment.
UPDATE: Phelps told the Washington Examiner he did not regret his earlier remarks endorsing the $15 minimum wage in California, saying he was describing his company’s experiences with it up until 2016.
But he reiterated that recent experience had made him realize that it was hurting the entire fast food industry and the further increases would causes even more stress. The industry cannot pass along the costs of higher labor to consumers because people will not buy food that is more expensive, he warned. That means restaurants will have to cut costs elsewhere, which will hit workers.
“I see it — and everyone else I talk to in the restaurant business sees it — as a huge challenge. It is a total squeeze on the franchisees and I think it is going to result in less jobs, less restaurants and less service. That’s how I see it today,” Phelps said in a phone interview Friday. Further automation of stores was one avenue that is being strongly looked at, he noted.
Phelps added that his own politics are “fairly liberal” and he believes the federal minimum wage, currently $7.25 an hour, is much too low. But he now says that a $15 rate is “not sustainable.” If it were up to him, he would set the minimum wage somewhere above $10.
“I see the next wave of increases as these cities and states go from $11 to $15 as being hugely problematic. And that’s where the issue is,” Phelps said. He said that states such as California would likely see a growing chorus from business to halt the increases. He said he was willing to do some lobbying himself, if necessary. “My concern is that by the time we react it’ll be too late.”
