In an industry that’s never been known for high profit margins, the rising cost of energy and the state’s minimum wage policy for wait staff have proven potentially devastating to local restaurants.
So much so that another mounting expense , workers’ compensation insurance , almost seems like just another addition.
It’s not so small, however. In the unstable workers’ compensation market, premiums have increased sharply in recent years.
The Food & Beverage Association of San Diego County’s current rate for qualifying restaurants is $2.60, or 2.6 percent of payroll. Last year it was 1.99 percent, said Stephen Zolezzi, the group’s executive vice president.
By April 1, a new rate will be negotiated and take effect, and it’s likely to be higher.
Joining an industry association’s workers’ comp plan has been an answer for most restaurant operators because, as a larger group, they can negotiate a better rate.
– Insurance Costs Could Go Higher
Restaurants’ insurance costs could also go up if labor groups get the increases in workers’ comp benefits that they’ve been asking for in the past two years.
Although two proposals have been vetoed since 1999, the time for an increase in benefits seems to be coming, Zolezzi said.
The insurance industry currently reports that for every dollar of income, insurance carriers pay $1.51 in claims.
Historically a turbulent market, the most recent spate of problems began in 1995. That’s when California stopped controlling the rates, said Larry Osbourne, managing broker for Downtown-based Robert F. Driver Insurance Co. At the time, premiums were high, about 5.61 percent, he said.
When the insurance companies were allowed to compete on price, the market softened, Osbourne said. Many of the major carriers bought reinsurance and kept the market soft.
The prices, staying as low as 1.2 to 1.5 percent, cost reinsurers billions, he said. The numbers hit the national workers’ comp market, of which California is about 20 percent, Osbourne said.
Many companies closed down or shut down California operations, and the state insurance commission pushed insurers to raise rates to profitability, effective last year.
“The market has almost hardened overnight,” Osbourne said.
– Diners Share The Expense
According to Zolezzi, increases in restaurants’ operating costs hit the consumer most, through the menu prices.
Craig Beardslee launched Hillcrest restaurant the Hash House six months ago, and hasn’t had to deal with an annual increase in workers’ comp. He figured it into the budget.
However, Beardslee’s already had to raise his prices once because of electricity rates. He didn’t get any complaints about the increase, which was about 25 cents a plate, he said. His prices range from a $7 to $9 breakfast to a $20 to $30 dinner.
City Deli owner Mike Wright hasn’t had to raise prices yet, but said it could happen. It’s a delicate process, Wright said.
“If you raise them too fast or not at the right time, your customers aren’t happy,” he noted.
As far as workers’ comp concerns, Wright has focused on preventing accidents that could lead to workers’ comp claims. He’s bought anti-slip materials for his kitchen and shortened wait shifts so employees are less stressed, he said.
In order to cover costs, restaurants need to increase business and take the risk of additional marketing, Wright said.
Coming from a restaurant family, Wright doesn’t envision backing down from the challenge in the industry anytime soon.
“There’s always something that might come along and put a disaster on you, but you hit all the points of running a good business and you keep going,” he said.