The Silicon Valley Voice

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Minimum Wage: The Increase’s Effect on Small Businesses in Santa Clara and Their Employees

Just last week, every minimum wage worker in Santa Clara received a $2 per hour raise when the City’s Minimum Wage Ordinance, signed in August 2017, went into full effect. Although business owners had ample time to prepare, not all were able to find solutions that didn’t impose a product price hike onto their customers.

 

Santa Clara’s Wage War
Business owners are divided on how they feel about the increase in Santa Clara’s minimum wage, and not all of it is simply due to a rate hike.

 

The Good
Two years ago, Santa Clara’s Voyager Craft Coffee opened on Stevens Creek Boulevard. With a focus on beans roasted in small batches and fully customizable drinks, Voyager has become popular with Santa Clarans and the owners, Sam Shah and Lauren Burns, have, thus far, found success. Seeing their labor costs increase by nearly 40 percent over the course of the past two years was jarring, but Shah believes good management and a commitment to community have allowed Voyager to absorb the impact without hurting the business.

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“From an operational basis, [minimum wage] has little to no impact on us,” said Shah. “It does not dictate how we hire, staff hours or serve our customers. Fundamentally, we exist to serve this community as best as possible, and this is our primary and overriding responsibility. Profit is almost an afterthought here, but this has obvious impact on profitability. Along with the cost of goods, labor is the most expensive part of our business. So, when the price you pay for it increases around 40 percent in under two years — from $11.10 in 2017, $13 in 2018 and $15 in 2019 — well, the math on our financial statements is blindingly transparent. But, if you’re a strong business and you have good management, you can figure out how to somewhat soften the blow from the wage hike.”

At Voyager, there was no price increase passed along to customers and there was no cut in staffing. It was simply finding more efficient ways to operate the business. Eventually, Shah said, Voyager will likely impose a slight price increase but it will be based on keeping up with the larger cost of doing business in the Bay Area and to help expand the suite of benefits Voyager offers its employees. Shah and Burns also didn’t wait until Jan. 1 to raise their employees’ pay rates, they provided a wage increase to all of their employees to over $15 an hour two months before it was required by law.

 

The Bad
Although Shah said the increase in minimum wage has had zero impact on Voyager’s operations, he can see both sides of the debate.

“There are two perspectives on this,” he said. “As people, we feel great about it. It’s one of the reasons we bumped everyone over $15 two months before we had to, plus provide benefits. Who wouldn’t want more economic equality in the Bay Area? The new wage won’t resolve the issue by any means, but maybe it’s a step closer to ‘better’? As a business owner, I have mixed feelings about this. I already know of two businesses who have shut their doors in advance of Jan. 1 because of the steep financial hit the minimum wage would bring. This law will result in far more small business closures in ensuing months. And, that’s heartbreaking and painful to see.”

One struggling business is Santa Clara’s Portuguese Bakery. On Dec. 20, 2018, Portuguese Bakery Managing Director Gil Couto posted an emotional video to the bakery’s Facebook page in which he detailed some of the issues that have been plaguing the bakery since his family purchased the business 18 years ago. Between errors and oversights in record keeping and aging equipment, it has only been within the past two years the bottom line numbers have been available and Couto has been able to purchase some new, smaller equipment to help streamline the baking process.

Couto said that over the years staffing has decreased from 8-10 employees to only himself and the bakery’s head baker, but the minimum wage increase has made it impossible for him to hire one additional staff member who could attend to customers, return emails, answer the phone and possibly help out with other tasks around the bakery which would free Couto to pursue and maintain the handful of wholesale accounts the bakery has, as well as meeting with people who may be able to help the bakery purchase equipment necessary to help automate the baking process.

“The only way for me to buck the minimum wage and have an employee is through automation,” he said. “I need equipment. It’s the only way. I don’t have anything else. I’ve done everything else that I could – streamline the ordering process and knowing what we need to do, rearrange the bakery, putting racks up, putting a couple of pieces of equipment in. If I didn’t squeeze to get the pieces of equipment in that we have now, I think we would have already closed.”

Couto said the state of the bakery is currently day-by-day and knows the upcoming Easter holiday as well as San Jose’s Portuguese Festival in the summer will provide enough revenue to push forward a few more months. The situation is compounded by the fact he and his baker have small children to look after despite being overworked at the store and the bakery’s oven is on-the-verge of breaking down. Couto, however, is hopeful he’ll somehow find the necessary funding through help from the community in the form of gift card purchases, get the business back on track and have it reach the potential he knows is there. Until then, the bakery remains in limbo and the continual hike in minimum wage is a factor keeping Couto from getting some of the help he needs.

 

Sunnyvale Solutions
It has been a year since the City of Sunnyvale adopted a $15 an hour minimum wage. This year, that rate was increased for inflation, as Santa Clara and other cities will do next year, to $15.65.

Regina Chan, owner of Sunnyvale’s Nom Burger and manager of her family’s The Prolific Oven restaurants, said she lost sleep as Jan. 1, 2018 approached knowing how much the $2 minimum wage hike would impact her business. Not wanting to shuffle the raising wage cost onto her customers, Chan knew the impending increase could prove detrimental to her business.

“Building up to that day I remember feeling so much anxiety, so much stress, so much frustration,” she said. “I didn’t know what to do; $2 is a huge, huge raise … I did a quick calculation and if I gave a $2 bump to all of my employees, it was upwards of $50,000 or $60,000 that I would have to pay and that’s not including payroll taxes.

“I actually ended up writing a letter to my customers explaining the situation and being really frank about it,” she continued. “This minimum wage is great for families and great for people who live here because it is expensive. I pay rent here, but at the same time, what is an acceptable solution for me to provide my customers?”

At The Prolific Oven next door to Chan’s restaurant, she had to cut staff, and at Nom, her employees saw a reduction in hours to help offset the wage increase, but it wasn’t going to be enough. She had to come up with a creative solution to keep her business sustainable in a changing market.

“Next door, at the bakery, we had to revamp everything,” she said. “It’s a different menu and space in there … In December 2017, I had to launch a new brand in that space, Tap’t Beer and Kitchen. I had to really think out-of-the-box next door and think of a revenue stream I could tap into so I wouldn’t be forced to close my doors. In the letter to my customers, I basically said that if I don’t do anything, I’m not going to make it through this year. I’m only three years old. Restaurants don’t make any money in the first few years because you’re still paying off construction and everything else so to eat another $50,000 is not possible. We had to revamp the whole space. I created a brand new menu and we put in beers. I turned the back half of the restaurant into a tap room so it looks like there are two restaurants co-existing in one space. If I hadn’t done that I know we wouldn’t be talking today. I was really lucky in that I found a market that was lacking here. People are responding positively to it.”

 

A Worker’s Perspective
Mari Ayala works at Santa Clara’s My Gym teaching classes to young children. A student studying child development, Ayala said she was happy to obtain a position in her field, even though her wage was only $13.75 when she was hired in May 2018.

Ayala, who also works as a nanny to make ends meet, met with her employer two weeks before Jan. 1 for her annual review. Knowing the company had recently hired another employee at $16 per hour, Ayala expected she would see a raise to a similar amount. However, on Dec. 17, her employer offered her $14.75. Not realizing minimum wage was going up to $15 in a few days, Ayala told her employer she couldn’t work for less than $15 and was granted that “raise,” but the situation surrounding her bump in pay has left her feeling frustrated.

“I feel that to work with kids you should be getting paid more than minimum wage already,” said Ayala. “I’m actually taking care of kids. I’m making an impact on their life and I’m going to school for this. Starting August, I’m qualified to be a preschool teacher and it’s frustrating that I’m getting paid less.”

Still, Ayala said she’s happy she’ll be receiving more per hour because it will allow her stay afloat.

“The fact that I’m getting $1.25 more an hour now will hopefully allow me to have some, if any, money left over after bills and rent,” she said. “I literally haven’t had any extra spending money since I’ve been working there. It will allow me to not stress or worry so much on how and what I spend my money on.”

 

Bottom Line

Now that a $15 minimum wage has been enacted in Santa Clara and its surrounding cities, businesses will have to mitigate the inflating costs of labor, but it’s not all doom and gloom. Price increases are often nominal changes rarely noticed by customers, and often come as part of a larger picture of the costs of goods and services going up exponentially. Many small business owners lead modest lifestyles, take low salaries to keep their businesses afloat, have a firm grasp on the cost to live in the high priced Bay Area and try to be sensitive to the needs of their employees.

“I hope residents here understand that [minimum wage increases are] a good thing for our society in general,” said Shah. “If you believe the idea of a living wage is still relevant today, then don’t knock those businesses who are doing what they have to do in order to survive. Whether it’s increased prices, shorter operating hours [or] limited menu options, be empathetic to your local businesses. Small businesses, in particular, are the hardest hit, and they need your support.”

The issue of minimum wage has been a point of contention between those who support and those who do not, but it’s just one piece of an overall puzzle that includes everything that goes into the cost of doing business. The price of products, property management companies pushing their increase in costs onto tenants and raising rents all add up to Silicon Valley being a difficult market for small businesses. Minimum wage is simply one facet of a larger picture.

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