Legendary Austin Burger Joint Takes on Minimum Wage

Post by
Scott Francis

Austin has been home to some fantastic restaurant innovators and entrepreneurs over the last 20 years. Local Austin favorite P Terry's Burger Stand is in the news because they have just raised their minimum wage for staff to $15 an hour. P Terry's is a local favorite because they do just a few things, and they do them really really well, with high quality ingredients.

They also compete in what is probably one of the most cut-throat price-competitive businesses: fast food burgers. And they're not a large business by industry standards - with most of their locations in Austin, they are far from a juggernaut like McDonalds or Five Guys. But they're also proving that it is possible for a great business to pay higher wages with minimal impact on prices. As a process guy, and a business owner and operator, I wanted to highlight a few features of how they approached this decision that I think reflect a company with a very strong foundation in process and operations discipline: 

  1. They calculated how much they would need to raise prices, and tested a price increase in the fall of 2020 to measure the impact on revenue, ticket size, and customer visits. A price increase of merely 2%, folks.
  2. They understood that they would gain efficiencies from staff improvement: better retention, fewer new-hire training costs, and receiving more and maybe better candidates in the door when it comes time to hire.
  3. They also understand that their team is the face of the business - not the neon sign, nor the awesome architecture - but the person who takes your order, the person who cooks each part of it, and the person who hands that meal to you with a smile and a bit of friendly banter, and maybe even a free dog biscuit for your dog.

In my experience, businesses that really understand operations also really understand the value of the personnel in their organization, and look for ways to optimize their *overall* spend by increasing wages for key roles, rather than by cutting salaries or staff by fiat. The quote from the CEO says it all: 

"The result of that should be improved execution," Coerver said.

Later in the interview he goes on to say: 

"We're just at a point where it's long overdue to give our folks a reasonable living wage," Coerver said. "That's what motivated us. We're in one of the most expensive markets in the United States, and it's only getting more expensive."

This story reminds me of a time when I saw a really compelling presentation from the CEO of a healthcare provider, running urgent care clinics and the like. Just by listening to the presentation, I could see the key drivers of the business, and the key constraints. One of the interesting bits that came out of it was that the best-performing units were correlated with not the doctors, not the nurses, but with the effectiveness of the front desk staff (usually only one person per shift). The CEO also shared the average wages of each position - and that front desk staff person was, perhaps unsurprisingly, the lowest paid employee type on average.

I had a chance to catch up with this CEO afterwards and I had to ask him - if turnover in that position is high (it was), and if they are the highest correlation to performance of the unit (they were), then why not increase their salary's or hourly rate to a level that brought turnover down - at least for their best front desk staff? It was something that they hadn't considered in their models. They hadn't thought about whether that change would effectively be free (by paying for itself) or whether they would have to change what they charge.

Process isn't just about automation - it is also about understanding the value of your people to your business. And understanding how to maximize that value (in many cases that does involve automating parts of the job that don't add value, or detract from team satisfaction). I have to take my hat off to P Terry's for leading by example, and I look forward to dropping by to get a burger this week! 

For those who have a P Terry's nearby, my take on the order to make: Double with cheese with everything on it, fries, and a caramel shake. Although, to be fair, I try not to get both fries and a shake in the same meal since I can't eat like a college student anymore! 

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