Local businesses adapt to Portland's new $11.25 minimum wage, raising prices or squeezing hours.

PAMPLIN MEDIA GROUP: JOSEPH GALLIVAN   - Susan Thomas,  co-owns Cascadia Coffee in Northwest Portland and the classic Coffee Time on Northwest 21st Avenue. She employs just baristas and managers. Cold brew coffee is one way of making more revenue. She and her husband, a coffee roaster, brew and bottle it themselves.

Private business is catching up with state government.

With the news last week that Walmart plans to increase the starting wage rate for all hourly associates in the U.S. to $11 on Feb. 17, there is a palpable sense of an upward change in wages where it really counts. Walmart will also expand maternity and parental leave benefits and provide a one-time bonus for staff, topping out at $1,000 for those who have been there 20 years. The wage hike could affect 3,805 of the 8,273 Walmart associates in Oregon. (Walmart's new average hourly wage for full-time associates in Oregon will be $14.44.)

It's been six months since the last state-mandated minimum wage hike. The Portland area's minimum wage was $9.25 per hour in 2016, increasing to $9.75 in July 2016, then $11.25 on July 1, 2017. It should peak at $14.75 an hour in 2022.

The Business Tribune talked to some retailers then how they felt about the hike, and last week revisited them to see what's new. (The federal minimum wage has been $7.25 per hour since July 24, 2009.)

Oregon's Employment Department said in 2016 that the raise will heavily affect Portland small businesses and their wage earners. Firms with between five and 49 employees have the highest concentration of jobs paying between $9.26 and $13.49 an hour, at more than 30 percent.

Sarah Shaoul owns Black Wagon, a children's clothing store on North Mississippi Avenue.

"I start them higher than minimum wage," says Shaoul, who employs six people. "It's really tough. I think all my employees should get paid more than they do, but there's the reality out there."

Not just the minimum

"What is most challenging is moving people's wages up who have been here for a while," she told the Business Tribune. "I would have to close my doors if had to bump everyone up by the same proportion (as the minimum wage raise)." She is looking at other possible perks for the people who have worked there a while, including contributing to their cell phone bill and providing Trimet passes.

"You have to look at it holistically, a business like ours that cannot rely on tips like the restaurant trade does. They can change the cost of food products and drinks to boost those wages, but people are very competitive when purchasing goods like ours."

Shaoul feels especially threatened by Amazon, which she says encourages micropreneurs to sell through the Amazon Marketplace and gather their data.

"And once they pass a certain (sales) threshold, Amazon goes directly to their vendors and starts buying from the vendor and undercuts (the micropreneur) on price. It's evil and people have no idea."

She is annoyed that the City of Portland is trying to court Amazon (while also divesting itself of Amazon holdings). "To be honest if it wasn't for Amazon we wouldn't have issues with the minimum wage."

Shaoul's first business, Retread Threads, was located on Southwest Oak Street across from Powell's City of Books. It was very near Reading Frenzy, which was owned by Chloe Eudaly, now a Portland City Commissioner. As rents rose both Shaoul and Eudaly moved to Mississippi Avenue.

Shaoul served on the City of Portland's Small Business Advisory Council from 2009-2014, but she laments that it no longer exists, and feels City hall is not listening to small retailers.

"Until we got Miss Eudaly on the council we didn't have anyone who understood small businesses. But the city is overwhelmed with so many issues, they don't have a clear plan. And Eudaly has been busy, it hasn't been a priority for her. I think she will get to it, but there's really no infrastructure for it. Charlie Hales basically dismantled the Small Business Advisory Council by not providing any support for it. I definitely cut her a lot of slack, it's only been a year."

Black Wagon she has employees who can't afford to live near the store any more, and she can't afford to pay them more.

As for the next rate hike, Shaoul said she is definitely working to keep her staff above minimum wage. "We're known for our customer service so I have to have talented staff, and I have to pay more than minimum." She added, "We have to figure out affordable housing, and the city has to sort out supporting small business."

PAMPLIN MEDIA GROUP: JOSEPH GALLIVAN   - Kooroush Shearan, the owner and chef, and Felicia, a server and bar manager, at Piattino, an Italian restaurant at 1140 N.W. Everett St. Shearan has cut staff to pay for wages increases spurred by the advancing state minimum.

Italian squeezed

Kooroush Shearan, the owner and chef at Piattino, an Italian restaurant at 1140 N.W. Everett St. in the Pearl District, has drastically cut his staff since the rate hike last summer.

Piattino had 10 full- and part-time staff last year that started at $11 an hour.

He now has seven paid staff, two full-time and five part-time. The lowest paid — dishwasher and bus boy — get $14 an hour, because he feels it is unfair they work hard but get so much less than wait staff, who average $30 an hour including tips.

"The main cook used to be on $12, now he's getting $18. The other was on $11, now that's $16. Everybody wants more money."

He says his rent has gone up to $5,600 a month, although he gets a good deal from his landlord Robert Sacks (the husband of tile magnate and Fetch Eyewear founder Anne Sacks).

"He's a reasonable guy and thank God. Unfortunately, we are not able to increase our prices, because people write bad reviews based on prices. They are the ones who voted for the minimum wage, except they don't want to spend more money."

Shearan recounts a recent online complaint from a diner from Washington who felt stung by paying $10 for a glass of wine which he thought he could get by the bottle for $13.

"You can go to Albertsons and buy your own steak. Why do you come to a restaurant?" he asks rhetorically.

"We have to triple our money to hold our head above water."

He did not have to lay anyone off to adapt his staffing. "People in this business, they go. When they left, I didn't get the new one."

The dishwasher now doesn't come in until 4 p.m., and he has one server at lunch. He himself cooks and does dishes during the day, as do the cooks.

PAMPLIN MEDIA GROUP: JOSEPH GALLIVAN   - The Pearl District Caffe Umbria, where wages are trending upward, and so are prices.

Espresso sold here

Caffe Umbria co-owned Pasquale Madeddu was fearful of the mandated wage increase but he has since opened a second Portland café, now on Broadway behind the Oregon Historical Society.

In 2016, his 12 staffers started at $9.25 with most on $10 an hour plus tips, which they share. They were making an average of $15 an hour.

To cope, in June 2017 he raised all coffee drinks and sandwiches by 25 cents.

Madeddu is one of the founders of Torrefazione Italia, which was an espresso pioneer on Northwest 23rd Avenue and was bought out by Starbucks. Speaking by phone from one of his Caffe Umbrias in Seattle, he told the Business Tribune

"I have to pay 50 cents above minimum to attract people," he said.

He switched Caffe Umbria's point of sale software from Oracle's MICROS to CLOVER. His managers can input their expected sales for the week, based on history, and then calculate the labor cost for the week.

"Good labor for a café costs between 15 and 20 percent of sales," he says. "Keeping labor at the correct percentage, it's very important."

PAMPLIN MEDIA GROUP: JOSEPH GALLIVAN   - Samantha Baltierra and Giancarlo Barone at the Pearl District Caffe Umbria, which is co-owned by Pasquale Madeddu. Madeddu has raised drink and sandwich prices by 25 cents twice in the last year.

The other costs are rent, food and beverages. Madeddu says Pearl District rents are around $45 to $50 a square foot (he pays $50), while downtown storefront rents are around $55 to $60.

His landlady gives him a good deal. "And it's a great amenity for the apartment building, to have a coffee shop."

How much more can he raise prices?

"I've raised prices twice now, so next summer (when the next increase happens) it will be hard to do it again. Until a major competitor does it, like Starbucks, I would not do it. If they do it, it brings awareness to the wage increase."

He conceded that paying workers more is a good thing if you can afford it. "With great pay for workers you get more committed people. But the money's got to come from somewhere."

PAMPLIN MEDIA GROUP: JOSEPH GALLIVAN   - Cold brew is where the money is at. Coffee shops such as Cascadia are looking for new revenue streams to cope with upward pressure on wages caused by Oregon's new minimum wage rates.

More coffee pleas

Two years ago there was a growler shop, Howl 'n Growl, on Northwest Front Avenue, where Cascade Coffee now sits. Cascade's owner, Susan Thomas, also co-owns the classic Coffee Time on Northwest 21st Avenue. She employs just baristas and managers.

"For a barista, we're paying more than minimum wage, $11.50. If they are there 3 months they get a 50 cent raise, then 50 cents more at a year, then more depending on experience. But every minimum wage increase is $1,000 a month more. We've gone up $3,000a month since the raises started. Which is painful because we didn't have a $3,000 surplus."

They don't get benefits. "I try to treat people well, like they get consecutive days off."

She says they didn't want to raise process so they take less and loss profits. A 12-ounce coffee costs $2.50, a latte $3.75. "We're probably looking at a 25-cent price raise."

About half the customers pay with cash, so they are more inclined to notice the increase than electronic payors.

"I'm continually looking for a really good product at a better margin."

They make their own sandwiches. The store just started selling beer and cocktails in the evenings. "It's the same feeling of community. Instead of hanging out with laptops people come in and have a cocktail or a beer and get to know each other. It's been a bigger success than I thought."

The big margins in alcoholic drinks do help, but there are still other expenses.

Her husband is a coffee roaster Cascadia Coffee Roasters, and they have a new, lucrative sideline in cold brew. (Coarse ground coffee is brewed overnight in a large bucket of cold water. It lacks bitterness, can be tapped with nitro to look like Guinness, and could be a substitute for sweet energy drinks, says Thomas.)

A 12 ounce can of Stumptown nitro cold brew coffee currently sells for $5.79 in Safeway.

Cascadia brew and bottle their own and have just signed a deal with the kingpin of local distributors, Maletis Beverage.

"It's not keeping me awake at night," she says of Minimum wage. "I started out as a barista. So it's painful, but how can you live in the city on minimum wage? We have a great team so there's not very much turnover. People want to be baristas. People take pride in it here, it's a higher level in Portland."

Paul Mansfield, the store manager at Portland IKEAs says IKEA wages start at $12.50 an hour. He wrote in an email to the Business Tribune:

"At IKEA, we believe our co-workers deserve wages and benefits that allow them to meet the needs of their lives. Over the past few months we have hired an additional 70 co-workers at our store in Portland and I am proud to say we now have 380 co-workers here in Portland helping to serve our Oregon customers."

Mansfield added,

"I hope that as we see the state's minimum wage increase, Oregonians can earn the wages that better help them meet the needs of their families. This I believe can only have a positive effect on us all."

An economist writes

One way to measure the impact of wage hikes on the economy is by looking at employment.

Nick Beleiciks, State Employment Economist at the Oregon Employment Department says

"Minimum wage researchers also try to look at the effect on hours worked, and by extension, total earnings. This information isn't as readily available at a detailed level. But I do track the average weekly hours worked in leisure and hospitality. It hasn't changed much since the recession ended. It averaged 25.3 hours per week in 2017, essentially the same as 25.2 hours per week in 2016.'

"I looked at job growth from July 2016 to July 2017 in the industries of the businesses interviewed for that article. I don't think there is an exact point in time to measure when effects from a minimum wage increase would show up in employment data.

This analysis measures from the point of the 2016 increase to the point of the 2017 increase. Overall private sector employment added 44,900 jobs for a good growth rate of 2.9 percent.

Food services and drinking places employment added 7,900 jobs and grew faster at 5.1 percent.

Overall retail employment trends are a bit skewed over this period because of the addition of retail marijuana jobs to the data, which isn't related to the minimum wage change. Looking just at clothing and clothing accessories stores employment, this group of businesses added 300 jobs for a growth rate of 1.8 percent.

Over the past 12 months through December 2017, Oregon had the second fastest rate of job growth among the states, according to the U.S. Bureau of Labor Statistics.

Years of strong job growth has improved Oregon's unemployment rate so much that it averaged a record low 4.0 percent in 2017. The previous low 4.9 percent was reached in 2016 and 1995, with data going back to 1976.

Looking at jobs paying near the minimum wage the net effect of the minimum wage increase and strong job market was that a lot of jobs shifted from paying less than $10.75 to more than $10.75. "Not too surprising of a result, but it does show up in the data," said Beleiciks.

Joseph Gallivan
Reporter, The Business Tribune
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