Why Denny’s is in damage-control mode

Updated
Why Denny's is in damage-control mode
Why Denny's is in damage-control mode
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In the wake of President Obama’s re-election, a few restaurant chains raised eyebrows by making threats related to the Affordable Care Act. An Applebees franchise owner, for example, vowed to stop building and hiring because of the health-care law.

But it was a Denny’s franchise owner, John Metz, who caused the biggest stir, publicly declaring his intention to impose a 5 percent surcharge on customers at his 30 Denny’s outlets to offset “Obamacare” costs. “Customers have two choices: They can either pay it and tip 15 or 20 percent, or if they really feel so inclined, they can reduce the amount of tip they give to the server,” Metz said.

The backlash didn’t take long. Denny’s diners, including many that aren’t owned by Metz, immediately saw a drop in sales, and were inundated with phone calls from angry customers. With other franchise owners panicking due to boycott threats, the corporate office is in damage-control mode.

Denny’s chief executive John Miller privately reached out to Metz to express his “disappointment” with the Florida franchisee’s controversial statements about Obamacare, which sparked a wave of backlash for the national restaurant chain over the past few days. Metz released a statement Monday night expressing “regret” over his statements.

“We recognize his right to speak on issues, but registered our disappointment that his comments have been interpreted as the company’s position,” Miller said in an email to The Huffington Post.

“Unfortunately, the comments of this franchisee, who represents less than 1 percent of our system and who owns restaurants in other concepts, has been portrayed as reflective of the entire Denny’s brand,” Miller added. “I am confident his perspective is not shared by the company or hundreds of franchisees/small business owners who make up the majority of the Denny’s community.”

For his part, Metz is in full retreat, issuing a statement denouncing the surcharge he defended last week.

But stepping back, there’s a larger question to consider: why are guys like Metz griping so much about the health care law?

Small businesses with fewer than 25 employees will make out like bandits under the Affordable Care Act, with very generous subsidies to extend coverage to their employees. What’s more, larger businesses that already provide insurance have nothing to worry about.

But if you’re a Denny’s franchise owner who doesn’t offer health care benefits, and you have low-wage employees who are about to get coverage under the law, you’re probably going to have to start chipping in or face a tax penalty.

Matthew Yglesias had a good piece on this yesterday, making the case that the law’s requirements have merit.

John Schnatter, CEO of Papa John’s and a major Mitt Romney donor and fundraiser, gave us a hint in an August call with shareholders when he complained that it would raise costs about 11 to 14 cents per pizza. That’s peanuts. Between variations in sales taxes, fluctuations in ingredient costs, and place-to-place differences in rents, any food chain is used to dealing with price swings on this magnitude. At worst, an increase in labor costs along these lines is going to mean that cash wages in the service sector grow at a modestly slower rate for the next year or two.

That said, there is good reason to be generally skeptical of the idea that legislative fiat can increase workers’ compensation. Compensation is ultimately going to be driven by productivity, not the whims of Congress. But if there was ever a good time to give it a shot, it’s probably now. The labor compensation share of overall economic output has historically fluctuated in a narrow range, but it fell steadily in the post-dot-com era before completely collapsing during the Great Recession. The existence of a glut of unemployed workers during the past few years of recovery has prevented the fruits of economic growth from being shared with most workers. Consequently, after-tax corporate profits as a share of GDP have soared to a record level.

In other words, if there was ever a time when firms were prepared to eat higher costs because of reduced profits that time is today.

Ezra Klein added that guys like Metz really shouldn’t complain too much – under previous reform plans, presented by Democrats and Republicans, employers’ burdens were much more onerous. Instead, under “Obamacare,” some business will face slightly higher costs.

Affordable Care Act and Obamacare

Why Denny's is in damage-control mode

Updated