CHICAGO — Fabulous Freddie's Italian Eatery prides itself on selling hearty Chicago classics, like house-made sausage and Italian beef, at affordable prices. But co-owner Stephanie Fitzpatrick worries about remaining affordable as the Bridgeport restaurant raises menu prices to cover the city's rising minimum wage, which last week climbed a buck to $13 an hour.
"We're struggling to keep a good price and keep the same quality we've always had," said Fitzpatrick, the middle of three sisters who run the 29-year-old restaurant with their parents.
Restaurants known for their cheap eats have been raising prices as they grapple with a marked rise in labor costs, causing some proprietors to worry that price-sensitive customers will opt to swing by the grocery store instead.
At Freddie's, the all-beef hot dog that five years ago cost $2.95 is now $4.75, and the restaurant scrapped its $1 specials three years ago because the math became "impossible," Fitzpatrick said.
She has been pushing to raise the price of a slice of pizza, now $3.25, which has caused some family turmoil.
"I have been fighting with my sister all week," said Fitzpatrick, whose restaurant and catering operation employs 47 people.
At the sandwich shop Big and Little's, co-owner Tony D'Alessandro said a regular hamburger he priced at $5 when the restaurant opened a decade ago is now $6.99, and a pork po'boy that used to be $6.99 is now $9.99. D'Alessandro said he has removed more than two dozen items from the menu, including popular dishes like the salmon poke taco, to cut back on expensive ingredients as well as prep time so that he can staff fewer people per shift.
"The food costs have gone up a little bit, but it's the labor (that's prompting the changes)," said D'Alessandro, who employs more than 40 people at his five locations. "Every time we're doing payroll it's like -- Wow -- it hits us."
The July 1 jump in Chicago's minimum wage to $13 an hour, from $12, was the final step in a gradual increase that began in 2015, when the city's wage floor was $8.25. Starting next year the wage rises annually with the consumer price index, though an ordinance introduced last month seeks to raise the city's minimum wage to $15 by 2021, plus eliminate the subminimum wage for tipped workers and exceptions for groups like teens and workers in transitional programs. Meanwhile, Illinois' minimum wage is set to gradually rise to $15 by 2025, from $8.50 currently, part of a wave of minimum wage increases sweeping cities and states across the U.S. amid heightened awareness of income inequality.
In Cook County, a single person working full time must earn $13.54 an hour to pay for basic needs, according to a living wage calculator developed by a professor at the Massachusetts Institute of Technology.
Some research has found that raising the minimum wage has a modest impact on consumer prices. A University of California at Berkeley, study published last year examined online menu prices at nearly 900 restaurants in San Jose, Calif., before and after the city raised its minimum wage from $8 to $10 in 2013 and found an average price increase of just 1.45%.
But other studies find steeper price effects as the wage climbs higher. And as the price gap widens between eating out and eating in, some consumers may be more inclined to cook at home than pay $8 for a burrito they used to get for $6.
The price of food at U.S. fast-food and fast-casual restaurants, which tend to employ a large share of minimum wage workers, rose 3.2% over the year that ended in May, far greater than the 1.2% increase in the price of food eaten at home, according to the Bureau of Labor Statistics. Full-service restaurants saw a 2.8% price increase during that time.
The fast food giants are still offering cheap meals, including McDonald's reintroduction of its $5 deal for two items and Burger King's newly announced addition of $1 crispy tacos to its menu. But overall patterns suggest people are spending more at the register in Chicago at the same time that the minimum wage is going up. The average transaction size at McDonalds restaurants in Chicago increased 6.2 percent in the last quarter compared to a year before, outpacing the average increase at McDonald's restaurants nationally, according to market research firm Technomic.
Lower-income households feel the pinch of higher food prices the most because they spend a greater proportion of their income on food than their wealthier peers, said Craig Gunderson, professor of agricultural and consumer economics at the University of Illinois at Urbana-Champaign. And as restaurants struggling to make payroll cut their staff or employee hours, some low-income workers might find themselves facing those higher prices without a bump in their own paychecks, he said.
"In areas with higher food prices, you have more food insecurity," said Gunderson, who has been researching food insecurity for 20 years. He believes expanding the earned income tax credit and the Supplemental Nutrition Assistance Program, a government aid program formerly known as food stamps, is a better way to help the poor than raising the minimum wage, whose benefits "leak" to middle-class teens in summer jobs and others who often earn minimum wage.
Economists have long debated the impact of raising the minimum wage, and a report out Monday from the Congressional Budget Office exemplifies the complexity of predicting how much it helps or hurts. The nonpartisan government agency, in evaluating a bill from House Democrats to gradually raise the federal minimum wage to $15 an hour by 2025, from $7.25 now, estimated such a hike would increase the pay of at least 17 million people, but also could put 1.3 million Americans out of work. The report did not include the potential impact on prices.
At Freddie's in Bridgeport, co-owner Fitzgerald said the family has worked to avoid raising prices and has tried a number of other ways of offsetting higher labor costs. The restaurant recently signed on with a third-party delivery service in hopes of increasing revenue, and to cut costs it has nixed overtime and instructed managers to cut workers' shifts short when business is slower than expected. One year, instead of raising prices it passed along the credit card fee to customers, but people complained, Fitzgerald said.
"We get a lot of backlash from customers no matter what we do," she said.
The pressure comes not only from having to pay employees more, but also from vendors who raise prices as they confront their own higher labor costs, Fitzgerald said. Combined with taxes and city fees, the rising minimum wage has squeezed the restaurant's margins so thin that sometimes it doesn't seem worth it, she said.
"We've had a few family discussions of if we stay in Chicago are we going to make it," she said. "It's disheartening."
Not all menu price increases stem from the rising minimum wage, and not all mom-and-pop shops are struggling.
Sandwich shop J.P. Graziano in the West Loop tries to raise prices conservatively once a year to keep up with pork and milk prices as well as rising insurance premiums and other costs. The shop never raises prices more than 75 cents on a given item to avoid giving regulars sticker shock, said owner Jim Graziano.
Graziano said he hasn't felt the pain of the minimum wage increase because his nine employees earn at least $15 an hour, and the workers who have been around a while earn $18 or $19, a wage he is happy to pay to good workers so they don't have to worry about finding a second job.
"You're nothing without your employees," he said. "When you take care of them, they take care of you."
But Graziano can afford the higher wage because of two distinct advantages the 82-year-old business has over its competitors: longtime relationships with wholesalers that allow him to save money when buying product, and ownership of his building in arguably the hottest neighborhood in Chicago, with a steady stream of new residents and office workers forming lines at his counter.
"I would not be selling a $10 sandwich if I was renting," said Graziano, whose great-grandfather founded the business in 1937 as a grocery store after immigrating from Sicily.
Many restaurateurs don't have those advantages.
Big and Little's, which started as a shack in River North 10 years ago, has enjoyed enough success to expand to five locations, including an outpost at Midway Airport and a new spot in Logan Square with a bustling patio. The Logan Square location is the first to serve alcohol, which helps with profit margins, and will likely serve as a model if the business continues to expand, its owners say. But that expansion is a big "if."
"It's so extremely stressful that it comes to a point where if you're profiting, but not profiting well, is it worth closing the business down?" said D'Alessandro, who founded the business with his best friend since elementary school, Gary Strauss.
Scheduling fewer people to work a shift is "the only way to get through" the higher labor costs without raising prices so much that it alienates customers, D'Alessandro said, but that has its own consequences as workers get stretched, lines grow long and customers grow impatient. Many diners who don't want to wait go home and order delivery instead -- which costs the restaurant high third-party delivery fees.
"We're just getting beat up," Strauss said.
At Calumet Fisheries, a seafood takeout shack on the South Side renowned for its on-site smokehouse, management has been brainstorming ways to offset its swelling payroll, such as by getting rid of a second telephone line or closing early, manager Carlos Rosas said. He also is being more cautious about how many people he staffs on a shift, which is tricky given the unpredictability of Chicago's weather because it's hard to know how busy it will get, he said.
About half of the restaurant's 15 employees earn minimum wage, most of them high school and college students who "love" the increase but have been told, "the higher your wages go, the less we may be requiring of you," he said.
The seafood restaurant also has raised prices, which it was loath to do, Rosas said. A half pound of shrimp that last year cost $9.35 is now $9.45.
Rosas hopes his customers are loyal enough to understand.
"They complain," he said, "but eventually we see them back again."