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The Effect of Inflationary Acts in the Hospitality Industry

The Effect of Inflationary Acts in the Hospitality Industry

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hospitality-inflationary-actsBy Steven Cooke
Assistant Professor, Hospitality Management at American Public University

In the ongoing battle regarding the provision of affordable health care for employees, the strike on August 29th opened a new front for owners and managers in the hospitality industry. Not only are they contending with the upcoming decision to pay penalties or provide affordable insurance at the start of the upcoming year, employees are making their voices heard in demands for increased wages and assurances that they can organize or join unions without fear of reprisals. These voices will serve as the origin for the echoes heard throughout 2013 as employers come to terms with healthcare changes mandated by the Affordable Care Act.

Because of the original deadline of January 1st, 2014, employers have already been planning and establishing their policies for employee healthcare.  Some have looked at reducing hours for employees, thus reducing the number of full-time employees they have on staff (though the concept of full-time equivalency will also be in effect, which takes into account the total number of employees and hours worked). Others, like Starbucks, have accepted the change as a responsibility and will either not change their current offering, no matter how the costs change, or will abide by the law. Still others will choose to wait it out as demonstrated with the smoking ban legislation, and pay any penalties they have until it is clear that resistance is not cost-effective. The deadline has been extended to January 1st, 2015 to provide more time for legislators and the IRS to evaluate the details as well as allow business owners to get acclimated to the new environment.  The insurance exchange opens for individuals on October 1, 2013 and business owners must provide informational materials to employees in 2014.

The most significant impact will be the young or small companies that are experiencing growth. The successful family owned restaurant on the corner considering opening a new location may now reconsider if they are shouldered with the responsibility of affordable care. Even if it is unlikely that mandated thresholds will not be crossed, the threat of that will be enough to hinder growth in small business, preventing restaurateurs from  opening another restaurant (even under a different name, the Act defines all units owned by the same controlling authority as one) and limiting the plans for aspiring hoteliers.

A likely resolution already occurred when fuel costs began their seemingly never-ending increase several years ago. As freight and transportation costs increased, so did prices. Surcharges followed fuel, and some menus followed that.  It became slightly more expensive to operate a business as well as to be a patron. Dining out, travel, and vacations all curtailed as the American public readjusted their lifestyles.  For the hospitality industry, this readjustment increased focus on overall value, rather than exclusivity. The average consumer was willing to spend, but they were only willing to spend on that experience that provided them the most “bang for their buck”. An aspect of that value is price, which will be a point of consideration for owners as the mandated provision of affordable healthcare will increase costs and become(as termed by one restaurant executive), “an inflationary act,” subsequently pushing up prices.

Reverting back to the strike at the end of August, the new frontline consists of employees that are showing that they will fight for what they believe is rightfully owed to them. Those companies choosing to pay the penalties or are otherwise seeking to exploit loopholes, will not only have to be concerned about their employees taking action themselves, but also examples set by groups of workers around the nation that will set the tone for worker reaction. Workers do and will want more, and the increasing prices in response to the Affordable Care Act will only serve as additional support for increasing the minimum wage, which will, in turn, increase costs associated with labor and further justify increasing prices.

About the Author:

Steven Cooke is an assistant professor within the School of Business and Hospitality Management program teaching several classes related to operations management, hospitality law, and management theory. Prior to teaching, Steven was worked in operations management for several well-known restaurant brands as well an enlistment in the United States Army.

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