Corp raises prices in response to D.C. minimum wage hike
The Corp conducted a 3 percent average across-the-board price hike in response to the increase in D.C.’s minimum wage rise to $9.50 from $8.25 on July 1. Customers will see price increases across the Corp’s services, which include its coffee stores, Vital Vittles, and Hoya Snaxa.
In an interview with Vox, Corp Chief Executive Officer Sam Rodman (MSB ’15) explained that the wage increase has raised wages 40 percent from the Corp’s previous hourly wages of $8.25, which apply to all employees, from the baristas to the CEO himself.
“We would have to generate an additional $70 in gross profit per hour just to make up for the increase in wages,” Rodman wrote in a July 9 post on Behind the Counter, the Corp’s blog. The Corp will also have to account for rises in vendor costs, which the Corp has already seen go up by 7 to 8 percent in its coffee suppliers.
According to Rodman, price hikes for goods varied depending on sale margins, customer preferences, and other considerations. For instance, a medium coffee may go up by 10 cents and a box of strawberries by 25 cents, according to the post. In an interview with Vox, Rodman said the Corp does not plan on releasing a full chart of price raises, citing information overload, but said the 3 percent figure was a generally good estimate.
Rodman said the Corp reviewed expenditures and cut unnecessary costs, including unused landline phones and some administrative costs and maximized shift times. For instance, the Corp cut summer shifts by about $450 per week. It did not consider cutting employees since shift numbers were a more pertinent cost.
The D.C. minimum wage legislation, passed in December, will raise the wage incrementally to $10.50 by July 2015 and $11.50 by July 2016. Beyond 2016, the wage will be indexed to the Consumer Price Index and automatically rise with inflation in CPI without requiring any annual re-evaluation. According to Corp Chief Financial Officer Gene Ball (MSB ’16), the Corp’s across-the-board hike accounts for wage raises through 2016, although the Corp may adjust prices depending on changes in vendor costs.
“One change now would be better than incremental changes over the next three years from the customer’s perspective so that they know what we’re offering them now is going to be the same for the next two years,” Ball said.
Ball added Corp prices are still lower than competitors’. “[For instance], our bagel and cream cheese combo now is up to $1.75. If you go to Einstein’s, it’s still around $2.55,” he said.