Last week, we shone the spotlight on a Detroit-area burger chain that makes a point of paying significantly more than the minimum wage. At Moo Cluck Moo, workers start at $12 per hour. The theory, of course, is that if companies pay somewhat more than they absolutely have to, they get better workers, better performance, and better customer service. Some commenters and emailers pointed out that this experiment in above-market wages was only a few months old, and couldn’t really be counted as a success yet.
That’s true. But what if I told you there was another burger chain that purposely pays above the minimum wage? And that it is thriving? And that since its founding eight years ago, it has expanded to seven restaurants and now employs more than 300 people—at an average wage of $11 an hour each?
Meet P. Terry’s in Austin, Texas.
After reading Eric Schlosser’s Fast Food Nation, Patrick Terry, who had always wanted to own a hamburger stand, and his wife, Kathy, opened a 527-square-foot joint in Austin “with the express premise that we can do this differently.”
Terry wanted to produce anti–fast food. The store would have a small number of cheap menu items (burgers start at $2), but with better ingredients: all-natural beef, homemade veggie burgers, French fries cut in the store, and lemonade made at an off-site commissary. From the outset, there was an intense focus on costs. “We recognize that we are in an industry with incredibly low margins,” Terry said. “We sell a two-dollar hamburger.”
But in addition to having food that was produced on a more human scale than big competitors, Terry decided he would pay better. “If you look at the relationship we have with our customers, it’s solely based on our relationship with our employees,” he said. “Our employees take care of us. They take care of the relationships we have with our vendors, and our customers.”
And so workers at P. Terry start at $8.50 an hour, and are bumped up to $9 an hour once they learn the basics. The average wage is $11 per hour. The company started a $10-per-month bonus program (tied to length of tenure), and in December it will pay out some $60,000 in bonuses. P. Terry’s also makes no-interest loans of up to $500 to employees that can be paid back through paycheck deductions.
For the first several years, P. Terry’s enjoyed steady growth, opening two more outlets in Austin. But in the past 18 months, it has added four more. “We just had a giant growth spurt.”
Now, Terry doesn’t pretend that this is a high-wage nirvana. The staff is mostly young and Hispanic, and about half of his 320-person workforce works part time. The chain doesn’t offer health insurance, in part, said Terry, because many of his workers go to clinics in Austin. And yet, $11 an hour is substantially better than the federal minimum wage, in fact it's 50 percent more.
Like big chains, he moves a lot of cheap product. “Our double-meat with cheese is 20 cents less than a Big Mac,” Terry said. “It has six ounces of meat, and I can tell you where it came from.” The average transaction at a restaurant is $6.50. Each outlet goes through about 1,500 pounds of potatoes a day (which are fried in canola oil) and sells about 1,500 burgers. Here’s the menu. A combo meal with a double cheese, fries, and drink costs $6.10.
Terry can thrive with these low prices because he doesn’t have to deal with many of the costs that McDonald’s and Burger King owners do. Unlike franchisees, he doesn’t pay big fees to the corporate parent. He doesn’t spend money on television and radio advertising. His headquarters are in an office park that’s “pretty much a store room next to our commissary.” Who is he competing against for labor?
But Terry sees local-company-made-good Whole Foods—not Wendy’s—as a role model. He’s hired Michael Hsu, a well-known architect, to design the restaurants. And four times a year, P. Terry’s gives profits from the stores on a particular day to local causes.
Is he sacrificing margin for the sake of paying higher wages? “I don’t think so,” Terry said. “We’re profitable. We’re in the business to make money. This is our business model.” And because he’s willing to pay a little more, Terry is able to fish in a different part of the talent pool. “Most of my employees aren’t ever going to want to work for a national fast food chain,” he said. “I think I’m probably competing against other mid-level restaurants” like Applebee’s and Chili’s.
One of the benefits of offering better wages than some of his competitors is that the workforce tends to turn over more slowly. “And that means I don’t have to train people and start over,” Terry said. “I have three people who have been with me for eight years.”
One of them is Matt Tijerina, 26, who was born and raised in Austin. Tijerina, who had never had a job, started in mid-August 2005 as a “fry guy.” Tijerina’s hourly pay rose continually, and in 2009 he was promoted to a manager. He now runs the 35-employee North Mopac location, which opened in late June, and is the chain’s leading store. His salary is “a base in the mid-30s, and a quarterly bonus,” Tijerina said. Every day, four or five people apply for positions, in part because of the decent pay. “And we give most everybody a shot,” said Tijerina. There are people who lack the work ethic to stick. But, Tijernia said, “with us paying at a higher rate, people come into work with a smile. They’re willing to actually be here.”