Minimum Wage Increase, S-2065 (Senate Labor Committee Testimony)
Monday, January 24, 2005

Statement of William Eubanks, III
President & CEO, Eubanks Enterprises, Inc.
On Minimum Wage Increase
Before the Senate Labor Committee

Good morning, Chairman Sweeney and members of the Committee. Eubanks Enterprises is the franchisee of 29 Kentucky Fried Chicken Restaurants in New Jersey, Pennsylvania and Delaware. Our Corporate office is located in Cherry Hill. Twenty one of our restaurants are located in New Jersey – Southern New Jersey.

I started my restaurant career with Pepsico/Yum Brands nineteen years ago, starting as assistant manager in a restaurant. Seven years ago, I joined KFC as Chief Operating Officer in the corporate office before deciding to become a franchisee in April 2001. At that time, though I lived in Maryland, I decided to invest $15 million in New Jersey. Sales were strong, growing at a rate of 9%, so I purchased ten more restaurants in Pennsylvania and Delaware and built a new restaurant in Mays Landing. My original vision was to open fifty restaurants. But, now I’m closing restaurants – not opening them.

My New Jersey restaurants employ 650 people, a vast majority of whom earn between $5.15 per hour for entry level positions to $7.15 per hour. My employees are eligible for two merit increases every year. My typical worker is between the ages of 18 -25 years and living at home. Some are high school students, some are working their way through college. For some, it’s a second job, for others, it’s a way to pick up some extra money. Others are senior citizens who want to earn money – but not enough to jeopardize their social security. For the worker just entering the job market, we teach them responsibility; life skills, including dress and grooming; we train them to use technology; and customer service skills. All of these skills are transferable to future jobs.

It’s important to look the issue of increasing the minimum wage as part of an overall picture that has my company on the ropes since 9/11, which was the start of a downturn. Recovery from that has been slowed by other pressures, some of which are exclusive to my restaurants in New Jersey. I now pay $17,000 more in corporation business taxes as a result of the change made in 2002. My workers’ compensation insurance in New Jersey has increased 30% per year over the last three years. My utility costs are over $1 million in a budget of $24 million. My medical insurance has increased an average of 13% per year. Property and casualty insurance rates have increased by 20%. And, increased fuel rates have resulted in fuel surcharges that I must now pay some of my vendors.

I cannot pass on these increased costs to my customers without reducing my number of customers. All of these increases have resulted in my being forced to close four restaurants in South Jersey that while profitable, were not profitable enough to sustain those increased costs.

Increasing labor costs will put a tremendous strain on a majority of my restaurants, as the profitability of my restaurants is directly tied to labor costs. I will not only have to increase by $2.00 those currently earning $5.15 per hour, and everyone else in between, but also must increase the wages of those currently earning $7.15. I simply cannot pay minimum wage to those employees who have invested a few years’ time with my company to grow their salary to more than $5.15 per hour.

A very cursory estimate shows that increasing the minimum wage to $7.15 per hour will result in an immediate impact of $200,000 on my business – a considerable chunk of my already slim margin. That’s just the immediate impact; there are surely more long term impacts that we’re in the process of assessing, including the 300 seasonal employees that are added to my payroll at my shore restaurants.

I have another very grave concern about the impact of this hit to my business. If I miss my leverage ratio with my senior note holder, I will be out of compliance with my covenant and the bank can rescind my loan. That will put me out of business.

All of these scenarios jeopardize the investments that I am obligated to make in all of my restaurants - some $250,000 per restaurant—over the next three years. I will certainly have to weigh absorbing that cost with the other costs of doing business in New Jersey. I am fearful that my conclusion will be that it just does not make sense to do business here in the state.

When I came to New Jersey I did so with every intention of being a good corporate citizen and doing the right thing. I became a member of this Chamber and am an active member of its Board of Directors. I support the efforts of my operations managers to work with the Division of Vocational Rehabilitation to hire hard to place individuals. Though I was not required to do so, I hired union labor to build my restaurant in Mays Landing. I hire local vendors, and for some, I am their largest client.

If this increase is passed by the Legislature and signed by the Governor, I will close all my low and mid-volume stores – those stores that are on the borderline of making enough profit to keep them open today. Six stores, with 20 – 25 employees each, will be shuttered immediately. This will impact not only the 120 – 150 direct employees, it will also affect the vendors who landscape, provide HVAC services, electricians, and plumbers that service our restaurants. The planned $5 million investment will not happen; I cannot invest in facilities that will not give me a reasonable return on that investment. Simple economics dictate that I will have to close a number of my restaurants.

Let me be clear. The minimum wage is part of a larger picture of doing business in New Jersey – a state where car insurance, workers compensation, utilities, and business taxes are higher than most, if not all, other states. Add in higher property and casualty and health insurance rates, higher commodity costs and fuel surcharges, and you have a failed recipe for my business in this state.

I wish I could tell you that my original vision for locating my business in New Jersey was reality. I wish I could tell you that I have permanently relocated my family to New Jersey. With so much uncertainty surrounding my business here, I have put those plans on hold.

I appreciate the opportunity to tell my story. I would be happy to answer any questions you may have. Thank you for your time.