The Brussels sprouts pizza was a bestseller at Toronto east-end restaurant Lil' Baci. But pressed by Ontario's Jan. 1 minimum-wage hike, owner Mark Bacci recently took the item off the menu, saying its costly ingredients, such as mascarpone, ricotta, pancetta and truffle oil, made the margins on the dish too small for what he felt he could charge.
"It was such a good pizza, but it was just killing us," Mr. Bacci said.
As with many Ontario restaurant owners, Mr. Bacci has restructured his menu and switched ingredients to be able to pay his staff the new provincial minimum wage, which jumped to $14 from $11.60 at the beginning of the month. The minimum wage is slated to rise to $15 in January, 2019, which will make it one of the highest minimum wage rates in the country.
Restaurants are particularly affected by the increase. According to Statistics Canada, restaurants in Ontario operate with about a 3.4-per-cent pretax profit margin. "The whole business is nickels and dimes. You have to be smart about it without giving up value," Mr. Bacci said.
In addition to the Brussels sprouts pizza, he removed 15 other high-cost, low-margin items from his menu.
"We're using fewer items, which helps control costs better, and scrutinizing what we bring in," he said. The Leslieville restaurant went from a 40-dish menu to 24 dishes.
Food suppliers have increased prices in light of the new minimum wage, making it more expensive for restaurants to buy ingredients for dishes, too.
Erik Joyal, owner of the Italian restaurant Ascari Enoteca, said that, during the first week of January, multiple suppliers sent him letters informing him of price hikes on their products.
"The impact is felt and the impact has been immediate," Mr. Joyal said. "My mantra for 2018 is 'mining for margins.' We're looking at costs across the board. Not just labour, but supply chains for paper products, our wine program, how we're pricing our alcoholic and non-alcoholic beverages. What we're trying to avoid as best we can is passing on those increases to the consumer."
Some restaurants have raised menu prices to accommodate the new cost, while others are trying to avoid charging more.
The owner of Farmhouse Tavern, a small restaurant in Toronto's west end, projects the new minimum wage will cost the business an extra $25,000 this year.
"You have to find 99 ways to save a dollar so nothing is noticeable," Darcy MacDonell said. "I don't want to raise the price of my burger." Instead, he switched to a less expensive burger bun.
Geoff Wilson, principal at the hospitality consulting firm fsStrategy, said if restaurants are going to increase prices, it's better to do so incrementally.
"If you wait too long, one big fell swoop is too hard for the consumer to handle," he said. "There really is a whole science to running a restaurant now, and when you get hit with an event like this where things are beyond your control, you have to be much more focused on generating revenue."
There are other ways to increase profit too, he says, such as emphasizing higher-margin items on menus, managing inventory and minimizing waste.
Mr. Bacci and his staff spent two weeks standing by the bread bin in Lil' Baci, counting how much of the restaurant's house-baked bread was getting thrown away. "We discovered that people were throwing it out, so we had to eliminate it."
Last year, he opened a new restaurant called Annabelle Pasta Bar in Toronto's west end, specifically with the wage hike in mind. Annabelle serves three pasta dishes a day for $10 each, and it operates out of a space that was formerly a convenience store.
"Because we have less expensive rent, we were able to bring costs down. We looked at the size of our menu and asked 'What are the hits?' And pasta is our thing. We've always made good pizza but it's labour-intensive, and we'd have to get a body in for that."
In a survey of Ontario restaurateurs last year conducted by industry group Restaurants Canada, 81 per cent of owners said they planned to cut staff to accommodate the wage hike.
Ascari owner Mr. Joyal said he thinks the rollout of the $15 minimum wage should have been more gradual.
"I think that the way in which the government has implemented these changes has been abrupt and that hasn't made it easier," he said. "To operate my business now in 2018 is way more difficult than it was in 2017."
The increase to $15 will be a 32-per-cent total increase in just 18 months.
Mr. Bacci said he'll still make the high-cost, low-margin Brussels sprouts pizza at Lil Baci's, but not for the regular menu.
"We'll remove it and run it as a special," he said.
The Canadian Press