Higher payroll taxes take toll on restaurants

Pete Giokaris sees an upside to higher payroll taxes.

The owner of Flanagan's Restaurant & Pub in Fort Wayne said business is up 11 percent so far this year, and he attributes it partly to people looking for more affordable places to dine.

"We have a very good price point," he told The Journal Gazette. "You can get a meal for $8 to $12. I've been getting feedback from regulars, and they're saying they used to go to other places but have been coming to us because we're affordable."

However, according to a Nation's Restaurant News poll, eateries experienced the worst same-store sales decline in three years in February. Sales fell 1.8 percent. Bad weather is an easy scapegoat, but the effect of the payroll tax can't be overlooked, said Larry Miller, an analyst for Nation's Restaurant, a New York trade publication.

The survey questioned 49 restaurants regarding February sales, profit trends, performance and outlook. Respondents included operators from all regions of the country that represent the quick-service, casual-dining, fine-dining and fast-casual segments.

At the beginning of the year, the fiscal cliff deal failed to prevent a 2-percentage point increase in the payroll tax. This meant $32.75 less per check for an average private-sector worker who makes $820 a week and is paid every other week.

"Weather certainly played its part in the drop in industry sales in February, but it's becoming clearer to us that the payroll tax is affecting sales, too," Miller said in a statement. Even so, he said, business is expected to pick up once spring temperatures return.

John Livengood, president and CEO of the Indiana Restaurant & Lodging Association, hopes that's not wishful thinking. So far, 2013 has been "a roller coaster ride," with the group's members saying sales are up and down.

"People are going to eat out," but when disposable income shrinks, they become selective, he said.

"They're looking for places with that fast-casual concept," Livengood said. "That's why you're seeing so many restaurants improving their menus."

An example is Taco Bell's new Cantina Bell menu, which aims to snag customers from places like Chipotle.

The quality of casual dining is what keeps customers at Friends and Friends Too, owner Niko Hatzigeorgiou said.

"We always try to be competitive with our prices," said Hatzigeorgiou. "We're doing as much as we can. Business has been steady."

Fort Wayne resident Chris Connelly wishes his family's income was the same. The 37-year-old said his family is dealing with less pay. Connelly is a sales and distribution manager for Pepsi. His wife is a medical technician.

"Once the summer gets going and I start getting overtime, I probably won't notice [the payroll tax]," Connelly said. "My wife only works part time, and she's noticed it the most."

So, how will their family of five deal with its dining-out habits?

"We're seeing that you don't always have to get an extra-large pizza and you don't always need a soda," Connelly said. "Little things like that will help in cutting back what we spend."