Restaurants have three main political priorities this year: Swipe fees, immigration and trade. | Photo: Shutterstock.
This can’t be an easy time to lobby Congress. Divisions between the parties seem to make compromise impossible. The U.S. has started bombing Iran, and the president has threatened to veto all legislation until a bill on voting identification, or the SAVE America Act, passes. Oh, and there’s a midterm election coming up.
And yet Michelle Korsmo, the CEO of the National Restaurant Association, and the group’s EVP of public affairs Sean Kennedy, both seemed confident as they sent nearly 500 restaurant operators and state association directors to meetings at the Capitol last week.
That’s not to say that the association expects everything to go its way. The group’s three main legislative priorities this year include credit card swipe fee reform, immigration reform and the United States-Mexico-Canada Agreement, the treaty formerly known as NAFTA.
The association is going up against the well-financed financial services industry when it comes to swipe fees. Immigration hasn’t been reformed in four decades for a reason. And the trade talk runs up right against President Trump’s signature policy strategies, tariffs.
Yet the association believes it has an advantage that crosses party lines that almost no other industry has: People love what they represent. Just about everybody has a favorite restaurant. And when members of Congress meet with operators or other representatives they always ask how the local restaurants are performing.
And so when Korsmo and Kennedy sent those operators out to those meetings, their primary instruction was simple.
“We always start with the fact that nine out of 10 Americans love restaurants, so that’s a win,” Korsmo said in an interview. “Every member of Congress understands how important restaurants are to strong, healthy, happy communities. They understand the great scale of the restaurant industry in terms a small entrepreneur that has created something that means a lot to their neighborhood.”
That is not the only number that the group touts. The association says that 42% of restaurants are losing money, a function of the number of small-scale operators in the industry. The median pre-tax income at restaurants is just 3% of revenues.
Because so many restaurants operate on the edge, it means simple challenges can wipe out their profits and drive them out of business. But these numbers are difficult for members of Congress to ignore, especially given the new and growing costs many restaurants must pay simply to do business.
“We have credit card fees and third-party delivery fees and [increasing] prices from all our vendors,” Mike Axiotis, chairman of the association’s board and CEO of the Red Robin and Wingstop franchisee Lehigh Valley Restaurant Brands. “Rent has gone up. Taxes have gone up. To only make 2.8% profit margin doing the amount of work we do is very, very difficult.”
Swipe fees
The profitability issue is most at play when it comes to swipe fees. That’s also the issue on which the association is most confident. “I feel better about swipe fees every week than I did the week before,” Kennedy said.
Swipe fees have quietly become a major expense for a lot of restaurants, typically competing with rent to be the third-biggest cost for restaurants. As many as nine out of 10 transactions are done with a card, meaning there’s a fee attached.
The interchange fee averages about 2% in the U.S., where such fees are widely considered to be the most expensive in the world. In the European Union, for instance, such fees are capped at 0.2% for debit cards and 0.3% for credit cards. For an industry that generates such low profits on average, such fees stick out.
“In my 13 years, that swipe fee has gone from a nickel to 15 cents,” Steven O’Neil, managing partner at The Manship Wood Fired Kitchen in Jackson, Mississippi, said at the conference. “That’s a 300% increase in just over a decade that I’ve been a manager and an operator.”
To banks, however, such fees are important because they help fund the payment infrastructure and its security. They argue that cards increase frequency and ticket size and make the checkout process faster. The Electronic Payments Coalition (EPC) argues that credit card reward programs would disappear if the fees were capped, for instance. Consumers tend to like such rewards.
Restaurants, nevertheless, believe they have an upper hand on that issue this year for multiple reasons. First: Affordability is a crucial issue heading into a midterm election, and anything that can be seen as addressing that issue has a chance. Second, legislators in Delaware recently advanced bills to curtail such fees.
Third, and most important: President Trump in January backed a U.S. Senate bill to introduce more competition in the credit card processing industry, known as the Credit Card Competition Act. Trump said the bill would end “out-of-control swipe fee rip-offs.”
“I’m not buying champagne,” Kennedy said. “I’m certainly not shilling any. But we are definitely looking at a point where every elected [official] is going to say this is an untenable situation. We probably do need to figure out a solution. They can’t keep sweeping this under the carpet, which is what they’ve been doing for years.”
“I feel better about swipe fees every week than I did the week before.” -Sean Kennedy.
Immigration
Another issue, immigration, is a lot less certain. Reform has been a political hot potato for four decades, undone by political disputes, concerns about border security and more pressing issues. The last time a major immigration bill passed was 1986.
Yet it’s a crucial one for restaurants. More than one out of five restaurant workers was born outside the U.S., a similar percentage to employers like meat packers or agriculture that help make up the industry’s supply chain. That means the issue could theoretically impact both labor availability and the cost of goods.
While the restaurant labor market has improved in recent years, more than one in five restaurants still say they’re understaffed, according to the association.
The group wants to push Congress to pass immigration reform to protect the workforce that is here and provide a path to citizenship for those people who came to the U.S. when they were young and remain productive, law-abiding citizens.
Several people who work with Westover Taco in Arlington, Virginia, are on temporary protected status. “Several of our workers are definitely relying on that,” Sarah White, the restaurant’s owner, said at the conference. “We have three or four people on the same status. What would happen to our restaurant if we lose that every night?”
So why would this year be any different than the last 40?
“My radical theory is that immigration has the highest chance of working under Donald Trump,” Kennedy said. “If he’s going to bring the MAGA base and the traditional Republican base together, only he can drive it. And he’s got two years and nine months to achieve it. I think it can be done, but the stars have to be in alignment.”
One reason Trump could shift that attention? The border is secure. “We have a secure border, so if you look at it from an unemotional perspective, now would be a great time to make these things happen,” Korsmo said.
“It’s one of the bigger misconceptions that nothing happens in midterm election years.” -Kennedy.
Trade and tariffs
Another potential concern is the U.S.-Mexico Canada Agreement, or USMCA, the trade deal formerly known as NAFTA. That agreement is undergoing a joint review set for July 1 of this year.
The politics and chances of that agreement have changed under Trump, who has made tariffs a focal point of his policy. The association wants to preserve food-and-beverage tariff exemptions.
“The president doesn’t want anybody to feel confident about tariffs, because he’s going into a negotiation,” Korsmo said.
The association estimates that the 25% tariff Trump issued last year added $12 billion in total food costs to consumers. The Supreme Court ruled those tariffs illegal, but the president immediately responded by applying a 10% tariff on nearly all countries under a different law that is set to expire after 150 days.
Korsmo noted that the association has succeeded at getting exemptions for food and beverage in the past, and affordability remains a crucial issue. “We need to keep making that message, because the president wants this to be an uncertain situation,” Korsmo said.
Still, Congress is divided. And this is a midterm election season. Why would Congress be willing to do much of anything over the next few months when they have voters to answer to come November?
Then again, why not? Congress wants to tell the voters they did something. That has fueled plenty of big legislation during midterm election years. The Homeland Security Act was passed in 2002, as was the Sarbanes-Oxley Act. The Affordable Care Act was passed in 2010. “It’s one of the bigger misconceptions that nothing happens in midterm election years,” Kennedy said.
