Within the slim profit margins that come with owning a coffeehouse, even minor cost increases can drive a cafe out of business.
That's why when the minimum wage increased to $8 an hour Jan. 1, Mike Wehby had to take a hard look at his menu. The owner of Coffee Creek in Modesto raised the price of his coffee drinks 15 cents and added lunch items -- moves that he hopes will cover the difference.
Coffee Creek is one of the few independent coffeehouses still operating in Modesto, said Wehby, who has owned the shop on Oakdale Road for five years. Its organic coffee and espresso drinks have drawn a loyal coffee crowd, most of whom Wehby greets by first name.
Other coffeehouses haven't fared so well. Wanderlust, Semplicita and Plantation Coffee were locally owned coffeehouses that shut down in the past year.
"Most have closed down because the margins are so small that you have to have a McDonald's mentality or Starbucks mentality. They do volume and make pennies," Wehby said. "When you have to compete against that, it puts you in a real difficult situation. I do it because I love the coffee, and I love the people."
Wehby's four employees earn at or slightly above California's minimum wage, which increased as part of a two-phase plan enacted by Gov. Schwarzen-egger in 2006. The first pay increase went into effect Jan. 1, 2007, boosting the minimum wage from $6.75 to $7.50. Now at $8 an hour, California is tied with Massachusetts for the state with the highest minimum wage.
The wage hike comes at the same time businesses are struggling with an economic crunch tied to the housing downturn, higher gas prices and credit worries.
"We could say that they picked about the worst time possible to increase the minimum wage," said Edward Erickson, a professor of economics at California State University, Stanislaus.
During a robust economy, employers generally are able to absorb extra costs such as wage increases, Erickson said. But with a weak economy, some businesses will be forced to cut staff or reduce their hours, he said.
"When business is bad, you don't ask the boss for a raise," Erickson said. "Right now, there are lots of people that are happy to have their jobs."
Advocates for the working poor say that the increase is necessary because of California's high cost of living. It will benefit about 1.4 million people who earn the minimum wage.
A recent report by the California Budget Project said that the increase in minimum wage "still falls short of providing sufficient income to lift low-income families out of poverty."
A person working full-time at the minimum wage in 2008 will earn $16,640, or $252 less than the projected 2008 federal poverty line for a family of three, according to the report.
Rafael Palomino, 21, earns minimum wage as a barista at Coffee Creek. He took a $1 to $1.50 per hour pay cut from his previous job working at Starbucks because he wanted to learn more about making coffee and espresso.
The salary isn't a concern to Palomino because he lives with his parents and attends Stanislaus State, he said. But he can earn more tips at Coffee Creek and it comes with the bonus of a coffee education.
Wehby explained the 15-cent price increase to a customer Monday afternoon, after ringing up his order of an iced mocha and a small coffee.
"That's OK," the customer replied, picking up his coffee mug. "Everything everywhere is going up."
Bee staff writer Christina Salerno can be reached at email@example.com or 238-4574.