What Clinton’s “Living Wage” Speech Means for Restaurants

Presidential candidate Hillary Clinton firmly established her support for a “living wage” in a speech this weekend at a Detroit convention for low-wage workers.

“All of you should not have to march in the streets to get a living wage, but thank you for marching in the streets to get that living wage,” she said. “We need you out there leading the fight against those who would rip away Americans’ right to organize, to collective bargaining, to fair pay.”

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Hillary Clinton: ‘We need you out there leading the fight against those who would rip away Americans’ right to organize.”

Her speech appears to be the line in the sand Democrats were waiting for; Clinton stands on one side with the host of Republican hopefuls on the other.

The National Restaurant Association, of course, lines up with Republicans view. The trade group argues that “a dramatic, mandatory wage increases would place yet another financial burden on business owners who are already feeling the pressures of a weak economy and additional costs and regulatory complexity associated with the Affordable Care Act.”

As a consulting group, we shy away from political controversy like this one. But we expected as much from the Democrats, who claim to represent working people. Clinton, as you may know, is being pushed to the left by the party’s progressives, best represented by Sen. Elizabeth Warren.

Still, according to surveys, Americans in general claim they support an increase in the minimum, which hasn’t increased since 2009. Nearly three-fourths of people favored an increase in the federal minimum to $10.10 an hour, Pew Research says. And last month, New York Governor Andrew Cuomo announced he was going to raise wages specifically for fast-food workers this year.

Our point here is that Clinton’s belated hop onto the wage-increase bandwagon, already crowded with local, state and federal politicians clamoring for a hike, should be of concern to your company from a pricing standpoint. And, now that we think about it, from a marketing one, too. Consider the press McDonald’s and Wad-Mart attracted when the companies raised their entry-level wages.

So we encourage you to support or damn a minimum wage hike in whatever way you prefer. But if you want to know what the financial impact of a wage mandate will be on your labor costs (and what, if anything, you can do to mitigate it) please call or email us. We’d be happy to discuss an assessment.

 

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How Wendy’s Modified Its Employee Handbook

Richard Griffin, the National Labor Relations Board’s General Counsel, recently issued a report containing advice to employers regarding employee handbooks. The reason for so doing, he noted, was that his office “continues to receive meritorious charges alleging unlawful handbook rules.” Wendy’s International, by modifying its handbook, played an important role.

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Last year, the NLRB found Wendy’s employee handbook violated worker’s rights. The chain then amended the rules to satisfy the government. 

Employee handbooks, as nearly everyone knows, are in effect a book of rules that spell out what workers can and cannot do on the job. Their main purpose isn’t necessarily to make the employee comfortable at work but to ensure the business’s proper and efficient operation. Yet, pointedly, the handbook should not violate federal workplace rules.

The workplace rules Griffin references in his report concerned Section 7 & 8 (a) (1), “Interfering with employee rights.” Those rights, he claimed, had been interfered with by Wendy’s International.

Here’s what the law says: “It is unlawful for an employer to interfere with, restrain, or coerce employees in the exercise of their rights. For example, employers may not respond to a union organizing drive by threatening, interrogating, or spying on pro-union employees, or by promising benefits if they forget about the union.”

And here’s an example of what the NLRB objected to in Wendy’s handbook:

No employee shall use any recording device including but not limited to, audio, video, or digital for the purpose of recording any [Employer] employee or [Employer] operation.. ..”

We found this rule unlawful because employees would reasonably construe it to preclude, among other things, documentation of unfair labor practices, which is an essential part of the recognized right under Section 7 to utilize the Board’s processes.

The report shows several other Wendy’s handbook rules the NLRB objected to along with with a similar explanation — and, later,Wendy’s modification thereof.  You can download the entire report here. The Wendy’s portion begins on page 20.

 

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Maximizing Restaurant Valuations

“Why are valuations so high?” asked Cohn Reznick Partner and moderator Gary Levy as he launched a panel on maximizing restaurant value during the Restaurant Finance Summit at this week’s NRA Show 2015. Multiples for restaurant companies — old and young — now sometimes surpass high single-digits to soar occasionally into the mid-teens.

Astor Group co-founder Mickey Klein said food-obsessed millennials were helping by driving a paradigm shift: “Food has become a new pastime with people looking for new experiences and hot trends. We are looking at what the internet looked like in late 90s.”

Mickey Klein (with microphone): "Millennials are driving a paradigm shift."

Mickey Klein (with microphone): “Millennials are driving a paradigm shift.” Left to right: John Tibe, Klein, Darren Tristano and Gary Biesler. 

Jefferies Managing Director John Tibe suggested that valuations are climbing because “some concepts from the 80s and 90s have reinvented themselves and comeback with a value equation. That’s a big driver.”

Levy added that he’s seeing “sub $5 million EBITDA” deals attributable to a better economy that boosting restaurant sales. “Investors dive deeper and deeper,” he said. Darren Tristano of Technomic Inc. suggested that valuations are high on concepts capable of turning profits and adding units. Then Levy asked what are investors looking for when they peek under the hood of an emerging concept.

“Unit economics are number one,” declared Tibe. “It’s a store by store thing. We look especially hard at new stores performance and ask: ‘Can we get to a 2:1 sales to investment ratio?’”

If that can be achieved, he added, then it’s likely investors will be rewarded with a 30 to 40 percent cash-on-cash return within three years.  “That’s a level you’ll see across QSR and fast-casual,” he noted.

Klein agreed that numbers are indeed paramount. Yet, he said, “We look for great management behind them.”

 

Posted in bricks-and-mortar restaurants, capital, Conferences, Executives, expansion, financing, Growth company, restaurants, Uncategorized | Tagged , , , | Leave a comment

Indian Food: Meet Choolaah

This gallery contains 5 photos.

Indian food — both northern and southern — isn’t yet well-represented among fast-casual restaurants. It’s not surprising; even the simplest Indian dishes are fairly complicated to make and often require expensive spices. To boot, the food remains unfamiliar (or too … Continue reading

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Las Vegas & Project Pie

We nearly wore out our Nikes walking from the Encore Hotel in Las Vegas to the MGM Grand this week. But we wanted to sample pizza at Project Pie, and it’s always walking weather in Sin City. Thing is, we hadn’t gauged the distance (two miles). Which only meant we were really, really hungry when we arrived.

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Project Pie pizza: Customers can choose a signature pie or design it themselves. This one, baked quickly in a 600-degree oven, arrived with a side of pesto.

Fast-casual pizza is probably the fastest-growing segment in the limited-service category. Already, brands abound: &pizza, Uncle Maddio’s, Pie Five, Pizza Studio, MOD, Blaze– the list goes on. In fact, three new fast-casual brands presented during the Franchise Finance & Development Conference (why we went to Lost Wages in the first place).

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Pizzas are baked, boxed (above) and handed to customers, who pay about $10 for a pie. 

Officials of each chain noted the segment’s enormous popularity, which isn’t surprising. One in 8 Americans consume pizza daily, noted PizzaRev CEO Rodney Eckerman. The Westgate Village, Calif.-based chain, now owned by Buffalo Wild Wings, expects to have 65 company and franchised outlets by year end. Fast-casual pizza, for all the talk, is still a tiny segment.

 

 

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Social: Crafting a Personal Response

Recognizing the importance of immediate and appropriately personal responses, the marketing executive and I successfully fended off a corporate decision to mechanically reply with a link and invitation to register their complaint. While it would have been far more efficient than crafting a personal response, it’s contradictory to the very essence of social, which is personal, spontaneous, relevant dialogue.” — Laura Gosse

Yet crafting the dialogue takes special skills, which RTS Partner Laura Gosse recently explained in a Linkedin article about her efforts at one of our clients. Here’s the link: https://www.linkedin.com/pulse/from-social-media-front-lines-laura-gosse

 

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The Restaurant Scene in Poland

In early March I traveled to three Polish cities: Wroclaw, Poznan and Warsaw. I didn’t spend much time in the first two, unfortunately. I would have liked to, particularly Wroclaw, a historically rich town near the German border. Wroclaw (pronounced “vroats-clahv”) is also where AmRest Holdings is headquartered. The company, publicly traded on the Poland’s exchange (WSE: EAT), franchises and owns more than 800 restaurants in Poland and Central Europe. Most of them are brands familiar to Americans: KFC, Pizza Hut, Starbucks and Burger King. Here’s a unit in central Warsaw.

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The ever-familiar logo in Warsaw. Only here, it’s not buckets going out the door.

Poles are a modern lot in these cities. To be sure, they like fast food, particularly young people, who grew up eating it. Henry McGovern, co-founder and AmRest’s CEO, founded the company in 1993 with a single Pizza Hut. It was a brilliant business move given that Communist rule had ended just four years earlier — and that many Poles like other Central and Eastern Europeans longed for the chance to sample Western-style goods. Today in the large Polish cities, the hammer-and-sickle philosophy is in the distant past. And while the country’s rapid adoption of a capitalistic democracy hasn’t improved everyone’s life, shops and restaurants look busy. McGovern, whom I talked to for about an hour, said his company’s pipeline in Poland and elsewhere in Central Europe has never been better.

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A deep-fried cheese-and-spinach crepe at the Warsaw outpost of Manekin,

On a sunny Sunday afternoon in downtown Warsaw, I spotted a couple dozen young people waiting to get into a smallish restaurant called Manekin Warszawa. Since the Polish capital doesn’t lack for eateries, I wondered what was up. “The food is awesome!” an up-to-date-looking young dude told me, his female companion nodding in agreement. “They serve something like pancakes.”

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Cooks in the open kitchen at Manekin, a  popular creperie in Warsaw.

He meant crepes. Later, after eating there, I figured the joint’s popularity — it’s part of a small chain, by the way — was due more to its hip and attractive clientele than the food itself — though I must say it looked good (see above). And the open kitchen featured an all-female staff, slammed given how  busy this restaurant is.

Many Americans might believe Polish eateries are all about pierogis, sausage and bread. It’s not the case, of course. You can them, to be sure. But in many cases (at least in the cities I visited) they are speciality restaurants, catering to tourists who want to eat the Poland’s signature dishes — and not the everyday restaurants your average Pole visits.

In fact, given that most Polish workers earn on average $1,200 monthly they’re as likely to cook at home or pick up a sandwich or pastry from a tiny street-front shop or coffee bar.

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Sandwiches, widely available in Warsaw, typically feature thin pieces of meat and pickled vegetables encased in thick slices of bread.

English is often put to use in the cause of selling — and often it’s a bit fractured. The packaging above reads “Friends, Taste your time.” Which when you think about it is a bit clever. Still, the words we spotted in the window of Bobby’s Burgers, another downtown Warsaw eatery, gave us pause.

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Really, we’d rather not. 
Posted in bakery, burger chains, casual-dining, Employees, International, quick-service restaurants, restaurants, Uncategorized | Tagged , , , , , , , | Leave a comment

Julia Child and Caesar Cardini’s Salad

Ninety years ago, a 15-year-old Julia Child visits Caesar Cardini’s restaurant in Tijuana, Mexico, with her mom and dad, meets the famous restaurateur and eats his namesake salad.

She recalled the experience in her memoir, From Julia’s Kitchen: “One of my early remembrances of restaurant life was going to Tijuana in 1925 or 1926 with my parents, who were wildly excited that they should finally lunch at Caesar’s restaurant. Tijuana, just south of the Mexican border from San Diego, was flourishing then, in the Prohibition era. Word spread about Tijuana and the good life, and about Caesar Cardini’s restaurant, and about Caesar’s salad.”

Ninety years ago Julia Child dropped into Caesar's

Julia Child’s kitchen is preserved in the Smithsonian’s National Museum of American History in Washington, D.C. It’s the part of the “Resetting the American Table” display.

Little did the teenager or anyone else know the enormous impact she would later have on American chefs.

 

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Is Customizable Good for Business?

Today, customizable food is now preferable to cravable food in the fast-casual segment. This won’t be news to anyone in the industry. Many fast-casual restaurants already give customers the chance to build their own dishes. So doing plays to the idea of individuality and self-expression, which are widely assumed to be important to millennial diners.

But what has rarely been remarked upon is whether customers can create a dish that’s actually palatable from the plethora of (often exotic-sounding) choices they face. This is to say nothing about whether customers believe they’re getting their money’s worth after biting into their creation.

A pepperoni pizza or a falafel sandwich with tomato and lettuce may be a safe bet, the customer thinks, but he can get that combo anywhere; here, he wants something different but can’t figure out which ingredients provide a satisfying combo. Otherwise, he may feel like he’s wasted $10. And not come back.

Choice: Customers build their own falafel sandwiches at Amsterdam Falafel Shop, a six-unit chain in Washington, D.C.

Choice: Customers build their own falafel sandwiches at Amsterdam Falafel Shop, a six-unit chain in Washington, D.C.

Consider Amsterdam Falafel Shop, a six-unit franchise concept based in Washington, D.C. The image above shows a portion of the food bar, which includes hummus and baba gahnoush. Customers first choose their pita: Wheat or White. Once it’s filled with freshly fried falafel, they choose toppings.

But how one might ask: Does chickpea salad go with hummus, which is a ground chickpea paste? Will sliced beets combine well with tomatoes and pickles? Or can customers presume everything goes with everything else? Why else would all this stuff be out there?

Or witness the choices at 10-unit &Pizza, also based in Washington, D.C., which offers three types of dough (traditional, Ancient Grains or gluten-free), nine sauces and three cheeses. And then there’s the nine vegetables choices, ten proteins and 15 “finishes” to go. Which of these many tempting items make a pizza that sings the right notes?

Granted, customers who don’t want to experiment can opt out and order one of eight signature pies. Yet, where’s the self-expression in that?

At &Pizza a worker builds a custom pizza according to a customer's instructions. This one feature sun-dreid tomato spread, jalapeños and

At &Pizza in Bethesda, Md., a worker builds a custom pizza according to a customer’s instructions. This one features sun-dried tomato spread, jalapeños and feta

Don’t get us wrong, like millions of diners we love the idea of choice. After all, it’s almost a restaurant’s patriotic duty to let the customer have his or her way when it comes to food. And what’s on offer is usually fresh, sometimes local and largely healthful. What’s not to like?

But we have to ask, having sampled both concepts (as well as ShopHouse Southeast Asian Kitchen), whether certain combinations will taste good — and whether counter workers are capable of advising customers not to combine certain ingredients with others. Or is it simply a matter of letting the chips (or chickpeas) fall where they may? And maybe losing business.

 

Posted in Customers, customizable, Employees, fast food, Fast-casual, millennials, Operations, restaurants, service, signature dish, Trends, Uncategorized | Tagged , , , , , | Leave a comment

SHAK: CMG’s Second Coming?

We read Andy Barish’s first piece of SHAK research with great interest. The veteran  analyst at Jefferies has a sharp mind and is one of our favorite industry observers. The note was entitled “Enlightened Brand but Valuation Keeps Us Tethered” (no doubt a reference to the brand’s vaunted “enlightened hospitality”) and advised HOLD.

Barish, noting that SHAK was already trading at “a significant premium to the other open-ended fast-casual growth companies that are delivering strong SSS and exceeding expectations,” put a price target of $40 on the shares. 

Fine Dining? Shake Shack's "beeper" alerts you when your fast-food order is ready.

Fine-Casual? Shake Shack’s “beeper” system alerts customers their order is ready.

Yet what caught out attention was the analyst’s enthusiasm for the concept itself, dubbing Shake Shack fine-casual, a hybrid term the New York City-based chain uses to describe itself. As Barish explained, founder Danny Meyer is “pioneering ‘fine casual’ by marrying fast casual with fine dining, and [is] poised to capture multiple category tailwinds.”

The tailwinds would eventually result in some 450 units in the U.S., he predicted.

Wait! Who’d mistake a cheeseburger, fries and a shake — the iconic fast-food meal — for fine-dining? And using a buzzer the size of an iPhone to alert customers to their order strikes us as more akin to a TGI Fridays than, say, a Le Bernadin. 

Shake Shack shares more than doubled on their first day of trading. Can another chain match that performance?

Is Shake Shack a lifestyle brand, as some analysts have suggested? If so, it will be a first for a burger joint, In-N-Out Burger notwithstanding.

Barish, who calls Shake Shack a lifestyle brand, appears to believe Meyer’s fine-dining background will produce pre-Recession results: “With a rich culinary and operating heritage informed by Danny Meyer’s Union Square Hospitality Group, mgmt. has put the systems in place to drive 20%+ unit growth, low single digit same-store sales, +30-70bps of operating leverage and ultimately, 20%+ EBITDA growth.”

Maybe he’s right and lightening will strike the fast-casual category twice. After all, Chipotle (CMG) founder Steve Ells trained at the CIA and worked for two years as a fine-dining chef before opening his first unit, in Denver. Yet we remain skeptical that burger lovers will embrace the concept and its lifestyle trappings (read: high price) to the point of using it almost exclusively for their ground-meat sandwiches. There’s simply too much competition.

 

 

Posted in branding, chains, expansion, Fast-casual, initial public offering, quick-service restaurants, Uncategorized | Tagged , , , | Leave a comment