I don’t think you’d get an argument from many people when it comes to the topic of restaurant pay. It’s pretty low across the board for hourly workers, particularly when you consider hourly rates in tip-credit states. While certainly some servers in sit-down restaurants make hundreds of dollars a night in tips, most do not.
Instead, they earn the equivalent of (or slightly more than ) the federal minimum wage — which since July 24, 2009, has been $7.35 an hour. The tip-credit allowance hasn’t been updated since 1991. You can witness how much the federal minimum wage has climbed since its implementation under the Fair Labor Standards Act of 1938, by clicking here.
Yet when those who rigorously promote raising hourly wages for restaurant workers — and, here, I mean groups like Restaurant Opportunities Centers United — use hyperbole to make the point, my heart sinks a little. They’re hurting the cause.
Consider this argument, from ROCU’s Executive Director Saru Jayaraman. I copied it from the transcript of “Bill Moyer’s Journal,” which airs on PBS tonight. Moyer at one point offers that people assume tips go solely to servers. Jayaraman agrees that most customers, in fact, think servers keep them.
“Most people believe that when they leave a tip, it goes entirely to that worker that they’re tipping. There are so many things that happen. First of all, that worker has to share the tip with probably 20 or 30 other people in the restaurant. Often management illegally takes a portion of the tips.”
What?! It’s true that in many restaurants servers “tip out” bartenders and bussers, who by the way are integral to providing good service. But 20 or 30 others . . . who are they?
If Jayaraman means tip-pooling — the practice in which FOH staff shares tip income — then she’s forgetting to mention that the servers have agreed together to do that; management cannot force the practice upon employees, says Fred LeFranc, RTS founding partner.
Fred should know, having climbed the restaurant ladder from minimum-wage worker to CEO. He also contends that managers typically do not swipe tips.
“Have there been instances of managers doing that? Yes, of course. But it’s not widespread by any means,” he says. “And employees know what the tips are, and they’d would be aware of the distribution.”
Meaning, a manager couldn’t steal for very long. And given how quickly word will spread on social media sites about getting caught, a restaurant’s reputation is certainly doomed. Consider this U.S. Department of Labor suit filed just last month against a steakhouse chain in northeast Ohio.
Even before social media became widespread, reporters stumbled upon unsavory practices, like this embarrassing case in Cleveland some years ago.
So, sure, restaurant employees, among the country’s lowest paid workers, should make more money and they shouldn’t be exploited by management. After all, data show that failure to raise the minimum-wage rate is contributing to income inequality. Who the heck feels good about that?
Yet I simply believe a more compelling case can be made for boosting the federal minimum with less drama than ROCU displays. Here’s a good example of what I talking about from Seth Goldin.
Posted in bartenders, chains, Employees, hourly workers, labor, minimum wage, restaurants, ROC United
Tagged minimum wage, restaurants, tipping, tips, workers
At the Results Strategy retreat in Phoenix this past weekend, we attempted to duplicate the selfie Ellen DeGeneres snapped at the Academy Awards ceremony — only with better-looking people. We’re standing outside Cowboy Ciao, by the way, where we celebrated Founding Partner Fred LeFranc’s birthday.
The RTS version of the Best Selfie Ever
I traveled in Poland for ten days this month, visiting three cities: Poznan, Krakow and Warsaw. Apart from sightseeing, I talked to many Poles about their country (pop. 38 million), including two officials of a large restaurant chain called Sphinx and 28-year-old Domino’s Pizza franchisee Jakub Stepien, who five months ago opened his first store, in Warsaw (pictured below).
Jakub Stepien’s outlet is nearby an exit of Warsaw’s subway and on the bottom floor of a 500-unit apartment building.
Meanwhile I snapped shots of several foodservice outlets in malls in Warsaw. People throng malls — and not because Poles are giddy with excitement about shopping (at least, any more than we are). It’s due rather to the fact that the Communist regime (which collapsed peacefully in 1989) didn’t develop shopping districts in Poland’s largest city.
Transported: The mall in downtown Warsaw. Brands here are familiar to U.S. and European travelers.
Walk around Warsaw, for example, and you rarely see busy streets lined with shops. Instead, shopping is a hit-and-miss proposition. You’re better off buying that new dress, pair of jeans or donor kebab in a mall. Below, in fact, is where I bought mine.
Middle Eastern food is widely available in Warsaw. Note the color scheme. Remind you of Dairy Queen?
Salad concepts, like in the U.S., are popular for the same reasons — it’s a healthier way to eat.
People lining up to for something healthy in Warsaw’s stunning downtown mall.
The chain’s website boasts: “Day after day we are trying to prove to everyone how easy it is to enjoy a meal, which is formed in a few moments before your eyes, composed of juicy colored vegetables and meat, fish and dairy additives.” Something was probably lost in translation. Asian foods are also popular. I’ve forgotten the name of this particular chain, but it nonetheless was hopping when I passed by.
Asian foods are hit in Warsaw malls.
Malls might also contain traditional sit-down restaurants in which menus bear little resemblance to U.S. eateries. Consider Chłopskie Jadło, a country-style restaurant operated by Sfinks Polska S.A., a large restaurant company with two other brands. The spread (see below) for the delicious bread served at Chłopskie Jadło is pork fat.
The bowl of lard (right)is meant for bread at Chłopskie Jadło, a small chain of traditional restaurants in Poland.
Posted in chains, expansion, fast food, franchising, pizza, Poland, restaurants, Travel, Trends
Tagged lard, Polish food, polish restaurants
Darden Restaurants unveiled a new Olive Garden logo this week, and criticism from the peanut gallery has been . . . well, unkind. Slate’s L.V. Anderson, for instance, complains:
The new logo looks like the homework assignment of a teacher’s pet in second grade. The cursive letters are perfectly formed, circular, evenly sized. Clearly, Olive Garden is aiming for a youthful audience with its “brand renaissance,” but it has aimed far too young—no adult has ever written two words in cursive as perfectly formed as the new wordmark.
See for yourself.
Olive Garden’s new logo. Maybe not the best choice for a typeface design?
Sure, the new logo may strike some people as looking too simple, too basic. Had it been the original logo, perhaps it would have suggested simple, peasant fare at reasonable prices. And maybe in a fast-casual environment.
But we nonetheless like it and think the criticism is a little unfair.
Then there’s the “Italian Kitchen” part. It’s a part of the “Brand Renaissance” that Darden officials announced this week. ”Kitchen” of course has been popular for several years among chains. Popeyes, which has been using the word on its outlets since 2008, said it would insert “kitchen” into its corporate name.
Clearly, the word is meant to evoke the idea that food is foremost on the mind of the brand. We applaud the effort.
Do you believe that management’s plan to spin-off Red Lobster will create value?
That was the question posed this week by Hedgeye, a website that describes itself as a “bold, trusted, no-excuses provider of actionable investment research and a premier online financial media company.”
The question raging this week among financiers: Should Red Lobster re-examine its real estate before deciding whether to spin the aging brand off?
The site was asking visitors to vote as to whether spinning-off beleaguered Red Lobster, the plan management has floated in recent weeks, would add value to Darden Restaurants. Hedgeye itself thought the spin-off was a terrible idea.
“Red Lobster may become less profitable and, as a result, less valuable.” Hedgeye says. “The plan does not address the issue of managing multiple brands.Management’s proposed initiative simply removes one underperforming brand from a large portfolio. . . . . It is time for significant change.”
Apparently, visitors to the site feel the same way. Those agreeing that Red Lobster should stay put for the time being (80%) easily outnumbered those who did not (20%) — at least as of today.
Not surprisingly, Hedgeye’s objections to he spin-off mirror Starboard Value’s, a hedge fund that owns 5.5% of Darden stock. Star Value has been vociferous in its criticism of management, publicly airing its concerns earlier this week in a letter to shareholders, which said, in part:
Starboard believes that the Company should undertake a comprehensive review of all available operational, financial, and strategic alternatives to create value for shareholders before hastening to complete a Red Lobster Separation that may destroy substantial value. Starboard is concerned that if the Company completes a spin-off or sale of Red Lobster without first fully and objectively evaluating all opportunities for the Company’s owned real estate, then substantial shareholder value could be destroyed.
And just in case Darden’s senior managers and shareholders didn’t fully grasp how upset Starboard was, the letter-writer reminded them in boldfaced caps:
SHAREHOLDERS DESERVE AN OPPORTUNITY TO HAVE THEIR VOICES HEARD BEFORE DARDEN COMPLETES ANY SEPARATION OR SPIN-OFF OF THE RED LOBSTER BUSINESS
For our part, we’re not taking sides, having no dog in this fight. But we can’t help but think that Darden — one of the most respected multi-unit operators in the business — needs to to invigorate its increasingly moribund seafood brand. If that means re-examining real estate, then we’re all for it.
Posted in chains, hedge fund, Investing, M&A, restaurants, value
Tagged darden, headge fund, real estate, red lobster, seafood, spin-off
The restaurant industry is in a no-growth — or, very modest growth — mode. According to figures released today by the NPD Group, the number of commercial eateries swelled by less “than one percent from a year ago reaching a total of 633,043 units” in 2013. Restaurant units increased by 4,179, a slight 0.7 percent increase over last year. Take a look:
*Percent change from a year ago Source: The NPD Group/Fall® 2013
Part of the problem is consumers, whose reluctance to visit restaurants like they use to is reflected in the industry’s comparable sales numbers. Restaurant managements, in turn, have deemed it wise not to open new outposts.
Growing! Fiesta Restaurant Group intends to add 21 company-owned Pollo Tropical to its stable in 2014.
Then again, chains are indeed adding new units. Fiesta Restaurant Group (FRGI), which operates Taco Cabana and Pollo Tropical, is bullish on expansion of the latter concept, says an updated analyst’s report from Piper Jaffray:
Updating FY14 Expectations: For FY14, total revenues are expected to increase 10.9% to $611.5 million, reflecting our +4.2% system-wide same-store sales projection comprised of +5.0% at Pollo Tropical and +2.0% at Taco Cabana. We are maintaining our FY14 EPS estimate at $1.25 based on our expectation of 21 new company-owned Pollo Tropical units and 3 new company-owned Taco Cabana units.
Posted in Analytics, chicken, expansion, fast food, Growth company, quick-service restaurants, restaurants, statistics
Tagged fast food, growth, restaurants, stats
Do you have a tendency to compare your company to its competition? Of course. What business — or businessperson or athlete, musician, actor or writer, for that matter — doesn’t? I mean, how else do you gauge where you stand, competitively speaking, at any given moment?
But is it really that crucial to “stand” somewhere in relationship to rivals? Perhaps there’s an alternative way to think about other companies (or people) engaged similar pursuits. Maybe merely being better than they are (or more cutthroat) won’t take your company as far as it can otherwise go.
Author and blogger Bernadette Jiwa caught my attention recently addressing this issue. “It’s far more productive and more profitable to obsess about what your customers are doing,” she writes.
The big question: Should Firehouse Subs add a drive-thru window because it meets a customer desire? Who knows? But it’s a better question than asking whether we should add one because our competitors have.
As far as I know, Jiwa doesn’t understand the restaurant business like you do. In the blog post I’m citing, for instance, her example is Uber.com. But what she’s suggesting here should nonetheless sound very familiar to operators.
“Becoming the competition doesn’t always mean using the same old rules to beat others at their own game. Focusing on the tiniest gap in your customers’ desires might be a better strategy.”
Well, duh. What business besides restaurants is eminently capable of doing just that, in spades? That has always been the touchstone strategy for success in this business. The best independent operators typically listen to customers in an attempt to exploit that gap — and quickly.
But what about multi-unit operators? A good case study is now shaping up among some fast-casual chains testing drive-thrus. A notable example was recently reported by Jonathan Maze on Restaurant Finance Monitor’s website. Here’s the problem.
The biggest challenge is speed. “We’re not fast food,” [Firehouse Subs CEO] Don Fox said. But drive-thru customers expect their food quickly. When Fox became CEO of Firehouse in 2003, the company had two locations with drive-thru windows, but “I would not say they were well executed,” he said. Speed was “very slow,” even for a chain that heats its subs the way Firehouse does. Fox put a freeze on new locations with windows, until the idea could be studied further, and then the idea was shelved for a few years.
Note that Fox isn’t asking: How soon will my competitors be up and running with drive-thrus? Instead, he is wondering: How well can we do this and keep those customers happy who desire a drive-thru experience?
“Our speed of service standards are not, certainly, fast-food standards,” Fox said. “We had to understand customer expectations.”
So deliver on that ”gap in your customers’ desires” and sales should increase — at least enough, in the case of fast-casual restaurants, to earn their businesses a healthy return on the drive-thru investment.
In the January issue of Restaurant Finance Monitor, “The Answer Man” declares technology is a major 2014 trend. No argument there. But when he wonders why restaurants are making such big investments in point-of-sale systems, for example, when mobile technology is the thing. RTS Partner Mike Lukianoff had to speak up.
First, here’s the The Answer Man’s complete statement:
“Mobile transactions are the wave of the future. Olo, a restaurant mobile ordering service that counts Five Guys and Noodles as customers, reports four million users, double that of a year ago. Restaurants using the service report higher check averages and increased order frequency. This begs the question: If customers already have a smartphone in their pocket and the technology is proven to build restaurant sales, why are restaurant owners installing more POS, table-top devices and kiosks? Why not use the customer’s smartphone and save the big IT dough?”
Is smartphone technology making POS technology obsolete?
There is no question about where the trends are headed. Digital mobile technology is going to change the standard service model across the entire industry. However, ordering from your own mobile device inside a restaurant is very bleeding edge. Even kiosks and tablet ordering has far from 100 percent consumer acceptance – particularly if we segment customers and potential customers by generation and income. The key to adopting new technology in restaurants is to understand how it enhances the experience by providing more diverse ways for people to tailor their own experience. If it’s used purely as a cost-control to save labor, it will just narrow the appeal of the experience rather than improve and expand it.
You may be aware that thanks to the Internal Revenue Service your restaurant can no longer automatically add a gratuity charge to large parties without having to pay tax on said charge.
That’s right: The restaurant must report an automatic gratuity, not the server who handled the party, who now likely has to wait to receive a wage for the work.
An IRS ruling now in effect may complicate the issue of adding an automatic gratuity to large parties.
That because a 2012 IRS ruling, which went into effect January 1, considers automatic gratuities as “service charges” and treats them as taxable sales income. To be sure, server tips are taxable, too. But they are reported the day they’re collected and cashed out.
“Under the IRS ruling, Rev. Ruling 2012-18, a sharper distinction is drawn between tips and service charges,” a spokesman for the Tax Foundation tells us in an email. Under the new rules, to be a tip:
(1) the payment must be made free from compulsion;
(2) the customer must have the unrestricted right to determine the amount;
(3) the payment should not be the subject of negotiation or dictated by employer policy; and
(4) generally, the customer has the right to determine who receives the payment.
Because automatic gratuities don’t meet these criteria, the IRS says thy’re service charges under the ruling. That means operators must funnel them through their payroll system, making servers wait for as long as two weeks to receive them as wages.
We’ve heard that to end-run this ruling some operators will offer customers three tipping percentages on their bill (15%, 18% and 20%). Of course, there’s an unspoken option, too: No tip required. That could make it more difficult to encourage servers to take large parties.
We’d love to hear how you intend to handle this ruling and what is likely to be a complicated situation.