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Scrolling through an Franchise Disclosure Document for a fast-casual style chain recently, I came upon an usual paragraph. Most FDDs, after all, are pure boilerplate, with each section either rife with restrictions or rampant with requirements. But this paragraph suggested, if not generosity, at least a helping hand.
I wondered if the franchisor was actually looking out for franchisees. So I showed the aforementioned portion of the document to RTS’s franchise experts, Andy Simpson and Frank Steed. Neither were impressed with the offer, agreeing it was probably not helpful.
But, hey, we’ll let you make up your own mind. Let us know what you think:
“We have engaged a consultant as an approved supplier of lease negotiation and consulting services for our new and existing franchisees. If you desire, in your sole discretion, to engage the consultant to perform negotiating and/or consulting services relating to a new lease or a lease renewal, you will be required to sign an agreement with the consultant and pay the consultant a flat fee of no more than $2,500. We may derive revenue from your landlord in the form of a “tenant placement fee” as a result of your retaining the consultant. The tenant placement fee we may receive for each transaction will be no lower than 2.5% of the total cost of the rent during the applicable lease term. ”
If you’re an executive at a major fast-food chain, we bet you’ve already flipped through the August Consumer Reports. How could you not? The title of the magazine’s cover story — “America’s Best & Worst Fast-Food” — is a grabber. So is the number of people surveyed — 96,208. You don’t come across that kind of free research everyday.
Taste Champ: CR’s survey ranked the The Habit Burger the tastiest among QSR burger chains and second (behind In-N-Out Burger) in overall burger chain ratings. Oh, did we mention it’s a regional chain?
We’ll spare you the details. You can get an overview here and by watching the video below. What we want to point out is that today quality rules the roost. And the test of quality now is chiefly how the food tastes (and to a lesser extent, its provenance).
In fact, your restaurants proximity to growling stomachs is no longer a sure traffic-building bet. Real estate still plays a major role in the business of running restaurants, of course; it’s that now no matter where you are you could be toast.
The article notes, for example, that while 64 percent of survey respondents say location is a “major factor” when choosing a restaurant, the figure is 11 points lower than the 75 percent posted last year. Food quality, moreover, is critical to 50 percent of the survey participants. That’s up from 40 percent in CR‘s previous fast-food survey.
And the country’s most “convenient” chains – McDonald’s, Taco Bell and KFC — all ranked last in their respective categories.
This survey’s results won’t be news to the industry. The large QSR chains have been surveying their customers and those of competitors for decades, monitoring eating trends among many things. But because tastes don’t change over night and because they can outshout tiny rivals, fast-food giants needn’t be nimble. As a result, current fads and trends don’t penetrate their boardrooms or test-kitchens quickly. Apparently to their detriment.
Does $31,200 a year sound like a lot of money — to anyone?
OK, maybe to a teenager living at home. But let’s say the teen has to work full-time to earn it. The sum becomes less enticing, no doubt.
Yet that’s how much a person earns working full-time for $15 an hour — before taxes and benefits are subtracted, of course. And once you’re making $15 an hour any government subsidies you were receiving – say, food stamps — may disappear, increasing your cost of living.
Thus, earning $31,200 a year isn’t likely to be anyone’s idea of entering a comfortable, middle-class existence. Or really anything close to it.
How much will dessert cost once you’re paying $15 an hour to staff?
So why do restaurant operators often appear so opposed to raising the minimum wage to $15 an hour?
“We are a very different type of industry – hospitality is the backbone of the city and a very labor-intensive endeavor,” [Gwyneth] Borden said. “For businesses with tight margins and low prices, it’s going to be hard.”
Borden, executive director of the Golden Gate Restaurant Association, also told the San Francisco Chronicle that restaurants wanted workers who receive tips to be exempted from the minimum wage hike. Employer health-care costs should also be considered as part of any hourly wage, she added.
She was reacting to a compromise announced yesterday at City Hall that, the Chronicle reported, “would increase the city’s current hourly base pay, $10.74, to $12.25 next May 1, then to $13 in July 2016 and $1 each subsequent year until it reaches $15 in 2018. That would bring the annual pay for a full-time minimum-wage worker to $31,000.”
The city already has the highest minimum wage at $10.74-an-hour in the country. The new wage plan will be put to voters in the next election.
San Francisco, by the way, is among several wealthy U.S. cities that are proposing raising the minimum wage. Mayors in both Chicago and New York City have said they’re in favor of an increase in hourly earnings.
Seattle’s city council last week unanimously voted to boost the minimum wage to $15 an hour by January 1, 2017. But that time frame only includes businesses that employ 500-plus workers, effectively excluding nearly every business in the city.
Restaurants and other small business employing fewer than 500 have until at least January 1, 2021, though hourly rates modestly increase every year.
With long time frames like these restaurant owners should not react negatively to pro-labor groups pushing higher hourly wages. Make one’s objections known, to be sure, but understand in the long run you’ll likely have years before having to pony up $31,200 annually to a burger flipper. Showing compassion will likely win you more points. Even if you do have to raise prices.
Welcome to Quiz-Time! Once again, we’re testing the degree to which you’ve been paying attention to events in the restaurant industry. The biggest this week, of course, was Seattle’s minimum wage hike. But there were others. So let’s get right to it. As always, a right answer takes you to the story itself. This week a wrong one earns an earful of Babs.
1. Which celebrity chef is devoting considerable effort to foodservice in Haiti?
Wraps are history, right? What Texas Monthly dubbed “America’s hottest craze” in a1997 article was dropped into the culinary dustbin by the mid-aughts after customers realized they were actually eating a dolled-up burrito. And sometimes a not very good one. In the end the model just didn’t resonate, though brands with national ambitions opened impressive looking stores, as the story notes:
“They’re cute. At many, the colors are jazzy, the lines have a nineties retro look, with sharp angles and undulating curves, and the decor is free-form and whimsical: Customers at Freebirds in College Station create aluminum-foil figurines and add them to a special display shelf; at Habanero’s Grill in San Antonio, a cartoon cow sails over the moon in a floor-to-ceiling mural. Beyond setting a chipper mood, these decorative touches elevate the stereotypical fast-food environment to what the restaurant industry calls “fast casual,” a setting where people will pay $4.50 to $6 for a wrap and another $2.50 for a smoothie and walk out happy.”
Did you catch that “fast-casual” reference? So early! Anyway, the word “wraps” — or in the photo below, “wrapz,” live on at least in name. I spotted this eatery in University Circle, near the Case Western Reserve University campus. It was closed at the time. Too bad, because its Yelp reviewers give the tiny restaurant generally high marks. “This place is a solid. Much better then the nearby Chipotle but with a different flavor. It’s fast and the quality of the food is very good,” declares Ryan S.
Wraps reappear at an outdoor mall in Cleveland, near a university.
I’ve yet to sample anything, but so far what I like most about this 1,400 square-foot one-off is the addition of “Pita Bar” to the name, suggesting the food here is largely Middle Eastern — and not merely post-trendy combinations of lemon-grass aioli, ancho chili-rice and miso-glazed salmon. That’s smart and catchy.
By the way, Texas Monthly guessed wrong, predicting the wraps craze of the late ’90s would last. “Unlike inane fads such as cigars and martinis, wraps satisfy a need,” the article asserts. Today they do so only when that need is filled (pun intended) with the familiar, not the odd. (As for martinis, yeah, the magazine missed that one, too.)
We’ve been using the word “customize” in America size at least 1934, according to the Online Etymology Dictionary. The word and the awkward variation “customizable” has crept into the vocabulary of fast-casual restaurant operators in recent years to refer to the service-style they offer.
But do customers really want the freedom to design their own meals? And do operators want to slow service by giving them the opportunity? The answer is yes and no — at least for today.
But we noticed recently that Columbus, Ohio-based Piada Italian Street Food is suggesting by way of new menus (see the image below) and menu boards that customization isn’t really necessary — and, if at all possible, please order one of our suggested meals. (Hint: The line will move faster.)
Of course, if you like, you can still do your own thing.
The customizable portion of the menu at Piada Italian Street Food
What insight, if any, do historical sales among the industry’s giant chains provide? For one thing, that the big merely get even bigger. For another, that these giants can slip a billion or two here or there, allowing rivals to climb ahead.
Yet it’s not quite the same old, same old after the past 10 years. In fact, researchers at Technomic Inc. say it is otherwise in their “Top 500 Chain restaurant Report,” which was released this week. (Here’s a listof the Top 10 ranking — 2003 vs. 2013 — with sales figures.)
They note, for example, that the giants’ “seeming stability masks significant evolution.” Or, for some, significant problems.
Sales are up at Domino’s Pizza’s, but its Top 10 ranking tumbled out of the limelight last year.
Consider the rankings of three major players during the time period.
• Subway more than doubled its yearly U.S. revenue, and Starbucks’ annual sales more than tripled, rocketing the sandwich chain and the coffee café to the No. 2 and No. 3 spots.
• Taco Bell beat food-away-from-home inflation with annual U.S. sales 39 percent higher in 2013, but it dropped from No. 5 to No. 6.
And then consider that struggling Pizza Hut. Its yearly sales were just 8 percent higher in 2013 than in 2003, Technomic notes, causing it to tumble from sixth place to eighth. Domino’s Pizza, on the other hand, grew annual sales 27 percent, but dropped off the list to rank 14th.
It also looks like QSR burgers and pizza will have an uphill climb this year and next as their markets are saturated and customers yet demonstrate a reluctance to spend. Technomic predicts that “menu, pricing and operational innovation will continue to be of utmost importance.”
We couldn’t agree more with the assessment, by the way. RTS Partners address those very issues nearly every time a client hires us.
And what of fast-casual chains where comp sales have outstripped mainstream competitors for several years running? To be sure, not a one has reached Top 10 status (yet). But influence is another matter: “Aspects of the fast-casual ethos are seen everywhere . . . Subway’s sandwiches, made to order from fresh ingredients in front of customers; Starbucks’ smart, lounge-like units; “healthy” menus at Taco Bell and Dunkin’ Donuts.”
We’re back with another quiz! Like others we’ve infrequently posted, it tests the degree to which you’ve recently been paying attention to all things foodservice. The news items we cribbed from, in fact, have been published on or after Monday, April 21.
This time, the odds are a generous 50/50 that you’ll come up with a right answer. But don’t grow unduly confident. Read the statements carefully. A wrong answer wins you a lesson in fine-dining and a bug-eating tutorial.
The new owners claim they will be adding units to the popular concept.
1. A Portugal-based company acquired Margaritaville Restaurants and plans to grow the chain.
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 transcriptof “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.
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 agood example of what I talking aboutfrom Seth Goldin.
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.