Restaurant CEOs earned their pay this week, revealing creative responses to the challenges of increasing profits in a high-cost, moderate-growth environment. Then again, at least one might be chased around by angry peers armed with sticks, rocks and wilting condemnations.
Here’s what we mean.
Sonic creates a tech fund
Mobile ordering and other digital capabilities are delivering welcomed sales and traffic increases, but how do you cover the high upfront costs to generate that ROI? Especially when you’re a franchisee?
The Sonic drive-in chain revealed this week that it’s creating a fund to handle the investment. Company and franchised restaurants will be required to pay a slight fee—roughly 25 basis points of sales—into a kitty that all outlets can tap to defray the cost of remote ordering capabilities, new digital menus and data-security initiatives. Rebates from suppliers for chainwide purchasing agreements will also be channeled into the pool.
Executives did not estimate how much money would be in the fund, but they indicated it will be an ongoing resource.
Domino’s to focus on takeout
Technology has helped Domino’s steal delivery business from archrivals like Pizza Hut and Papa John’s, not to mention untold mom-and-pops. But that portion of the pizza market is far smaller than the carryout component of the business, Nomura restaurant analyst Mark Kalinowski learned during a recent visit to Domino’s headquarters. And Domino’s share of takeout is less than half of the delivery business it controls.
Executives revealed to Kalinowski that the brand intends to take what it’s learned through the early adoption of delivery-related tech and use it to increase in-store sales. One of the goals, Kalinowski reported, will be to learn more about carryout customers and what motivates them.
He stressed that the new emphasis on takeout and dine-in business does not mean Domino’s is easing its use of technology to grab more delivery business. There are definite challenges on that front, the executives acknowledged. For instance, how can you keep a pizza hot if it’s delivered via drone?
They were quick to add that drone delivery is an “if,” not a “when.”
‘Hurrah, higher minimum wages!’
If you spot a crowd of restaurant executives chasing someone down Restaurant Row, their prey is likely to be Bill Phelps, CEO of Wetzel’s Pretzels. As lawmakers in California and New York were about to set a $15 minimum wage for their respective states, Phelps commented on the popular CNBC show “Squawk box” that increases to date on the West Coast have been a boon to his business.
When California’s minimum wage rose in 2014 to $9 an hour, Wetzel’s comps jumped 8 percent in the succeeding six months, Phelps said. When the rate climbed a year later by a dollar, same-store sales climbed 7 percent, he noted.
Phelps’ comments support the contentions of some economists that a higher wage will provide consumers in low income brackets with more spending power, a dynamic that in their estimation could benefit businesses selling a low-ticket indulgence like fast food.
But the message might not have been what fellow restaurateurs wanted to hear as they awaited word on how quickly California and New York’s wages would soar to the $15 level.
‘Say whatever scary thing you want, true or not’
The week brought major victories for organized labor, and not merely in the form of wage increases for California and New York, the industry’s largest and fourth-largest markets, respectively. In another gift from government, unions won confirmation that restaurant employees can tell customers untruths about the safety of their employer’s food if that will help the staff turn customers against the business.
Two of the three federal judges hearing an appeal involving a Jimmy John’s franchisee upheld a National Labor Relations Board decision that employees could not be fired because they warned customers the chain’s food would make them sick. Even if the workers knew the contention was not true, as they apparently did, they have a right to use such methods to win support in a battle with their employer, who had prevailed in an attempt to unionize the staff more than five years ago. Lies are merely exaggerated rhetoric, in the opinion of one judge.
The decision was handed down in the same week the International Brotherhood of Teamsters handed out pamphlets to Chipotle customers, warning them the burritos they were about to eat were veritable Petri dishes for germs. The problem, according to the propaganda, is the chain’s roster of suppliers. One of them just happens to be Taylor Farms, a tomato processor the Teamsters are trying to organize.
A wage patchwork
If there’s an upside to state or federal laws imposing new requirements on restaurants, it’s the uniformity such measures tend to bring. Executives of restaurant chains or multi-market franchise don’t have to worry about meeting a hodgepodge of local or county requirements. That was a big reason the National Restaurant Association and many chains supported federal menu-labeling legislation; one law was better than a quilt work of requirements across the nation.
That benefit is alarmingly absent from the latest flight of minimum wage laws. Three weeks ago, Oregon passed a law that sets different wages for different parts of the state. Today, New York is expected to do the same. What employers are required to pay will vary from region to region—or type of market to type of market. For Oregon, that means one rate for rural areas, one for suburbs and a third for Portland.
Adding to the challenge for restaurant execs: The rates aren’t static, yet the rates of increases—and in some instances, the hike schedule itself—varies from region to region. Instead of facing one higher wage, employers will have a grid-like schedule of increases.