Minimum Wage Resistance in the Midwest, Chicago Proves Tough Burger Market, Sales Look Good for Michigan Restaurants, and Much More

Resistance to minimum wage increase arises in the Midwest. Hamburger chains find Chicago is a tough market. Does technology eliminate restaurant jobs? Michigan Restaurant Association survey shows sales are looking good. These stories and a whole lot more This Week in Foodservice.

A minimum wage increase was rescinded in St. Louis. The city mandated a $2.30 an hour increase in May, which raised the minimum wage to $10 an hour. On Monday, a Missouri state law took effect stating that municipalities cannot change the minimum wage from the level set by the state. This left businesses in a quandary over whether to rescind a pay increase that took effect three months ago.  McDonald’s only comment was to say that franchisees set their own wages and that company-owned restaurants paid above the minimum wage.

The law also keeps Kansas City from raising the city’s minimum wage to $10. Kansas City’s increase to $10 had not yet taken effect.

One independent restaurant operator in St. Louis said she would maintain the higher minimum wage rate because, “Taking it back would be a pretty Grinchy thing to do. …”

And in Illinois, the governor vetoed a bill that would have raised the minimum wage in steps to $15 an hour by 2022. Given the margin of votes the bill had when passed by the Illinois legislature, it is doubtful the governor’s veto can be overridden. The governor had indicated that he would consider a more modest increase.

Economic News This Week

  • Small businesses optimism regained momentum in July. The National Federation of Independent Businesses reported the Index of Small Business Optimism rose 1.6 points for a reading of 105.2. The Index had peaked in January at 105.9. In July, 7 of the 10 Index components rose, 2 declined and 1 was unchanged.
  • The Gallup Organization’s U.S. Economic Confidence Index inched up last week to a reading of +8. This means that 8 percent more Americans thought the economy was doing well as opposed to doing poorly. The Index has not been this high since mid-March. The Current Conditions Index rose to +16, very close to the historical all-time high of +17 in mid-March of this year. The Economic Outlook registered -1, with 46 percent of Americans saying the economy is getting better and 47 percent saying it is getting worse.
  • Initial jobless claims rose to 234,000, a slight increase of 2,000 for the week ending Aug. 19. The 4-week moving average was 237,750, a decline of 2,750. This gauge of U.S. employment remains favorable.
  • Sales of new single-family homes declined to a seasonally adjusted rate of 571,000 in July.  This marks a 9.4 percent decline from June and 8.9 percent less than the July 2016 rate.
  • Existing home sales declined 1.3 percent in July to a seasonally adjusted annual rate of 5.44 million. July sales were up 2.1 percent compared to July 2016. The National Association of Realtors states that prices are continuing to rise, which affects “overall affordability.” And the inventory of homes for sale remains low.
  • New orders for manufactured durable goods declined 6.8 percent in July according to the advance report from the U.S. Census Bureau. Shipments of manufactured durable goods increased 0.4 percent for the month while unfilled orders dropped 0.3 percent.
  • Why haven’t wages increased faster? Numerous observers have been puzzled as to why wages have not been growing more since the end of the recession. In the past year, median weekly earnings have been up about 2.0 percent, way less than the 3.25 percent average from 1983 to 2015. According to the San Francisco Federal Reserve, one factor is that new full-time workers are usually paid less than others. Also, workers who lost their jobs as a result of the recession tended to be lower skilled and lower paid. Thus, when they find employment, their wages are lower, too. This means that strong job growth can pull down average wages. The Fed concluded that if the job picture can continue to improve, eventually wages will grow. The Bureau of Labor Statistics noted that weekly earnings rose 4.2 percent in July on an annual basis.

Foodservice News This Week

  • Chicago: A tough market for burger chains. The history of upscale burger chains in the Windy City is discouraging. SmashBurger has gone from 11 units in the area to 4. Tom & Eddie’s had five units but now is down to three. Red Robin closed all five of its “compact” Burger Works concept. Five Guys had 36 restaurants in the Chicago market 2 years ago now has 23. Most would agree there are just too many stores offering too similar products. And, through the use of third-party delivery services like UberEats, full-service restaurants and fast feeders can compete with the Five Guys and other “better burger concepts.”
  • Do high-tech restaurants need fewer employees? Probably not. The application of customer-facing technology often requires the reallocation of labor. For example, McDonald’s says the company repositioned cashiers as customer service advisors to help people ordering at the kiosks. Further, the kiosk systems have more orders hitting the kitchen at the same time and this requires more help in the kitchen.
  • The Michigan Restaurant Association reports sales improved by 3.2 percent in the second quarter.  The association also reports its members project higher sales in the second half of this year.
  • Ruggles Green has been acquired and will be renamed. The 6-unit chain sold a majority stake to private investment firm Hargett Hunter Capital Partners who will change the name to Bellagreen. The new owners plan to expand to 35 restaurants in the next 5 years.
  • Corporate Stirrings: Bruegger’s Bagels will be sold to Caribou Coffee by the current owner Le Duff America. Famous Dave’s closed six company-owned restaurants in the last two quarters. Since 2012, the number of corporate restaurants declined from 54 to 29. In the same time period the number of franchised units grew from 133 to 135. Cheddar’s Scratch Kitchen will lay off 69 employees and close the company’s Irving, Texas, office. The acquisition by Darden resulted in 30 Cheddar’s employees being offered positions in Orlando, with 23 accepting. Pei Wei Asian Diner will relocate its corporate headquarters from Scottsdale, Ariz., to Irving, Texas. Pei Wei’s CEO said it was not just a headquarters move “but an overall shift in our brand direction.”
  • Growth Chains: Papa John’s has signed development agreements to open 45 restaurants across Kazakhstan, Kyrgyzstan and Poland. Seafood operator Shell Shack signed development agreements for 11 units so far in 2017. Wingstop signed a franchise agreement for 110 locations in Australia and New Zealand. Tropical Smoothie Café signed its 100th franchise agreement so far this year. Dickey’s Barbecue Pit will open restaurants in Joliet, Ill., San Diego and Tolleson, Ark. White Castle quietly signed a deal with a partner to open two restaurants in Shanghai. Dunkin’ Donuts signed a multiunit development agreement for seven locations in the Raleigh- Durham area. Pret A Manger will open its first university locations with two units at the Wharton School at the University of Pennsylvania and one unit at the University of Chicago. Newk’s Eatery will open seven locations in the Ft. Worth area.
  • Comparable Store Sales Reports: Habit Burger up 0.1 percent and Wingstop up 2.0 percent.

For details and same-store sales of other chains, click here for the Green Sheet.

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