Operators continue to wrestle with wage increases. Foodservice remains a leader in new hires. The CEO of CKE blasts the recent NLRB decision on joint employment. The National Restaurant Association will sue New York City over the menu labeling rule on sodium. These stories and a whole lot more This Week in Foodservice.
The debate rages on regarding the effects of wage increases in the foodservice industry. The New York Times carried an article quoting the CEO of Shake Shack as saying that the chain pays well above minimum wage in order to attract good, loyal workers. The company pays $12 an hour in Washington, D.C. and $11 an hour in Texas. The company plans on increasing wages sometime in the future but will raise menu prices 1 percent to 2 percent.
The CFO of Domino’s Pizza is “not overly concerned” about a minimum wage hike because he thinks franchisees can manage labor costs. Similar sentiments were offered by the CFO of the Del Frisco’s steak chain. The chairman of Panera said the chain’s menu prices are up 2.1 percent from a year earlier but that’s not quite enough to cover food, wages and benefit cost increases.
The major problem is the jump to a $15 an hour minimum wage. The impact of that hasn’t been felt since it has not been completely phased in yet in Seattle, Los Angeles and San Francisco. But, the CEO of Fatburger said the numbers simply don’t work. He states that even a 15 percent increase in menu prices won’t cover the wage cost jump, forcing operators to raise prices more than customers will be comfortable with.
As noted in this space before, the industry has swallowed minimum wage price increases and not only survived but thrived. But increasing the minimum wage from $7 or $8 an hour to $15 is uncharted territory.
Economic News This Week
- The Institute for Supply Management’s Production Manufacturing Index slid in November to 48.6 percent, down from 50.1 percent in October. (Any number less than 50 shows declining manufacturing activity.) November was the first month since 2012 manufacturing was in a contraction mode. The New Orders Index registered a reading of 48.6 percent, down from 52.9 percent. The Production Index fell to 49.2 percent from October’s 52.9 percent but the Employment Index rose to 51.3 percent in November from 47.6 percent in October. Only 5 of the 18 industries surveyed by the Institute reported growth in November.
- The Institute for Supply Management’s Non-Production Index registered 58.2 percent in November, a decline of 3.2 percentage points from October. But any reading in excess of 50 indicates growth and November is the 70th consecutive month the index reported increasing activity. All the sub indices’ fell but remained well in positive territory.
- Factory orders for manufactured durable goods increased 2.9 percent In October according to the Census Bureau’s full report for the month. Shipments decreased 1.0 percent while unfilled orders increased 0.3 percent.
- Productivity increased at a 2.2 percent annual rate in the third quarter as output increased 1.8 percent while hours worked decreased 0.3 percent. The drop-in hours worked was the first since the third quarter of 2009. Unit Labor Costs increased 1.8 percent due to a 4.0 percent increase in hourly compensation and the productivity increase of 2.2 percent.
- Auto and light truck sales continued to surge in November with strong SUV sales leading the way. Low gas prices, attractive financing costs, and healthy incentives from automakers may make 2015 the best year ever with some predictions that unit sales will hit 18 million.
- ADP’s National Employment Report projected the U.S. economy added 217,000 jobs in November. This makes last month’s hiring the third best month of 2015 exceeded only by 231,000 jobs in June and 220,000 in January. The payroll processing company also reported that all size businesses were actively hiring with small employers (less than 50 employees) adding 81,000 jobs, mid-size employers (50-499 employees) adding 62,000 employees and large employers (+500 employees) adding 74,000.
- Initial jobless claims hit 269,000, an increase of 9,000 for the week ending November 29. The 4-week moving average was 269,250, a decline of 1,750. For still another week the jobless claims remain at a low level.
- There were 211,000 new jobs added in November according to the Bureau of Labor Statistics “Jobs Friday” report. The private sector added 197,000 new workers while various government organizations added 14,000. On a less positive note, the number of long-term unemployed stayed high and the number of employees working part time who desire full time employment rose after declining in the previous two months. Better news was that October’s payroll gain was revised up to 298,000 from the initially reported 271,000. The unemployment rate stayed at 5.0 percent even with the large increase in workers as unemployed persons who had dropped out of the labor market chose to start looking for work.
- Construction spending rose 1.0 percent in October, compared to September. The U.S. Census Bureau also reported that residential spending increased 1.0 percent in October. Total construction spending was up 13.0 percent over October 2014 and has risen 13.0 percent in the first 10 months of the year.
- World food prices fell in November after a spike in October. The United Nation’s Food & Agricultural Organization reported a drop of 1.6 percent in November.
- The Gallup Organization’s U.S. Economic Confidence Index read minus 13 for the week ending November 22, indicating more consumers see the economy as negative vs. those who view it as positive. The Index has been in this general range since summer.
Foodservice News This Week
- Foodservice hiring remained strong in November with the industry adding 31,500 new jobs. Foodservice accounted for almost 16 percent of the total private sector jobs added last month. The Bureau of Labor Statistics now says foodservice employs 11,236,800 workers.
- CEO of CKE Restaurants calls the NLRB decision “illogical.” In a guest column in The Orange County Resister Andrew Puzder said that the National Labor Relations Board’s three to two ruling that franchisors are “joint employers” with the franchisees will “leave a trail of devastating economic effects…” A bipartisan bill to overturn the NLRB decision has been introduced in the US Congress.
- The National Restaurant Association plans to sue New York City over the municipality’s sodium labeling law. The rule requires operations with 15 or more locations to display a warning symbol on any menu item with more than 2,300 milligrams of salt.
- McDonald’s is testing table service at 600 Southern California locations. The test is along the lines of a fast-casual approach with customers giving their orders at the counter with the food then brought to the table.
- The European Union is investigating McDonald’s over taxes in Luxembourg. McDonald’s may be liable for heavy back taxes if EU regulators find the company’s two tax deals are unlawful. McD’s is in good company with similar tax charges have been brought against Apple, Fiat Chrysler and Starbucks.
- Corporate Stirrings: Jimmy John’s will not have an initial public stock offering. Founder Jimmy John Liautand had explored the idea for two years but had recently expressed a great deal of ambivalence about running a publically held company. Taco Bueno, the 177-unit Tex Mex chain, has been purchased by private equity firm TPG Growth. Restaurant Acquisitions I, owner of Black Eyed Pea restaurants in Texas has closed about half of their 30 restaurants and is seeking to reorganize under bankruptcy protection.
- Growth Chains: Roti Mediterranean Grill will drop Grill from its name and completely change its menu in preparation for opening “hundreds” of restaurants. Rita’s Italian Ice has awarded a development agreement for the states of Washington, Idaho, Hawaii, plus Ventura County and San Jose, California. Carl’s Jr. opened the chain’s 200th restaurant in Mexico and projects having 300 locations in that country by 2019. Newk’s Eatery plans to open as many as 6 restaurants in River City and St. Augustine, Florida.
- Comparable Store Sales Reports: Bob Evans down 3.2 percent and Steak N Shake up 3.0 percent.
For details and same-store sales of other chains, please click here for the Green Sheet.