At $16.30, Emeryville, California’s official minimum wage is the highest in the U.S. The Wall Street Journal took a look at the impact of the minimum wage on the municipality, particularly the small restaurants. (The Independent Journal Review also explored this issue and the Journal’s story in this piece.)

Citing the city’s $1.30 minimum wage increase, which took affect earlier this month, one operator eliminated the dinner shift and laid off 6 of the restaurant’s 10 employees. The owner questioned if his business could survive.

Another restaurant chose to increase the price of two breakfast specials to $14.50 from $11 and the price of an Asian salad to $15.50 from $10. Despite taking these menu price increases this operator tells the Wall Street Journal the restaurant is still not covering its increased labor costs. 

A third owner is trying to decide between raising the price of sandwiches as much as $1.50 or laying off 1 of his 3 employees. And still another owner who planned to increase workers’ hours before the wage increase ended up cutting them.

Proponents of the increased minimum wage point out Emeryville is the home of Pixar Animations Studios and a lot of highly paid employees. The median monthly rent for a one-bedroom apartment is $2,840, while the median home price checks in at $560,000. One restaurant employee said the $16.30 minimum enables her pay for her $1,500 a month studio apartment. A waitress said the $16.30 rate will help her family and save money for college.

The Emeryville City council was recently asked to exempt two dozen small restaurants from the wage increase. The council voted 5 to 0 to keep the increased rate in place.

Economic News This Week

  • The Bureau of Economic Analysis’ advance estimate for gross domestic product for the second quarter of 2019 came in at +2.1 percent on an annual basis. This exceeds most forecasts, which were around +1.8 percent. If the +2.1 percent increase holds up, it means the economy is performing even better than most experts had expected. The BEA’s will release its second estimate on August 2. https://www.bea.gov/data/gdp/gross-domestic-product
  • Initial-jobless claims totaled 206,000, a decline of 10,000 for the week-ending July 20. The 4-week moving average totaled 213,000, a decline of 5,750.
  • Existing home sales declined 1.7 percent in June compared to May to a seasonally adjusted annual rate of 5.27 million, per the National Association of Realtors. June sales were down 2.2 percent from June 2018. An association spokesman cited an insufficient supply of mid-to-lower price homes compared to demand for such housing. As a result, the lack of smaller homes is pushing up prices and making houses unaffordable for particularly for first time buyers.
  • Home builder confidence held steady in July with the National Association of Homebuilders/Wells Fargo Housing Market Index increasing one point. Builders reported “sold demand” for single-family homes but were troubled by labor shortages, a dearth of buildable lots and rising construction costs.
  • June sales of new single-family houses reached a seasonally adjusted annual rate of 646,000. This is 7.0 percent increase from May and a 4.5 percent increase over June 2018.

Foodservice News This Week

  • Jack’s Family Restaurants was sold to Onex, a private equity fund. The 125-unit chain’s selling price was $650 million, according to The Restaurant Finance Monitor. This would seem to be a pretty steep price but one report said Onex sold the land under the restaurants on a sale/leaseback arrangement making the cash price lower. Another source noted that most of Jack’s units operate from smaller Alabama towns where they are the only full-serve restaurant open for three meals a day. Thus, Jack’s faces less competition.
  • McDonald’s reported fairly strong second quarter results. Systemwide sales increased 8.0 percent in constant currencies and global comparable store sales rose 6.5 percent. In the U.S., comparable store sales increased 5.7 percent, the best same store sales McD’s has had in 4 years.
  • Firehouse Subs opened a new prototype unit outside Jacksonville, Fla. The chain calls this design its restaurant of the future. The unit features a re-positioned ordering area and a designated space for customers to pick up orders placed using the company’s app. In addition to all new furnishings, fixtures and graphics the new prototype’s back of the house was designed to be more efficient.
  • Tim Hortons opened a first-of-a-kind innovation café. The café will test new menu items and technology initiatives. The new location resides in downtown Toronto, one floor below Tim Horton’s headquarters office. FE&S’ sister publication rd+d took a closer look at Tim Horton’s 130 King.
  • Krispy Kreme introduced a new store design, too. In addition to a greatly expanded menu, the new model offers “an enhanced doughnut theater experience. Located in Concord, N.C., the revised shop features online ordering, delivery, in store self-service, dedicated parking for mobile order pick-up and an expanded drive-thru with two lanes and digital order confirmation.
  • Starbucks will license components of its proprietary digital flywheel software to Brightloom, formerly known as eatsa. Brightloom is “…working to create a best-in-class end-to-end digital customer experience platform for the restaurant industry.” Starbucks will take an equity stake in the company and receive a seat on Brightloom’s board.
  • Steak n’ Shake must pay its St. Louis area restaurant managers $8.3 million in back pay and attorney’s fees and costs. The U.S. district court ruled that while managers were payed a flat salary, they in effect did the same work as hourly paid employees and were entitled to overtime pay.
  • Corporate Stirrings: Philippines-based Jollibee Corporation plans to buy U.S.-based Coffee Bean & Tea Leaf for $100 million. The deal will have 80 percent of the Coffee Bean & Tea Leaf owned by Jollibee’s Singapore holding company and the remaining 20 percent by Jollibee’s partner in its Vietnam coffee and restaurant business. The acquisition is part of Jollibee’s overseas expansion strategy. Cooper’s Hawk Winery & Restaurants received an investment from the publicly traded firm of Ares Management. The amount of the investment was not given but it was not a controlling interest and Cooper’s Hawk will use the capital for expansion. Kona Grill, which filed for bankruptcy earlier this year, was sold to Williston Holding Company. Williston is owned by Marcus Jundt, one of Kona Grill’s founders. He twice served as the chain’s CEO. Kona Grill was purchased for $20.3 million in cash and Williston also took on $5 million in liabilities.
  • Growth Chains: Another Broken Egg Café plans to open more than 30 cafes across Alabama, Arizona, California, Florida, Kansas, Ohio, Pennsylvania and Texas. Another Broken Egg Café also announced that existing franchisees will open cafes in Cincinnati, Houston Indianapolis and Jackson, Miss. Popeye’s Louisiana Kitchen, Inc. will open more than 1,500 restaurants in China in the next 10 years. Bar-B-Cutie Smokehouse, with four restaurants in Texas, will add two more locations in the southern part of the state. Dickey’s Barbecue Pit’s Brazilian franchisee will open 100 locations. Pinstripes, a 10-unit operation with Italian-American cuisine that also offers bowling and bocce ball, plans to grow to 100 locations in the U.S. and an equal number of restaurants overseas. Le Pain Quotidien added 42 restaurants in the past 12 months. Mountain Mike’s Pizza has added 7 locations in the past year.
  • Comparable Store Sales Reports: McDonald’s Up 5.7 percent and Starbucks up 7.0 percent.

 

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