This Week In Foodservice

Jerry Stiegler aggregates key industry information and provides brief analysis to help foodservice professionals navigate the data.

Advertisement

Starbucks Evolves, McDonald’s Prepares to Exit Russia

Starbucks remains in the spotlight for plenty of reasons. McDonald’s looks to exit Russia. One Texas restaurant tries to help thy neighbor.

While it is not terribly obvious to the casual observer, Starbucks’ business has changed dramatically over the years. The original concept was based on becoming a friendly, communal gathering place. It was based on something Starbucks CEO Howard Schultz experienced in Milan, Italy. Customers could use Starbucks however they say fit. For example, friends could gather their talk leisurely while salespeople could meet clients to make their pitches in a relaxed atmosphere. Plus, the baristas working the store knew their customers’ faces if not their names, adding some warmth to the environment.

But a lot of that changed as Starbucks grew. Customers got more adventuresome and more sophisticated. Many baristas saw themselves as creative, skilled professionals yet some struggled to keep up with customers’ complicated orders. Starbucks added food items to the menu. Drive-up windows were a marketing success, but they certainly didn’t contribute much to the experience upon which Starbucks was built.

Enter the unions. The history of collective bargaining shows unions do well in good times but don’t do so well in bad ones. The U.S. is now in the greatest manpower shortage in its 300-year history, so the union’s timing is excellent. The Wall Street Journal recapped the results of the unions’ activities to date. (Service Employees International Union is the union providing support to the Starbucks unionization movement. This is the same union that made a run at McDonald’s years ago.)

To date 48 Starbucks stores have held elections so far with the union winning 42 and losing 4, with 2 elections being disputed. A couple of weeks ago, the National Labor Relations Board said it has more than 100 elections scheduled at Starbucks stores.

While it may seem that the union is on a roll, it is important to remember that they get to choose which stores in which to hold elections so they are not going to call for an election unless they are reasonably sure they will win. The union has to get credit for taking on Starbucks. It is not easy to own a company with thousands of locations and try to get them to sign on one at a time.

Earlier this year the Seattle-based coffee chain experienced another huge change when Kevin Johnson stepped down as Starbucks’ president. Company presidents in the U.S. generally don’t lose their jobs unless they don’t make their goal or get caught in a financial or sex scandal. Johnson had an excellent financial performance in his five years at Starbucks helm and as far as anyone can tell he is a straight arrow. Johnson’s departure led to Schultz stepping back into the president’s role.

Starbucks is playing hardball with the union by developing a package of benefits that the union can’t match. Schultz has hinted that the program will only be offered to non-union members.

Starbucks has been transformed from a warm place to meet in a high-tech provider of coffee. It is now the third-largest chain in the world, smaller only than McDonald’s and Subway in sales. And Starbucks is growing faster than either of them. Moreover, Starbucks continues to report strong financial results. For example, the saw same-store sales increase by 12% in the U.S. in its last fiscal quarter.

Given the changing nature of consumer behavior, the ongoing labor issues and recent strong quarterly sales, Starbucks will remain in the industry spotlight for the near future.

Economic News This Week 

  • Initial jobless claims totaled 200,000 for the week ending April 30. This represents an increase of 19,000 from the previous week, per the U.S. Department of Labor. The 4-week moving average totaled 188,000, an increase of 8,000 claims.
  • Manufacturing activity continued to grow in April but at a slower rate than in March, per data from the Institute for Supply Management. Some of the indicators, including the New Orders Index, Production Index, and New Export Orders, declined less than a full percentage point. Of the 18 manufacturing industries included in the survey, 17 reported growth in April.
  • Business activity in the services sector grew in April, marking the 23rd consecutive month of growth, per the Institute for Supply Management. Like the ISM’s manufacturing study, though, services grew at a slower rate in April when compared to March. Overall, the services sector was down 1.2% compared to March. Of the 18 service industries included in the April study, though, 17 showed growth.
  • U.S. factory orders increased 2.2% in March. This is the largest increase since May of 2021 and twice the projected growth rate for March.
  • The private sector added 247,000 jobs in April, per the ADP Employment Report. The job increase was mostly from companies with more than 500 employees. These businesses added 321,000 new employees in April. Medium-size companies (50-499 employees) increased their payrolls by 46,000. But small firms (1-­49 employees) had their employment shrink by a hefty 120,000. Leisure and hospitality employment rose by 77,000.
  • Non-farm employment increased by 428,000 in April, per the U.S. Bureau of Labor Statistics. The unemployment rate remained unchanged since March at 3.6%.
  • Private construction spending increased 0.2% in March from February, per the U.S. Census Bureau. Residential construction spending increased 1.0% compared to February.
  • Consumers increased their borrowing by 14.0% in March, per the U.S. Federal Reserve. Revolving credit, mostly credit card borrowing, increased by 35.3%. Non-revolving credit, including auto loans, student loans, etc., rose by 7.4%.

Foodservice News This Week

  • McDonald’s plans to end its operations in Russia. When Russia first drew criticism, McDs characterized the closings as a pause in business. Now the Chicago-based company plans to sell 84% of its 850 stores in Russia. McDonald’s may take a $1.4 billion in a non-cash write-off depending on the amount generated by the sale of the restaurants. McDonald’s CEO, Chris Kempczinski said many might feel the right thing to do is to continue to employ tens of thousands of ordinary Russian citizens but is impossible to ignore the humanitarian crisis in Ukraine.
  • GrubHub has developed a virtual brand as a service for its delivery customers. The delivery-only program menu was created in partnership with contestants from the cooking show MasterChef. Restaurants can license the MasterChef Table’s familiar foods as an add-on to their existing business. There is no licensing fee and GrubHub will cover the cost of the initial inventory.
  • The CEO of Oche prefers the terms “gastro gaming” to eatertainment. And Troy Warfield Insists that his operation’s food and beverages are far superior to the menu items from the mediocre items found at most eatertainment operations. The gaming part of Oche features various dart games with real darts and real dart boards but the rest is technology. Oche has four units, one each in Australia the Netherlands, Norway, and Sweden. The fifth operation in Miami closed when the landlord sold the building. The chain, however, continues to look for a franchisee in the US.
  • One Texas restauranteur is doing what he can to help with the U.S. baby formula shortage. Mansfield, Texas-based Our Place has given away 56 cases of baby formula to date, per USA Today. The owner’s message is a simple one: help your neighbor.

For the most recent comparable store sales reports, please click here for the latest Green Sheet.