This Week In Foodservice

The editorial team aggregates key industry information and provides brief analysis to help foodservice professionals navigate the data.


The Impact of California’s FAST Act, and More Foodservice News

Here comes the FAST Act. The restaurant industry’s mixed performance. Consumer confidence and the jobs market remain stable. These stories and more This Week in Foodservice.

The impact California’s FAST Act will have on the restaurant industry has been debated for quite some time. Well, the time for debate is over. The FAST Act takes effect in California this week, requiring chains with at least 60 locations nationwide to pay employees a minimum wage of $20 per hour, a $4 per hour increase. This gives California the highest minimum wage in the U.S., per the Wall Street Journal. As a result of this new law taking effect, more than half a million fast-food workers are in line for a raise, per USA Today.

Proponents of the bill, including the union that championed its passage, say it will help provide workers with a living wage.

The bill goes into effect during a historically complicated time for restaurant operators. For example, food-away-from-home prices are growing at a much faster rate than grocery store prices. Industry observers wonder whether the higher minimum wage will lead operators to reduce their hours.

One restaurant operator did not waste time in taking action, raising prices as well as holding off on opening any new locations for the time being, per a Yahoo! Finance Report. And reductions in the workforce remain an option. As recently as December, Pizza Hut announced plans to cut more than 1,200 delivery jobs.

Which restaurant chains are poised to weather a $20 per hour minimum wage? That’s the question Yahoo! Finance asked. Chains with a loyal following, such as Chipotle, appear to be well-positioned. Still, Chipotle’s chief financial officer told Yahoo! the chain will likely have to raise prices to deal with the higher labor costs. Chains with significant scale, like McDonald’s, also seem in a decent position to weather these higher costs of doing business because they can address some of this pressure with their national and international businesses. Other chains, though, may struggle. Take, for example, Jack in the Box. Roughly 43% of its restaurants are in California, which will make it more challenging for the company to compete.

It should be noted that the FAST Act only applies to chains with more than 60 units, meaning it does not impact the independent operators. How will that impact these smaller operators’ ability to compete for labor remains to be seen.

Foodservice News This Week

  • Restaurant industry performance offered mixed results in February, per the National Restaurant Association’s Restaurant Performance Index. First, the good news: Industry performance increased 0.3% compared to January. Now the bad news: The RPI registering a score of 99 means the industry remains in contraction mode. While operators reported slight improvements in same-store sales and customer traffic their outlook for the coming months remains uncertain. Operators making capital expenditures in February declined 3% from January. Looking ahead, 49% of operators plan to make a capital expenditure in the coming months, down 8% from January.
  • Punch Bowl Social continues to diversify its portfolio by purchasing two concepts, per a Restaurant Business report. Sweet Tooth Hotel is a ticketed experience with rotating art installations and is very Instagramable. Voicebox is a two-unit karaoke concept. While Karaoke is an activity Punch Bowl Social offers, the company does not view the two sibling concepts as competitors. That’s because karaoke is the main reason to visit Voicebox but it’s one of many features offered by Punch Bowl Social. These concepts provide Punch Bowl Social with new growth avenues in spaces that tend to be significantly smaller than its traditional units.
  • STK and Benihana are about to become sibling concepts. That will happen once multiconcept operator The ONE Group Hospitality completes its deal to acquire Benihana as part of a deal valued at $365 million.
  • An iconic family dining chain is for sale. Again. Multiple published reports said private equity firm Golden Gate Capital is shopping Bob Evans, which operates approximately 450 restaurants across 18 states. The chain was last reportedly up for sale in 2022 at a valuation of about $600 million.
  • The Coffee Bean & Tea Leaf opened its first drive-thru-only location. The Rialto, Calif., unit also features a pickup window, per a company release. The chain plans to open more of these types of stores in markets with high traffic and high mobile app usage, per a Restaurant Dive story. This unit measures 1,200 square feet but the chain anticipates future drive-through-only locations can go as small as 850 square feet.

Economic News This Week

  • Has consumer confidence stabilized? Apparently, per the latest data from the University of Michigan’s Survey of Consumers. The Index of Consumer Sentiment came in at 79.4 for March, which is 2.5 points greater than February. Overall, that data point has been relatively stable since January. The Index of Current Economic Conditions increased 3.1 points for a reading of 82.5. Even the Index of Consumer Expectations was up 2.4 points. What’s driving this period of good feelings? Consumers exhibited confidence that inflation will continue to soften, the university reported. Assessments and expectations of personal finances improved modestly from last month, as the perceived negative effects of high prices and expenses on living standards eased.
  • The number of job openings changed little at 8.8 million on the last business day of February, per data from the U.S. Bureau of Labor Statistics Job Openings and Labor Turnover Study. Over the month, the number of hires and total separations was little changed at 5.8 million and 5.6 million, respectively. Within separations, quits (3.5 million) and layoffs and discharges (1.7 million) changed little.
  • Initial jobless claims totaled 210,000, a decline of 2,000 for the week ending March 23, 2024, per the U.S. Department of Labor. The 4-week moving average was 211,000, a decrease of 750 from the previous week. Many economists point to the decline in jobless claims as a sign of a strong U.S. economy.
  • The U.S. economy performed better in the fourth quarter of 2023 than initially thought. Real gross domestic product grew by 3.4% for the period, per the third estimate from the U.S. Bureau of Economic Analysis. This is 0.2% greater than the previous estimate. The update primarily reflected upward revisions to consumer spending and nonresidential fixed investment that were partly offset by a downward revision to private inventory investment. The end of the year was not as kind to other economies, though. Reuters reports that the United Kingdom experienced a shallow recession at the end of 2023.
  • Economic activity in the manufacturing sector expanded in March, per the Manufacturing ISM Report on Business. This snapped a streak that saw manufacturing activity contract for 16 consecutive months. The Manufacturing PMI increased 2.5 percentage points for a reading of 50.3%. Any reading greater than 42.5% generally indicates expansion in the segment.
  • New orders for manufactured goods increased 1.4% in February, per the U.S. Census Bureau. This stops the streak of two consecutive monthly decreases and beat economists’ forecasts by 0.4%.