State lawmakers in California introduced a bill Tuesday that would require large food and retail employers to schedule workers at least two weeks in advance, or face penalties for last-minute staffing changes.
Known as the “Fair Scheduling Act,” Assembly Bill 357 was introduced by State Assembly members David Chiu, D-San Francisco, and Shirley Weber, D-San Diego. As introduced, the bill would apply to food and retail employers with 500 or more employees. It is designed to address the growing number of employers implementing “just in time” and “on-call” scheduling practices to minimize labor costs.
The bill is the first of its kind at the state level, and aims to improve working conditions for part-time and low-wage workers, who often struggle with issues like child care, balancing shifts between two jobs, finding transportation, and pursuing education and training.
“Without fair and predictable work schedules, more and more Californians, particularly part-time and low-wage workers, are struggling to plan for basic life necessities, like child care or a much-needed second job,” Chiu said in a statement. “California can lead the way once again by providing for fair scheduling for the men and women on the front lines of an increasingly unequal economy.”
The lawmakers said the Great Recession has fundamentally changed California’s workforce. The state now has the largest percentage of hourly workers in the country.
Last year, Chiu, who served previously on the San Francisco Board of Supervisors, introduced a similar bill there, which takes effect in July. That bill affects employers with more than 20 employees, according to the San Francisco Chronicle.
AB 357 would require large employers to pay penalties if shifts are changed with less than two week’s notice. What those penalties would be remains to be seen. The meat of the legislation is yet to be determined, and the bill is seen as a placeholder for further development.
Matt Sutton, vice president of government affairs and public policy for the California Restaurant Association, declined to comment on the specific legislation, given that details are not yet available.
The restaurant industry is expected to vigorously oppose attempts to further regulate scheduling, which is often based on unpredictable factors that likely won’t be addressed with a one-size approach.
“We’re staffing based on customer demand and foot traffic,” Sutton said. “Even the weather could be an issue. None of that is predictable.”
Contact Lisa Jennings at firstname.lastname@example.org.
Are you getting what you paid for from seafood suppliers? If your fish is mislabeled or short-weighted, you could be the victim of seafood fraud. As a result, you could be losing money and/or perpetuating the fraud by inadvertently deceiving your guests. In this article from the National Restaurant Association, learn more about seafood fraud and how to ensure your restaurant is protected.
Seafood fraud can occur anywhere along the supply chain, says Lisa Weddig, secretary of the Better Seafood Board, which works with restaurants, retailers and manufacturers to report suppliers that commit economic fraud.
The most common issues of seafood fraud are menu mislabeling, species substitution and short weighting. Menu mislabeling occurs when a restaurateur or retailer markets one species as another, such as serving tilapia but describing it as grouper. Similarly, species substitution occurs when a supplier sells a fish under another name, such as labeling a box of various types of snapper as red snapper.
Short-weighting occurs when a supplier adds moisture, water or another additive to make frozen fish appear to weigh more. For example, a supplier might include the weight of the ice glaze with the weight of the fish, Weddig explains.
“I slack mine out in water, put it in a perforated pan and weigh it,” says former NRA chairman Ken Conrad, president of Libby Hill Seafood. “I count every piece and weigh every piece.” If you order 1,000 pounds of seafood a month, and your weight is off by $1 a pound, you’re losing $1,000 a month, Conrad says.
Here are more tips to avoid seafood fraud:
• Use the FDA seafood list to see the common, acceptable market and Latin names of seafood, Weddig suggests. Conrad prints the list and compiles a booklet for staff to consult in each of his restaurants.
• Unsure you’re using the right terminology? The Better Seafood Board will review your menu for red flags, Weddig says.
• If you run out of a fish, just say you’re out. Don’t try to substitute, Weddig says.
• Find a reputational supplier. If you’re just starting out or looking for a new supplier, call better-known, established restaurants in your area to find out whom they buy from, says Bart Farrell, food and beverage director, Clyde’s Restaurant Group. Then go visit their plants unannounced.
Farrell has been buying the majority of his seafood from the same supplier, Congressional Seafood, for 15 years. Clyde’s and Congressional established a multi-prong quality control plan, which includes strict procedures from cutting to packing to shipping. An employee signs off on each step to ensure quality, and the product undergoes a final check before shipping. That ensures the correct cut, count and weight for each product; otherwise, Clyde’s would send the product back.
Farrell also receives a copy of the seafood supplier’s quarterly Sanitation Inspection Audit and makes announced and unannounced visits. If you find trustworthy and reputable suppliers, they’re unlikely to risk their reputation and pull a fast one on you, he says. Otherwise, they stand to lose a fair amount of business.
• Consider working with suppliers who belong to the Better Seafood Board. Members are committed to preventing seafood fraud and providing products that are accurately labeled for identity and weight.
• Buy fish with skin on or whole fish when possible. “It’s a good way to avoid surprises,” Farrell says. After a fish is skinned and filleted, it’s difficult to tell a cod from Pollock, especially for someone not trained, Conrad says.
• When buying fillets, train employees to properly identify commonly marketed species during receiving, the FDA recommends. “Frozen fillets tend to look alike, unless you really know your fish,” Weddig says.
• Be skeptical of extra-low prices or incredible deals that are outside the norm. When someone offers you something that sounds too good to be true, “something’s fishy,” Conrad says.
• Confirm the species sold to you is the same as what was sold to your supplier, the FDA recommends.
• Train staff to check the product against labels, invoices and purchase orders, the FDA suggests.
• Establish procedures for weighing, taking temperature and notifying the chef of abnormalities with the product or inconsistencies with the label, invoice or purchase order, Farrell advises.
• Train employees to double check weights. For example, thaw shrimp before checking the quality and consistency, Farrell recommends. Make sure the slacked weight is the same as the packaged weight. Make sure they understand the procedures to check the weight of frozen seafood, which could influence the final weight, Weddig says.
• Familiarize your kitchen team with new offerings, starting with your chefs. When Clyde’s adds a new fish to the menu, the chefs work with it to develop new recipes. Then they spend time the prep team and cooks so they understand what the new fish should look and taste like, and most importantly, how to cook it properly.
• Contact the appropriate state, local or federal agency if you have any concerns.
A coalition of restaurant, retail and franchise groups has expressed confidence that they could push changes in the Affordable Care Act’s definition of full-time workers in the new Republican-led House and Senate.
Industry groups seek to revise the ACA’s definition of a full-time workweek from the current 30 hours to “the more historic standard of 40 hours per week,” said the National Restaurant Association, which noted that there are 7.5 million hourly workers at U.S. restaurants and bars.
The workweek definition has been a longstanding priority for industry groups. The ACA’s current “employer-mandate provision” requires certain companies with 50 or more full-time equivalent employees to provide healthcare coverage to their full-time employees and dependents, or potentially be penalized. The ACA defines an employee working 30 hours a week as full time.
“It is a good sign to the industry that one of our issues is among the first issues that this Congress will address,” said Scott DeFife, the NRA’s executive vice president for policy and government affairs, in an interview Tuesday. “That’s an important signal to the industry that there is hope we can make some changes to mitigate the impact of the law on restaurant operations.”
The NRA is working with the U.S. Chamber of Commerce, the American Hotel & Lodging Association, the International Franchise Association and a number of other retail groups to affect the ACA changes in an umbrella campaign called “More Time for Full Time.” Link: MoreTimeForFullTime.org
House members are scheduled to vote Thursday on an ACA workweek bill, H.R. 30, to raise the definition to 40 hours. The House passed the bill, introduced by Rep. Todd Young, R-Ind., and Rep. Dan Lipinski, D-Ill., twice last year, but it was not considered in the Senate.
This year, however, a companion bill in the Senate, sponsored by Sens. Susan Collins, R-Maine, and Joe Donnelly, D-Ind., was reintroduced Wednesday.
Jack Crawford, the NRA’s new chairman, and president and CEO of the Ground Round Independent Owners Cooperative, appeared with Collins and Donnelly at a press conference in Washington, D.C.
“With a workforce of over 13.5 million, restoring the definition of a full-time workweek to the traditional 40-hour model is critical now more than ever,” Crawford said in prepared remarks. “As it stands, the 30-hour definition under the current healthcare law forces employers to restructure our workforce and unwantedly reduce employee hours.”
Robert J. Green, executive director of the National Council of Chain Restaurants, a division of the National Retail Federation, on Wednesday expressed his group’s “strong support” of the House legislation.
“H.R. 30 aligns the Affordable Care Act’s current definition of full-time work — 30 hours per week — with the definition found in most other workplace rules — 40 hours,” Green said. “The 40-hour workweek is a time-honored American tradition ingrained in our laws and culture; the ACA’s 30-hour per week threshold is a peculiar, restrictive and detrimental provision of the law.”
Green said the 30-hour definition led to “difficult and complicated calculations required for chain restaurant businesses to be in compliance” with the act’s requirements.
“The 40-hour full-time workweek definition in H.R. 30 will allow business owners to make rational decisions about staffing levels in their restaurants and will provide employees additional and needed opportunities to work additional hours,” Green said.
The timetable for the Senate’s companion bill remains unclear, the NRA’s DeFife said. “There are more procedural issues in the Senate that have to be worked out, but we hope those will be worked out shortly,” he said. “It’s more a matter of when and how, not if, in the Senate. It will happen.”
DeFife said restaurant operators have made changes in the workweek definition a top priority for their industry representatives in the capital.
“The 30-hour definition is so contrary to other parts of their operations in terms of workforce planning,” DeFife said. “And there is no other labor law that gears anyone toward 30 hours a week as full time. This arbitrary limit on hours for part-time to full-time is a barrier to management’s operation of the restaurant and to workers’ earnings.”
While President Barack Obama’s administration has indicated it would veto any ACA workweek changes, DeFife said bipartisan support in Congress would strengthen the industry’s arguments.
“The signal to look for is if we have enough Democratic support that the administration should take this issue seriously and work with us on making this change,” DeFife said. “This is not a fundamental thread to the core of the administration’s purpose for providing healthcare. This is a definition of full time that has had a lot of unintended consequences on workplace management and hiring that don’t have anything to do with healthcare.”
Published by Nation’s Restaurant News, written by Ron Ruggless.
Technology increasingly played a role in restaurant chain operations across the board this year, but one trend in particular stood out in 2014: mobile ordering and payment.Restaurant chains from Starbucks to Taco Bell rolled out or took the first step toward allowing guests to order ahead and pay via smartphone. Next year, no doubt, many more chains will go mobile in what for some could be a consumer-facing game changer.
Starbucks, for example, next year isplanning to take mobile ordering a step further by offering delivery in certain markets. Chick-fil-A’s mobile ordering feature will include the option of having food delivered curbside to the car in some locations.
Next year will be all about execution. The key will be in how well newly mobile chains adjust to the additional throughput pressures of balancing incoming digital orders with those from customers already in the store.
The launch of Apple Pay, the proprietary mobile payment system of Apple Inc., this year also marked the beginning of new era in mobile payment.
McDonald’s, Subway and Panera Bread are among the brands accepting the smartphone payment method, which is preloaded on Apple’s new iPhone 6. Independent restaurants also are increasingly accepting Apple Pay through the OpenTable reservation service.
Casual-dining chains moved into online ordering, with brands like Olive Garden, Johnny Rockets and Buffalo Wild Wings joining Applebee’s and Chili’s in putting touch-screen tablets in restaurants.
A common goal: Removing the “pain point” of waiting for the check at the end of the meal.
For some brands, however, the tabletop tablets also offered other means of incremental income. At Johnny Rockets, the tablets also serve as jukebox. Buffalo Wild Wings is offering sports content, video poker and trivia games.
Touch-screen technology was also explored at McDonald’s. After testing a build-your-own burger feature in four units in Southern California, McDonald’s this yearannounced the expansion of its Create Your Taste program to as many as 2,000 locations next year. The platform features touch-screen kiosks at which guests can fully customize a burger of their own creation.
Digital ordering technology gave pizza-delivery chains Domino’s and Papa John’s a big boost this year. Both chains say the number of orders coming in through various digital channels is rapidly rising – reaching 40 percent for Domino’s and 50 percent for Papa John’s this year.
The pizza industry in general has pioneered the move away from phone orders, training consumers to think first of turning to their computers or smartphones when in the mood for a pie.
As a result, brands are shifting to more responsive websites. Donato’s Pizza, for example, relaunched its website this year with a more responsive design that will optimize itself for use on desktop computer, smartphone or tablet.
Pizza Hut is reportedly exploring the use of eye-tracking technology on a tablet that it calls a “subconscious menu.” It watches where your eyes linger, eliminating the need for tiresome tapping on a screen.
Next up: menu boards. Wetzel’s Pretzels last month debuted new digital menu boardswith animation that features charming little blue bakers who open up a world behind the menu screen.
Watch the animation featured on the new Wetzel’s Pretzels menu boards:
As restaurant chains move forward with tech innovations next year, a likely theme will be the link to loyalty programs, offering brands a new opportunity to target their marketing efforts and collect data that will better drive results.
As Mark Mears, chief marketing officer for Schlotzsky’s, told Nation’s Restaurant News earlier this year, technology is not just about creating a “wow” factor.
“Rather, use the data, information and insights that technology provides to engage your guests on a more intimate, one-to-one level,” he said. “This will elevate your brand from a surface-level transactional exchange to a deeper, more relational level with your guests.”
Written by Lisa Jennings at email@example.com via Nation’s Restaurant News.
70% of a general manager’s bonus is directly dependent on the skillsets of the assistant manage
No matter how much of a workaholic your general manager (GM) may be, the fact is that 70% of a restaurant’s shifts are supervised — in whole or in part — by assistant managers. This means that 70% of your volume, service, sales, profits, costs and customers are overseen by assistant managers (AMs) or shift leaders. Seventy-percent of a general manager’s bonus is directly dependent on the skillsets of the assistant manager. The critical question is: do your AMs know how to maximize performance, productivity and profits over all those shifts they collectively supervise, or are they “practicing” on the customer and crew? What’s the cost in lost profit, sales, turnover and repeat business when they merely “run” a shift versus leading it? What’s the best way to develop AMs whose experiential leadership learning curve is analogous to laying track while the train is running?
An effective AM is like the blank in Scrabble; use her or him on any challenge and suddenly you’ve solved your problem. Pair an experienced GM with an organized and productive assistant manager, and any shift will be profitable despite the challenges, volume or situations. Here are the seven critical skills necessary to best develop your assistant managers and shift leaders so they can help take business to the next level.
Manage multiple priorities. Start here always. The majority of new managers can stumble, fall or fail by underestimating the importance of planning and prioritizing their goals and duties. GMs must help AMs strategically plan and align their time and efforts to the daily activities that make them more effective and efficient. This is job one.
Master basics of business, finance and technology. “Developing their overall business acumen is key to AM or shift leader development,” said Roger Karolick, chief operating officer for Daland Corporation, a Wichita, Kan.-based Pizza Hut franchisee.
“The biggest challenges that AMs or shift leaders face are being prudent with company property and resources, knowing how to make a restaurant profitable by mastering a P&L and understanding customer and people development metrics,” he said. Accumulating this knowledge requires clear communication and consistent coaching, and embracing technology as it relates to back office systems, social media, performance tracking and analytics.
Integrity, credibility and mesh. “Building credibility with the staff is extremely important,” said Paul Mangiamele, chief executive of Dallas-based Bennigan’s Franchising Co. “Learning how to motivate, teach and develop individuals in different ways to reach the desired goal is a challenge for every manager in the industry. Developing a management style that meshes with the GMs, while being flexible enough to account for the fact that each member of the staff is an individual and learns in different ways, is also an important skill for the AM. At Bennigan’s, every GM is expected to dedicate sufficient time each week to follow up on development plans and provide constructive feedback to the AM, so there is mutual clarity on their developmental progress. We believe in teaching, training and coaching our AMs until they have mastered every defined task and responsibility. This builds both knowledge and confidence, while cultivating truly valuable assets to the organization. We also expect our AMs to be self-motivated and to take ownership of their own development,” Mangiamele said. And as far as integrity goes? If you have it, nothing else matters. If you don’t have it, nothing else matters.
Screw up while the stakes are small. Despite what we’ve heard, experience is the worst teacher: it gives the test before the lesson. It’s OK to make mistakes, but not the same ones over and over. GMs should be patient early on with their new charges, but stress accountability and derive lessons from mistakes. After every shift, the GM should assess performance with the AM, share key learnings, praise performance where appropriate and discuss alternatives if problems arise. Ask the AM what they might have done differently instead of telling them what should have been done. Skinny the monologue and fatten the dialogue.
Scheduling and Communication. The best GMs recognize the power of a strong schedule and clear communication and teach that skill to their AMs. Smart AMs learn early on that the better they communicate with their teams before, during and after the shift, the more productive that shift will be.
Assess the competitive landscape. “Most AMs rarely venture outside their four walls to evaluate the competition,” Bennigan’s Mangiamele said. “This is an invaluable learning experience, and we encourage all of our AMs to take the time to get out, see what other restaurants are doing well–and not so well–and to share this info with their GM. We expect our AMs to ultimately develop as much market knowledge and operational expertise as our GMs.” Get AMs thinking proactively: If I was the competition, how would I put us out of business?
Continuously improve. Constructing a sustainable talent pipeline and residual bench strength is the foundation of future growth. GMs should evaluate the progress of each junior manager monthly. Assess training or talent gaps and then assign resources to help them close the gap. Set so-called stretch goals for AMs; not too hard, not too easy. “Clearly defining performance expectations and using performance management processes to encourage, motivate and drive individual and team results through the AM is a critical responsibility of the RGM (restaurant general manager) or district manager,” said Daland’s Karolick. Create an online system where AMs can share insight, questions and concerns with their fellow assistants, as well as immediate supervisors. Make tacit knowledge explicit.
Applying the seven skills above does not guarantee an AM’s success, but not applying them will almost certainly guarantee failure. These skills will incrementally improve your AM’s current performance and simultaneously teach them how to coach future leaders. The true measure of a successful foodservice brand is how many people come through the front door every day. It’s marketing’s job to bring people in the first time, but it’s the unit manager’s job to bring them back. Don’t leave this decision to chance by exposing your VIPs (very important pocketbooks) to unfocused or under-developed junior managers.
Written by Jim Sullivan via Nation’s Restaurant News.
QUESTION: How do you handle people who bring in their own lunch to eat with friends?
ANSWER: If there’s a phrase to describe our most recent questions, it’s “season of the mooch.” I’ve gotten questions about soda station thieves, guests who come for live music but don’t buy anything, and guests who fill a cup coffee at a quick serve restaurant while filling their purses with sugar and cream packets. These questions, like yours, point to some combination of tough times, ill manners and ignorance on the part of consumers about the implied contract of dining. In tourist areas, some of it may be cultural—but some of it probably isn’t.
We talk a lot about employee training but less about guest training. As these examples indicate, guests can and should be trained to be good guests. The trick is how to do it without alienating them and losing business.
Like many of the problems we’ve discussed in this column, it is one of differing expectations due to poor communication. You expect that every guest at Clarke’s will order food and beverage, a very reasonable assumption for a restaurateur. Some of your guests expect that if their friends are spending money with you, it is acceptable to accompany them with outside food and drink. This gap in expectations creates the problem.
The first solution is to make clear your expectation through appropriate signage, menu notes and host and server training. Since you’re a casual tourist-intensive restaurant, discreet signage like, “Please refrain from bringing outside food and drink into this establishment,” or, “Two item minimum per guest,” may help. So will host and server training to sell even to those who don’t intend to buy anything.
The second solution is to make some difficult management decisions when it comes to how aggressive to be when enforcing the rules. Is one guest on a special diet and not eating while her tablemates are spending good money? Is this a widespread problem costing you lost revenue from a line of people waiting to occupy seats at lunch? Or is this an annoyance in an otherwise empty seat.
Finally, before you institute these changes, look at what people have been bringing in and take a critical look at your menu. For example, are people bringing in healthy options, desserts or specialty beverages and do you have appropriately priced quality offerings to match? A restaurant I know has a no outside food and drink policy but doesn’t serve coffee—frustrating caffeine addicts and making a beautiful dining room tacky with disposable coffee cups from other establishments.
A decade ago, Mike Frampton was paying about $35 per pickup to have a rendering company haul away the used cooking oil from his Sacramento, Calif., Melting Pot franchise. Today, he’s the one getting paid.
“Grease is an interesting business,” said the spokesperson for another restaurant we reached out to for this article. Indeed, there are cost considerations for operators on not only the front end—from the purchase and preservation of the fryer to the oil itself—but also on the back end, namely grease disposal and what happens once it leaves the lot. It’s the latter that’s generated headlines lately, as incidents of grease theft rise, spelling lost dollars for restaurants.
Disposal for dollars
About four years ago, Frampton’s renderer stopped charging him for pickups, and approached him about signing a contract to grant the company exclusivity to his oil, for which they would pay him.
“Then we started to get a reasonably good check,” he says; about $68 a month. For his part, Frampton had to secure the oil container, which sits behind a gate outside the restaurant, to prevent uncontracted companies and thieves from taking the oil.
Frampton calls the process easy, a matter of “people putting things in the right bins,” he says. “For us, it’s been a natural process, [going] from what was a need to a return on our used oil.”
A “hot” commodity
Used cooking oil has become big business as companies have improved the process of turning this “liquid gold” into energy-efficient biodiesel, animal feed, detergents and other products.
The demand also has attracted thieves. According to one report, a truckload of used oil can fetch $600 at a recycling center. In September, California passed a law toughening the penalties for stealing oil from restaurants and other businesses. And at least two other states, Virginia and North Carolina, have similar laws.
To protect their asset, restaurateurs are working with rendering companies to secure their spent oil. Many services will provide and install secure containers and may hire security to patrol restaurants during prime theft hours—all at no cost to the operator
Giving it away
While there’s money to be made, some operators are opting instead to put that revenue toward a good cause, earning credibility with the community and customers in the process. Federal Donuts, a four-unit, fried-chicken-and-doughnuts concept in Philadelphia, recently struck up a deal with its renderer to have the used grease delivered to a local high school where the students turn it into fuel to be donated. “We’re a for-profit business, so we’re interested in growing and making money,” says co-founder Steve Cook. “But we’re also interested in being part of the community that supports us.”
Tips for longer oil life
- Skim oil every two hours to remove food particles and contaminants
- Filter oil twice a day
- When frying frozen foods, don’t thaw first
- An energy-efficient fryer saves $100–$400 a year
In this article from Restaurant Business Daily written by Kelly Killian, learn the secreats of the busiest restaurateurs and how they manage their plates, quite literally. Between brokering deals, managing employees, pleasing customers and weathering the ups and downs of running a business—or multiple businesses—in an uncertain and challenging economy, running restaurants is not for the feeble. Over the past year we’ve talked to a number of industry leaders, and here how some of the busiest of the busy say they stay sane.
Author, chef, restaurateur (Kogi BBQ taco truck; Loco’l, coming in 2015)
Mise en place just doesn’t apply to your prep on your station, it applies to the way you approach your life. We can bend time if we want to, because time doesn’t exist the way that you think it does. So, if you prioritize and organize and have discipline, you can stretch things, and you can focus your energies and then make things important that you don’t think you have time for. For me, it’s really about organization, discipline, mise en place, focusing my energies and making it important. You’ll be very surprised at how much time you can find for something, even if you’re already busy. … That’s why we made the announcement a year before its set to open. By making the announcement, we made it important in our life; we made it something we have to strive for. Just like five o’clock you open for service; you may be 10 hours behind but you’ve got to open at five o’clock. So it just comes down to being able to focus, multitask and attack.
Editor-in-Chief, Yahoo Food; co-founder Cherry Bombe magazine; restaurateur (Wilma Jean, Nightingale 9 and Canteen, all in Brooklyn, N.Y.) and judge for Restaurant Business’ 2014 Clean Plate Awards
“I do need a full night’s sleep … Who are these magical people who get by on five hours? Anyways, what I love about each [role] is actually the same thing. It’s about getting the mix right: the right mix of people, ideas and content. It’s trusting your ideas and finding the right partners to execute everything—much harder than it sounds, but it’s really magical when it all comes together … The most important thing is not to beat yourself up. No one can do it all. If you don’t get to something, you don’t get to it.
CEO, Focus Brands (Cinnabon, Moe’s Southwest Grill, Schlotzsky’s, Auntie Anne’s Pretzels, Carvel and McAlister’s Deli)
For DeSutter, a typical business day runs from 7 a.m. to 7 p.m., at which point he’ll spend time with his wife of 40 years. The night ends with some time at his home computer for “wrapup or cleanup or free thinking.” On weekends, “I’m okay with some downtime,” he says.
Learn why experts are predicting a strong 2015 in this article from the Nation’s Restaurant News, written by Jonathan Maze. Lower gas and commodity prices, coupled with high valuations and low debt costs, have generated some optimism for the restaurant industry heading into 2015.
That is the early takeaway from the Restaurant Finance & Development Conference, held in Las Vegas this week. A series of speakers gave an optimistic view of the economy, as well as the industry’s prospects to improve sales and profits.
“The past few years have required good operators to get better — and they have,” said Trey Brown, senior managing director and sales leader at GE Capital, Franchise Finance. “The people left standing are, almost without question, the best of the best. They’re operating profitable stores. They’re positive and upbeat.”
The annual conference is a gathering of operators, investors and lenders. It often provides a good indication of industry sentiment because attendees generally want to expand and build new units. So when they’re more optimistic, it can signal an industry in growth mode.
The industry is showing signs of improved sales and traffic after years of weakness. Traffic grew 0.4 percent in October, according to Black Box Intelligence, the first monthly traffic increase since February 2012. Sales should continue to grow next year.
John Barone, president of Market Vision Inc., noted that falling oil prices should result in lower gas prices next year. According to AAA, the national average price of gas has dropped for 46 consecutive days, the longest consecutive decline in gas prices since 2008. Currently, a gallon of gas is 20 cents cheaper than it was a year ago, and 30 cents lower than a month ago.
That should yield stronger sales at restaurants, according to Barone. “It’s putting extra income directly into the hands of lower and middle income consumers. Lower gas prices are like an instant tax cut. If gas prices stay low, 2015 could be the happiest year since 2007,” he said.
That, coupled with lower prices for many commodities, could make life easier for operators, after years of balancing demand for low-priced menu items and rising food costs.
Prices for cheese, chicken and hogs have all risen more than 20 percent over the past two years, but the economics have recently shifted in favor of producers, Barone said. Low corn prices have reduced the cost of feed, and suppliers are also benefitting from lower gas prices.
“There are strong incentives in favor of expanding production,” he said. That should drive food costs lower. Hog prices, for instance, are expected to decline 14.5 percent next year.
The exception is beef, because it takes two and a half years to rebuild a herd, Barone said. That means prices for steak and hamburgers should rise in 2015, but prices for other proteins should ease.
Much of the optimism at the conference has come from economists, who told attendees not to expect another recession, and that economic growth should accelerate.
The biggest reason: Corporate profits.
“Corporate profits aren’t good. They aren’t great. Corporate profits are flat-out phenomenal,” said Peter Ricchiuti, finance professor at Tulane University.
Corporations have had record earnings for each of the past five years. That’s helping to move the market, which itself is reason to believe that economic growth will speed up.
“The stock market is a leading economic indicator, and the stock market is at an all-time high,” Ricchiuti said.
In addition, he said, companies have $2.2 trillion in cash on their balance sheets, which will eventually need to be spent. So far, the cash has been spent on acquisitions, share buybacks and dividends. Companies will eventually need to spend that money on capital expenses that generate jobs.
“It’s got to go to work,” Ricchiuti said. “If you’re an individual who is scared, you can hoard cash. If you’re a company, you can’t hold that cash forever.”
Another source of optimism is the valuations that franchisees and restaurant companies are getting on the open market. Those high valuations are being driven by low debt costs, fueled by low interest rates and intense competition among lenders. Brown characterized the valuations as “record levels.”
Likewise, restaurant stocks are also trading at high valuations. This has led to a series of concepts that are considering or planning to go public.
Recent IPOs in the restaurant industry have had an average growth rate of 20 percent on their first day of trading, said Michael Hoffman, managing director and head of consumer investment banking at Piper Jaffray.
“It’s been a very, very fertile couple of years in the market,” he said. “There’s a tremendous amount of investable dollars coming into the market and looking for companies that can outperform the indices — that means newly minted IPOs.”
Contact Jonathan Maze at firstname.lastname@example.org.
Follow him on Twitter: @jonathanmaze