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Food Safety Concerns Among Consumers Increase

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Just this week I came across the above graphic and an article out of QSR Mazazine citing a national study that showed 74% of consumers expect better food safety. The same study also found “that while a slight majority (53 percent) of U.S. consumers say that their level of concern about food safety has stayed about the same in the past few years, 46 percent of consumers say their level of concern has increased and only 1 percent report it has decreased”. Click here to read the full article.

Now more than ever, thanks in part to the Chipotle situation, there’s  a lot of scrutiny on the restaurant industry. When such a great, popular, well trusted brand can have issues the sentiment is that it can happen to anyone. And it can.

Multi-unit operators need to be able to know that every location is running safely, every shift. For a single unit operator it’s easier because they are at their location, in person, every day, for the most part. When you have 15 locations spread out across town or 100 across a region of the country or thousands throughout the world you can’t possibly be at every location every day. Therefore, you need to rely on a very well trained staff to execute in the manner they were trained. The easiest, most efficient manner to manage these expectations is through checklists with follow up. You need to inspect what you expect.

Every restaurant chain in the world has access to their register and customer service data for every location at all times, but very few have access to their daily operations data such as temp logs or know for sure that every location completed a full line check before each meal period including staff/FOH readiness, refrigeration temps, holding temps, quality tasting, checking for FIFO, and any other chain specific items related to food safety and guest experience. That is ridiculous, that is very, very important data which when monitored correctly will reduce foodborne illness outbreaks.

In the franchise system world it’s even more important. Consumers, for the most part, don’t understand that it’s Tommy that owns these 10 McDonald’s if they get sick at McDonald’s their are going to go after corporate. Tommy will be in trouble too, but the news story is the large chain got someone sick. It doesn’t matter where it happens either. If someone gets sick in Seattle the brand will suffer in Florida as well. Food safety is important stuff which we all know, but in today’s world information travels at light speeds and spreads like wild fire. Food safety has to be a priority and needs to be managed constantly.

The number in the above graphic isn’t exactly chump change. This is going to draw attention to consumers and thus government officials to try to get this number down. Stay ahead of the curve and start managing by checklists now. It’s not a decision you will ever regret.

Click here to get our list of 8 Daily Must Do Checklists for Restaurants delivered to your inbox for free.

Keep on Inspecting!

Food-borne Illness Just Got Very Serious

It’s of course always a serious issue, but there hasn’t been a sentence such as the one laid down last week for the former owner of Peanut Corp of America. A 28 year prison sentence for the salmonella outbreak at his manufacturing facility in 2008/2009 that killed 9 people and got another 714 people really sick.

Now granted there was gross misconduct/neglect by the owner and upper management in this case which, I’m sure, played a large role in the sentencing, but either way the bar has been set very high. The message has been sent that the courts will not take these cases lightly.

Food manufacturers and service businesses need to do everything they can to prevent these kinds of outbreaks or ownership/management can face prison time. Add that on top of all the bad publicity especially in this day and age of social media and the internet where news spreads like wild fire in minutes. Facilities and food need to be checked and inspected regularly to make sure that there is a minimal chance of an outbreak.

Documentation is also a key factor. In this case the documentation worked against Peanut Corp of America in that they had emails going back and forth outlining lies etc. (Here’s an article from MSNews Now). Of course if it wasn’t the case that the company knowingly shipped contaminated food the sentence would have been less, but how less? Who knows? If they were able to show documentation that proved that they inspected their operations and food daily that would have helped as well.

The reality is that being in the food business you are dealing with human lives and it’s not a responsibility to be taken lightly. Just as airline pilots to a pre-flight inspection every single flight the food industry including manufacturers, restaurants, etc. need to perform similar checks every shift to insure that the food is safe. They also need to prove that these checks are being done consistently and diligently when they are supposed to be done.

Check out our blog from last week for some thawing and holding tips that you can start using immediately. Click here for an article with more details on the sentencing etc.

Click here to download our Better Practices Guide to Self Inspecting.

Social Media Influence on Restaurant Patrons

Caught an interesting article on VegasInc.com about social media in the restaurant industry and effective it is in attracting customers. You might be surprised by some of these findings. I was.

  • adults who use Instagram has doubled in two years from 13 percent in 2012 to 26 percent in 2014
  • 62% of Americans say social media has no effect on buying decisions
  • the average restaurant has a mere 3 percent engagement rate on social media
  • social media, online reviews tend to have a greater effect on smaller, higher end restaurants

The article goes on to bash Yelp, calling it the yellow pages with pictures and that most of the reviews lack substance with more focus on smaller, personal things vs. the food or the service. We’ve talked a lot about Yelp this year and most of the feedback about Yelp from restaurant operators tends to be negative.

While social media seems to be less effective in restaurants, what they found works best is old fashion schmoozing and coupons.

  • inviting people to try food
  • boast about your staff
  • make regulars feel special when they show up
  • stand behind your product
  • ask guests to come back and bring their friends
  • 90% of people said a coupon will influence their buying decision
  • 78% said word of mouth will influence their buying decision

The article concludes by saying that you need to know your audience. A lesson here can be taken from JC Penny when tried to go the Nordstrom route and not have any sales. It flopped big time. Their clients are accustomed to sales and deals so when that stopped so did the shopping. They quickly changed back. Know what your customers want and make sure you give it to them.

I have copied the full article below.

If you build it — a social media bridge to restaurantgoers — they will come, right?

Not so fast.

Social media is all the rage: The Pew Research Center reports adults who use Instagram has doubled in two years from 13 percent in 2012 to 26 percent in 2014.

But a majority of Americans — 62 percent — say social media has no effect on their purchasing decisions. In the restaurant industry, the Sprinklr Social Business Index reports the average restaurant has a mere 3 percent engagement rate on social media.

That means restaurants would be better off ratcheting down their social media expectations and connecting with consumers offline. Offline word-of-mouth, from face-to-face or phone conversations, has a significant advantage (50 percent vs. 43 percent) over online interactions with respect to purchase intent, a Keller Fay Group TalkTrack study found.

The good news is there are lots of ways to engage customers offline, including stellar food and service, loyalty programs, friendly hosts and servers, charity work and community involvement.

The perks and pitfalls of social media

Armand Iaia, regional manager for the Chicago-based restaurant consulting firm Cini-Little International Inc., says social media messages often are perceived as just another form of advertising.

“Many people are immune to this kind of advertising and do not pay attention to it. I don’t,” he said.

But Gary Worden, a restaurant operator and publisher of Restaurant Startup and Growth magazine, said social media can play an important role for smaller restaurants. Good reviews can boost business.

“Independent restaurants particularly seem to generate a good number of reviews that can have an effect on prospective guests and guest visits,” Worden said. “The higher the restaurant menu prices or if the guest has friends or a special occasion, the more influence the social media reviews can play a role.”

Examine the source

Still, “while social media will influence people and help or hurt the innocent, I say examine the source,” said Steve Nachwalter, CEO of the Nachwalter Consulting Group in Las Vegas. “In human decision-making, there are always internal representations made in regard to how each individual receives and processes information.”

Yelp, which publishes crowd-sourced reviews about businesses, by definition is subjective and therefore can harm businesses if reviews are negative — even if they are unfair.

“Logically, we can’t punish the chef for a mistake the waiter made and subsequently bash a restaurant that has amazing food,” Nachwalter said. “In the same vein, a less-than-great place receives five stars because the hostess is hot or because the greeter made them feel special.”

Nachwalter said he viewed Yelp as “an online Yellow Pages with photos.”

“I don’t pay too much attention to individual reviews because I’ve seen too many unprofessional and untrue reviews,” he said. “I’m not in a position to judge people one way or the other, but I am intelligent enough to know when someone is bashing a place over personal nonsense.”

What can be a more effective method of attracting and maintaining customers is schmoozing.

Restaurant owners “should invite people to try their food,” Nachwalter said. “People are visual, so show pictures. Talk about your staff, make them real and personal. Stand behind your product and make everyone aware of your presences in the space. Make regulars feel special. Make a big deal when they come in. Mention bringing their friends. Ask directly for referrals.”

Employees can help if they have been trained on how to connect with customers and how to give them the experience they want.

“It all starts at who represents your brand,” Nachwalter said.

Explore the workplace

Whereas digital advertising appears to do little to influence consumer dining decisions, customers have a harder time turning down rave reviews or good deals.

Almost 90 percent of people surveyed by WorkPlace Impact said a good old-fashioned coupon influences them, while 78 percent said word of mouth did.

Since Americans spend a large share of their lives at work, the workplace becomes a natural venue for people to share opinions, experiences and recommendations with co-workers — including about where to eat.

“A lot of the decisions (people) make about dining are made while at the office,” said Tara Peters, director of marketing at WorkPlace Impact.

Peters’ firm helps restaurants reach workers during the workday with the goal of attracting new customers.

“When we are running a marketing program for a restaurant client, we will send their materials to businesses close to their restaurants” and have employers hand out coupons to workers, Peters said. “Employers in our network love giving their employees these perks. ”

Know your audience

Despite the power of face-to-face interaction, restaurants aren’t about to abandon social media, which means it is important owners learn to view it accurately and use it wisely.

Making social media more effective comes down to knowing your audience, Nachwalter said.

“The top restaurants don’t offer coupons, just like heart surgeons don’t offer two-for-one,” he said. “Decide what your audience wants, and give it to them.”

Restaurateurs also have to take negative comments in stride and trust people will see through insincere reviews.

Nachwalter recalled one eatery with amazing reviews.

“There was still a lady who did not love it,” he said. “Her reason was because, even though she loved the food, the flower they make out of gelato did not look floral enough. So she gave them one star.”

Same Store Sales Increase in August

Driven by Fast Casual, the restaurant industry posted strong same store sales in August according to the Black Box Intelligence report.  Here are some of the stats from the Nation’s Restaurant News article:

  • 1.7% increase in same store sales in August
  • YTD same store sales up 2.2%
  • The industry can post it’s 5th straight quarter of same store sales growth this quarter
  • Average monthly growth has been 2.2% since last year
  • While traffic growth is still negative, it has been improving over the last few months
  • Top region in August was California with a 3.5% increase in same store sales and only .5% decrease in traffic
  • The NY/NJ region was the worst with a 1.3% decline in sales and 3.1% decline in traffic

We talked about this a few weeks ago, but job growth still remains strong across the board for the restaurant industry, despite some of the increases in minimum wage.

I have copied the full NRN article below:

The restaurant industry posted another relatively strong month in August, as both same-store sales and traffic growth improved over July, according to data reported by TDn2K’s Black Box Intelligence through The Restaurant Industry Snapshot, based on weekly sales from over 22,000 restaurant units and 120 brands representing $55 billion dollars in annual revenue.

Source: Black Box Intelligence, August 2015

Same-store sales rose 1.7 percent in August, a 0.1-percent improvement. With these latest results, the industry is on track to post its fifth consecutive quarter of positive same-store sales growth during the third quarter, the first time this has occurred in the last three years. Meanwhile, year-to-date same-store sales have risen 2.2 percent, consistent with Black Box Intelligence’s prediction for 2015.

“There are three factors that should be encouraging for the restaurant industry”, said Victor Fernandez, executive director of insights and knowledge for TDn2K. “First, we have been experiencing consistent, positive same-store sales growth since August 2014. The last time we had a comparable run in terms of consecutive months of positive sales growth was in the period of 2011 through early 2012. Furthermore, every month since August of last year has posted same-store sales growth above 1 percent; the average for the period has been a significant 2.2-percent growth in sales year-over-year. Second, although same-store traffic growth continues to be negative and remains the top concern for the industry, we have now reported three consecutive months in which traffic results have been improving. This also means that the growth in sales for the industry for the last couple of months has been relying less on increases in average guest checks and more on improving guest retention. Finally, on a two-year sales growth basis, this quarter is surpassing the first two quarters of 2015 with a +2.8-percent for the first two months of Q3 compared to +2.0 percent in Q1 and a +1.8 percent in Q2. This would represent the second-best quarter on a two-year basis since Q1 of 2012.”

Same-store traffic fell 1.1 percent during August, which represents a 0.1-percent improvement compared with July. Per person average guest check grew by 2.7 percent and 2.8 percent during August and July, respectively. This represents a shift from the average 3.4-percent growth in guest checks reported for all months during the first two quarters of the year.

The fundamentals in the economy continue to remain favorable for continued growth in restaurant sales: the labor market, even if showing some signs of slowing down from the growth rates posted in recent months, continues to add jobs. Income and consumer spending rose in July, according to the latest published numbers. Finally, despite short-term fluctuations in consumer sentiment, consumers are more optimistic today than they were a year ago.

“There has been some concern expressed due to the sharp drops and volatility in the stock market in recent days,” Fernandez said. “However, we believe that at least in the next couple of months, the effect of these fluctuations will not affect restaurant spending much. Most consumers perceive these changes as affecting their long-term wealth and not necessarily their disposable income today. However, if the underlying concerns regarding the global economy are real and sustained, then they could become a concern for the industry.”

Source: Black Box Intelligence, August 2015

The best performing region during August was California, with same-store sales growth of 3.5 percent and a traffic decrease of 0.5 percent. Considering the difference in check average for California, it appears the price increases taken to offset minimum wage increases are part of the equation behind this strong same-store sales number. However, the traffic also suggests that the California consumer has a strong appetite to dine out.

For the second consecutive month, the worst performing region in the country was New York-New Jersey, with a 1.3-percent decline in same-store sales and a 3.1-percent drop in traffic growth.

August was also a good month at the market level. One hundred thirty-seven, or 71 percent, of the 193 DMAs currently tracked weekly by Black Box Intelligence posted positive growth in their same-store sales during the month.

Improving economic conditions have boosted sales, but are also tied to a tightening labor market in which recruiting and retention have once again become major challenges for restaurants. Job growth accelerated at restaurant chains during July, according to TDn2K’s People Report. During the month, the restaurant chain industry’s number of jobs grew by 4.4 percent year-over-year, while the past twelve months averaged 3.4 percent.

In addition to the pressures of recruiting enough new employees, restaurant companies also continue to face increasing turnover rates at both the restaurant management and hourly employee levels. Rolling 12-month hourly employee turnover increased again during July. The industry has now experienced 23 consecutive months of rising turnover rates. Restaurant management turnover, which had been increasing steadily during 11 of the last 12 months, stabilized during July and remained at the same rate as in June. Flat turnover notwithstanding, turnover rates at all position levels within restaurants are at very high levels not reported since before the recession.

According to TDn2K’s White Box Social Intelligence, of the three key guest satisfaction attributes tracked (“food”, “service” and “intent to return”) from a sample of 6.6 million social media mentions during August, the conversation tends to center around food when consumers talk about restaurant brands online. Seventy-eight percent of posts mentioned food during this month. The second most commonly mentioned attribute continues to be service, at 16 percent of all social media mentions.

When consumers mentioned restaurant brands online during August, the attribute generating  the highest percentage of positive mentions was “intent to return,” with 39 percent of all of mentions, a significant 7-percent growth in the percentage of mentions that were positive when compared with July. As a comparison, about 31 percent of food mentions and 18 percent of service mentions were positive during August.

TDn2K (Transforming Data into Knowledge) is the parent company of People Report, Black Box Intelligence and White Box Social Intelligence. People Report provides service-sector human capital and workforce analytics for its members on a monthly basis. Black Box Intelligence provides weekly financial and market level data for the restaurant industry. White Box Social Intelligence delivers unparalleled consumer insights and reveals online brand health. Together they report on over 32,000 restaurant units, over 1 million employees and $55 billion in sales. They are also the producers of two leading restaurant industry conferences: Summer Brand Camp and the Global Best Practices Conference, each held annually in Dallas.

Restaurant Delivery Services

I came across two articles today discussing restaurant delivery services, specifically in Seattle. One on Geek Wire and the other on The Stranger. Both of them were very different in the story they were telling which was interesting.

The Stranger talks about how Postmates is reeking havoc on the restaurant industry. Mainly causing “resentment” between the restaurant staff and the delivery drivers/couriers. The rift is around tips according to the article. The restaurant workers are missing out on any tips from the Postmates takeout orders that they would have normally gotten.

The couriers are getting some tips, but no tips are making it’s way to the restaurant workers. Postmates allows customers to enter a tip for the restaurant, but it’s confusing and not very clear how it works. So this tip doesn’t happen, ever. Apparently the way it works is there’s a $5 delivery fee which gets split 80/20 in favor of the courier. On top of the 20% ($1) of the delivery fee there’s also a 9% service charge on the order that goes to Postmates. The restaurant workers see nothing unless the courier leaves them something, which never happens.

If the numbers in the article are true the couriers aren’t exactly killing it on tips either. They get a $4 delivery fee plus an average tip of $1-$1.75 on average according to the article. So call it $5.50 per order. Seems like it would be tough to get enough orders in an hour to make it worthwhile, but I guess if you’re on a bike and not a car you don’t really have any expenses. Plus you’re exercising.

Click here for The Stranger article. There’s some salty language, but we’re all adults here.

The other article, more interesting in my opinion, was on Geek Wire about Amazon dipping it’s toes into the restaurant delivery market. As part of their new Prime Now service they are testing, with local employees, restaurant delivery.

If there’s any company that can figure this out it would be Amazon. They are already offering alcohol delivery in Seattle. In NYC they apparently offer delivery of prepackaged meals from a few stores, but you have to cook the meal once you get it, it’s not delivered hot. That’s the difference with the Seattle test.

It makes sense for Amazon to try this out, but it’s not like they can have a UPS driver swing by Chipotle and pick up a burrito on the way to your house. They’ll have to implement a delivery arm similar to Postmates. Now if they throw marijuana delivery into the mix they might have a winning combo.

You have to wonder how long these types of services will be affordable with prices inevitably going up across the board with minimum wage increases, increases in food costs etc. At some point I have to think that consumers would just assume go to the restaurant vs. pay the $5 plus 9%, plus tip on top of the meal price. But maybe you can’t put a price on convenience.

Click here for the Geek Wire article about Amazon.

Staffing Challenges in North Jersey

An article over the weekend in The Record interviews a few folks in the restaurant industry in norther New Jersey about some of the challenges they are facing around finding and keeping employees. It’s not just isolated to one specific function, but all employees in all departments that are becoming increasingly more difficult to staff.

According to the individuals referenced in the article the reasons are spread across the board. Here are some of the points made:

  • Supply and demand – there seems to be more jobs available so there are other options to restaurants
  • It’s hard work – long hours and on your feet the whole time, plus in the front of the house you need to deal with some unpleasant people from time to time. So with other options available potential employees opting for something a little easier
  • The pay isn’t necessarily great. If you are a server or a bartender you can do decent depending on where you work, but it’s still long hours
  • A slow down in immigration since the recession may have contributed as 11% of Hispanics are employed by hotels and restaurants

A natural response to a labor shortage is “pay more”. Not that easy in the restaurant industry as profits are very thin already. 4-6% according to the article. Payroll already accounts for 24% of net profits.

At this point there’s just no wiggle room without a price increase to consumers. It’s coming because soon minimum wage hikes will take care of the pay increase for restaurant owners. There will be no choice other than raise prices.

I have copied the full article below:

Long before the first lunch customer walks through the door, cooks at Grissini in Englewood Cliffs are hard at work.

Angelo Chimbo’s hands are a blur as he flicks at baby carrots with a red peeler. Behind him, Ismael Rodrigues feeds sheets of golden dough into a pasta machine, where it is cut into narrow tagliatelle. And chef Giuseppe Lentini deftly slices bits of fat off deep-pink hunks of filet mignon.

Workers like these are the “backbone” of the restaurant industry, said maitre d’ Michael De Vincenzi.

But chefs, as well as the waiters and waitresses who deliver their creations to the table, are becoming harder to find. According to a recent survey by the National Restaurant Association, more than half of restaurant owners find it a challenge to find and keep good workers.

A lot of it is simply supply and demand.

Americans eat out more these days, spending 43 cents of every food dollar away from home, according to the U.S. Department of Agriculture.

“The economy is good, and people are spending more money than ever in the hospitality industry. We’re living in an area that’s saturated with restaurants,” said Michael Latour of Latour, a 17-year-old French restaurant in Ridgewood. “There aren’t enough workers to support them all.”

Restaurants can be lively, creative and glamorous places to work — for cooks who are passionate about food, and for extroverts who enjoy dealing with the public in the dining room. But the industry is defined by long hours, low pay and high pressure. And an improving job market means that workers have other options.

Even restaurant owners and managers will acknowledge the challenges of the work.

“If you’re a chef at a restaurant like mine, you’ve got to work six days a week, lunch and dinner,” said Tony Del Gatto, who owns the Westmount Country Club in Woodland Park, in addition to the 90-seat Grissini. “What kind of home life can you have?”

“It’s at least a 12-hour day,” said De Vincenzi. “You have to be born to do this work.”

Recently at Latour, waiter Ricardo DaSilva of Union, a 21-year-old student at Seton Hall University, started his day at 11 a.m., before the lunch crowd arrived, and expected to stay until the last dinner customer left — probably around 10 p.m.

During those long shifts, staff members are on their feet, whether they’re chefs or waiters. Inside the kitchen, the pace can be frenetic; the space, hot and crowded.

“It’s 100 degrees sometimes in the kitchen,” Latour said.

In the dining room, the heat sometimes comes from unhappy customers who expect a server to make things right.

And the pay scales are low.

According to the National Restaurant Association, median wages nationwide for restaurant workers range from a low of $8 an hour for dishwashers to a high of $19.35 for bartenders. Chefs are paid a median $12 an hour and waiters and waitresses about $16, with tips.

“People come out of the Culinary Institute of America with a lot of debt, and they’re not paying it off at $12 an hour,” said Christine Nunn, chef and co-owner of Picnic on the Square in Ridgewood. She has kept most of her kitchen staff through her tenure in three restaurants, but she’s looking for servers.

On a recent busy night, short of servers, Nunn had to work in the dining room. “I was hosting, I was bussing tables, I was pouring water,” she said.

Immigration a factor

Other analysts have pointed to a slowdown in immigration to the U.S. since the recession, because immigrants traditionally make up a significant share of restaurant workers. According to the U.S. Bureau of Labor Statistics, 11 percent of Hispanic workers are employed in hotels and restaurants.

Another issue in North Jersey is that workers who live in less affluent areas sometimes struggle to find transportation to restaurant jobs in the suburbs.

According to the National Restaurant Association, 318,800 people in New Jersey, and about 14 million nationwide, work in restaurants. The industry has been adding jobs faster than the economy as a whole, according to the association.

The shortage of workers has forced restaurant operators to spend more time recruiting and training new employees, and to ask current employees to take on extra tasks — for example, a busboy substituting for a line cook when needed.

So, if there’s a shortage of workers, why don’t restaurants just bump up the paychecks?

The answer: They can’t afford to.

Profit margins average 4 percent to 6 percent at restaurants, according to the restaurant association. Payroll amounts to about 24 percent of restaurants’ net profits, a percentage that hasn’t changed much over the years, according to Sageworks, a financial analysis company.

“They work on a very thin profit margin,” said Dave Cohen, coordinator of the hotel-restaurant hospitality program at Bergen Community College. “You’re not putting 50 cents on the dollar into your pocket in the restaurant business.”

You might expect the Food Network’s shows about celebrity chefs would draw more people to the industry, but restaurant owners complain they paint an unrealistic picture.

No fast track

“Everybody thinks they can go to culinary school and immediately be a Food Network star,” said Nunn from Picnic on the Square. “Even with a degree, you take that $12-an-hour job and work 50 or 60 hours a week so you really learn how to be a chef.”

Cohen said that some culinary graduates would rather work in catering or even in supermarkets, which have shorter, more predictable hours.

Still, those who choose restaurants say they like the fast pace, the interaction with colleagues and customers and, in the case of chefs, the chance to work creatively with food.

“It’s a very expressive thing; it’s a reflection of your passion for food,” Latour said.

De Vincenzi, the maitre d’, was asked whether he likes his job better when the restaurant is quiet or crowded.

“Packed,” he said. “I want to be busy. I want it to be hectic. I like the stress. It’s all adrenaline.” He once thought of becoming an accountant, but after one day of a summer internship in college, he knew he didn’t want to sit at a desk.

Many restaurant workers are students looking for part-time work and flexible hours. The restaurant industry employs 1.5 million teenagers between 16 and 19 — or one-third of all working teens in the nation, according to the restaurant association’s figures.

Da Silva, the Latour waiter, said he is an extrovert who likes to talk to customers. The philosophy student said every customer “has something to teach you.”

“They’ll say something that catches your attention,” he said.

Other restaurant workers also say the relationship with diners is one of the best parts of the job. Victor Molina of West New York, a waiter who has worked for 10 years at Grissini, said he is gratified that some of the restaurant’s regulars ask for him by name.

“They know you and they trust you,” he said.

Email: lynn@northjersey.comTwitter: @KathleenLynn3

Slower Restaurant Employment Growth in San Fran & Seattle

A preliminary look into employment data by Forbes Contributor Stephen Bronars points to slower employment growth since the minimum wage increases in San Francisco and Seattle.

In the article Higher Minimum Wages in San Francisco and Seattle Mean Fewer Restaurant Jobs takes a look at year over year quarterly changes in employment averages. Here are some of the points he makes regarding his choice of data to use:

  • The minimum wage laws apply to cities but Bureau of Labor Statistics (BLS) employment data are available for Metropolitan Divisions
  • This is more problematic in Seattle where three out of four jobs in the metro division are outside the city limits, while two thirds of restaurant jobs in the San Francisco metro division are in the city
  • In addition, the monthly data are not seasonally adjusted and subject to a substantial margin of error

I have copied the full article with charts below and it’s also linked above, but Stephen concludes the following, acknowledging that more analysis will be needed as more data becomes available:

  • Had restaurant employment in San Francisco grown at the same rate as in the rest of the U.S., there would be 2,520 more restaurant jobs in the San Francisco metro division
  • Had restaurant employment in Seattle grown at the same rate as in the rest of the U.S., there would be 1,175-1,490 more restaurant jobs in the Seattle metro division

Last year Seattle decided to increase its minimum wage to $15 per hour over several years. The first increase to $11 per hour, for large employers, became effective on April 15th. Last fall San Francisco also adopted a plan to increase its minimum wage to $15 over the next few years and the first increase to $12.25 per hour became effective on May 1st. Because many restaurant workers earn less than the new minimum wages, most economists expect restaurant employment to decline in these cities as competition encourages restaurants to economize on labor costs.

Earlier this month Mark Perry, of the American Enterprise Institute, observed that job creation in Seattle’s restaurant industry stalled in 2015, perhaps due to the minimum wage hike. Last week Erik Sherman, a Forbes contributor, took issue with Perry’s interpretation of the data and purported to show that employment in San Francisco’s restaurant industry has grown since its minimum wage increase.

In this post I take a closer look at restaurant industry employment in San Francisco and Seattle. Before turning to the data it is important to understand its limitations. The minimum wage laws apply to cities but Bureau of Labor Statistics (BLS) employment data are available for Metropolitan Divisions.[1] This is more problematic in Seattle where three out of four jobs in the metro division are outside the city limits, while two thirds of restaurant jobs in the San Francisco metro division are in the city.[2] In addition, the monthly data are not seasonally adjusted and subject to a substantial margin of error. For this reason I focus on year-over-year changes in quarterly employment averages. I find that food service job growth slowed in Seattle since the minimum wage increase. In San Francisco, where more detailed data are available, there has been slower job growth in restaurants, but caterers and food trucks are growing more rapidly after the minimum wage increase.

Outsourced Meals

About 40 percent of the typical household’s food budget is for meals away from home and this increases to 46 percent for households in the top income quintile (from the Consumer Expenditure Survey). The “Food Services and Drinking Places” industry is prominent in San Francisco and Seattle; it accounts for about 10 percent of private sector jobs in San Francisco and 7 percent in Seattle. This is not surprising because San Francisco and Seattle are among the wealthiest cities in the U.S.[3]

Higher minimum wages will cause restaurants to economize on labor costs and hire fewer employees even in relatively wealthy cities. Competition will encourage food service companies to find less labor intensive methods of delivering prepared meals to their customers. For example, customers placing orders on computer tablets can reduce the demand for food servers.

San Francisco: Slowing Job Growth in Brick and Mortar Restaurants

The following table presents annual percentage changes in second quarter employment in several restaurant categories in the San Francisco metro division as well as the remainder of the U.S., and in San Francisco outside the food services industry. The table shows a slowdown in job growth in brick and mortar restaurants in the past year.[4] The all restaurants industry group, which includes full service and limited service restaurants, snack bars, and cafeterias, saw job growth of only 0.31% in the past year. Restaurant employment grew much less rapidly than in other sectors in San Francisco in the past year. In addition, had restaurant employment grown at the same rate as in the rest of the U.S., there would be 2,520 more restaurant jobs in the San Francisco metro division.

Click here for chart in full article

There has, however, been rapid employment growth (33.5% in the past year or 2,800 jobs) in the Special Food Services industry, which includes caterers and food trucks. This continues a recent trend; employment at caterers and food trucks has more than doubled since 2011. Although caterers and food trucks accounted for less than 10% of food services jobs in San Francisco in 2014, they accounted for more than 60% of job growth in food services over the past year so that overall growth in food service jobs slowed by 1.7% in the past year.

Declining Food Service Employment in Seattle

The most detailed BLS employment data reported for the Seattle metro division is for the “Food Services and Drinking Places” industry group.[5] The following table presents annual changes in second quarter employment for “Food Services and Drinking Places” in the Seattle metro division and the rest of the U.S., and private sector employment in the Seattle metro division outside the food services industry.[6]

Click here for chart in full article 

The table demonstrates that employment in the food services industry in the Seattle metro division grew more slowly than in other regions of the U.S. and more slowly than in other industries in Seattle. Depending on the alternative benchmark used there are 1,175 to 1,490 fewer food service jobs than there would have been had employment grown at the same rate as elsewhere.

Tentative Conclusions

While results based on preliminary and noisy data should be interpreted with caution, and more detailed studies will be required as city minimum wages increase even more, higher minimum wages appear to be disrupting the restaurant industry in San Francisco and Seattle and causing a reduction in jobs. In San Francisco minimum wages might be diverting customers to caterers and food trucks, perhaps because they are better equipped to adjust to higher labor costs. The first wave of minimum wage increases appears to have led to the loss of over 1,100 food service jobs in the Seattle metro division and over 2,500 restaurant jobs in the San Francisco metro division. These estimates are likely to be conservative, especially in Seattle, because many jobs in the metro division are outside the city limits and not subject to the minimum wage increase.

*This is a guest post by Stephen Bronars, Partner at Edgeworth Economics, Ph.D. in Economics from the University of Chicago. His opinions are his own.

[1] The San Francisco metropolitan includes San Francisco and San Mateo Counties but excludes Alameda, Marin and Contra Costa Counties and the city of Oakland. The Seattle metropolitan division includes King County and Snohomish County but excludes Pierce County and the city of Tacoma.

[2] The Seattle calculation is based on the BLS LAUS data and the San Francisco calculation is based on County Business Patterns.

[3] According to the Quarterly Census of Employment and Wages, San Francisco County ranks fifth and King County, Washington ranks sixteenth among the 340 largest counties in the U.S., ranked by median earnings

[4] The San Francisco minimum wage was set at $8.50 in 2004 and indexed to inflation. The increase from 2014 to 2015 was $1.51 compared to $0.32, $0.31 and $0.19 in previous years.

[5] This includes full service restaurants, limited service restaurants, cafeterias, snack and non-alcoholic beverage bars, drinking places, food service contractors, mobile food services and caterers.

[6] The Washington state minimum wage increased by $0.37, $0.15 and $0.13 per hour between 2011 and 2014, and the Seattle minimum wage increase from 2014 to 2015 was $1.68 per hour.

Will Minimum Wage Increases Accelerate the Robot Invasion?

There’s an interesting article in the Washington Post, “Minimum-wage offensive could speed arrival of robot-powered restaurants”, suggesting that $15/hr minimum wage will accelerate the move to robots in restaurants.

It mentions that shedding labor in the restaurant industry isn’t a new phenomenon. According to the article in the late 60’s a McDonald’s would have 70-80 employees vs. 30-40 now. Pre-packaged food/ingredients, smarter/more efficient kitchen technology over the years has allowed restaurants to cut down on labor, but there hasn’t traditionally been a lot of talk about cutting FOH staff as there is now.

With the mobile technology revolution FOH staff is very much on the chopping block. Kiosks and tablets at the table offer customers very convenient options for ordering and settling up at the end. Of course some establishments clientele will require a knowledgeable human being to answer questions, suggest pairings based on tastes, etc.  Specifically higher end full service restaurants. But most of the fast casual and quick service brands could absolutely move to more technology and not miss a beat. And matter of fact probably run better.

The thing with technology is that it will do whatever you program it to do. That’s good and bad at the same time because it will only do what you tell it to do. They won’t be very quick on their feet if you know what I mean. But they will never forget to up-sell. Ziosk is very popular right now for a reason.

Robots are coming whether we like it or not and I feel they would be coming regardless of minimum wage. There are other benefits of a robot other than wage ie. no human resource issues, always on time, no taxes, etc. As the article mentions there will always be a need for human labor, but their roles will change to more of a management role and ensuring that the robots are running properly. It’ll be more of a technical position, but also being able to pitch in and help as needed.

It’s going to be interesting to watch what happens over the next few years. I have copied the full Washington Post article below:

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Crowded. That’s how Ed Rensi remembers what life was like working at McDonald’s in 1966. There were about double the number of people working in the store — 70 or 80, as opposed to the 30 or 40 there today — because preparing the food just took a lot more doing.

“When I first started at McDonald’s making 85 cents an hour, everything we made was by hand,” Rensi said — from cutting the shortcakes to stirring syrups into the milk for shakes. Over the years, though, ingredients started to arrive packaged and pre-mixed, ready to be heated up, bagged and handed out the window.

“More and more of the labor was pushed back up the chain,” said Rensi, who went on to become chief executive of the company in the 1990s. The company kept employing more grill cooks and cashiers as it expanded, but each one of them accounted for more of each store’s revenue as more sophisticated cooking techniques allowed each to become more productive.

The industry could be ready for another jolt as a ballot initiative to raise the minimum wage to $15 an hour nears in the District and as other campaigns to boost wages gain traction around the country. About 30 percent of the restaurant industry’s costs come from salaries, so burger-flipping robots — or at least super-fast ovens that expedite the process — become that much more cost-competitive if the current federal minimum wage of $7.25 an hour is doubled.

“The problem with the ­minimum-wage offensive is that it throws the accounting of the restaurant industry totally upside down,” said Harold Miller, vice president of franchise development for Persona Pizzeria, who also consults for other chains. “My position is: Pay your people properly, keep them longer, treat them right, and robots are going to be helpful in doing that, because it will help the restaurateur survive.”

Many chains are already at work looking for ingenious ways to take humans out of the picture, threatening workers in an industry that employs 2.4 million wait staffers, nearly 3 million cooks and food preparers and many of the nation’s 3.3 million cashiers.

‘Why wait?’

The advent of fast-food chains may have ushered in an era of new efficiencies, but the industry as a whole has largely been resistant to cuts in labor. According to the Bureau of Labor Statistics, since 1987, labor productivity in ­limited-service restaurants has grown at a rate of only 0.3 percent per year, which is low compared with most other industries.

The market research company IBISWorld has calculated that the average number of employees at fast-food restaurants declined by fewer than two people over the past decade, from 17.16 employees to 15.28. And restaurants tend to rely more on labor than other food outlets: According to the National Restaurant Association, dining establishments average $84,000 in sales per worker, compared with $304,000 for grocery stores and $855,000 for gas stations.

The avalanche of rising costs is why franchisers are aggressively looking for technology that can allow them to produce more food faster with higher quality and lower waste. Dave Brewer is chief operating officer with Middleby Corp., which owns dozens of kitchen equipment brands, and is constantly developing new ways to optimize performance and minimize cost.

“The miracle is, the wage increase is driving the interest,” Brewer said. “But the innovation and the automation, they’re going after it even before the wages go up. Why wait?”

All that innovation helps restaurants streamline other parts of their operations — and draw more customers. Electronic menus can be constantly updated so that items that are out of stock can be removed. Connecting the point of the sale to the oven’s operating system allows precise amounts of food to be cooked, which helps cut down on costs. Other inventions save energy, reduce maintenance and better dispose of grease. On the digital side, restaurants are working on apps that include reward systems and location tracking that prompt customers to eat with them more frequently.

It’s possible that new inventions could start to eliminate positions faster than they have in the past.

The labor-saving technology that has so far been rolled out most extensively — kiosk and ­tablet-based ordering — could be used to replace cashiers and the part of the wait staff’s job that involves taking orders and bringing checks. Olive Garden said earlier this year that it would roll out the Ziosk system at all its restaurants, which means that all a server has to do is bring out the food.

Robots can even help cut down on the need for high-skilled workers such as sushi chefs. A number of high-end restaurants use machines for rolling rice out on sheets of nori, a relatively menial task that takes lots of time. Even though sushi chefs tend to make more than $15 an hour, they could be on the chopping block if servers need to make $15 an hour, too.

Of course, it’s possible to imagine all kinds of dramatic productivity enhancements. Persona ­Pizzeria’s Miller predicts that drone delivery systems will eventually get rid of the need to come into a restaurant at all, for example. Brewer has a bold prediction: He thinks that all the automation working its way into restaurants could eventually cut staffing levels in half. The remaining employees would just need to learn how to operate the machines and fix things when they break.

“You don’t want a $15-an-hour person doing something that the person who makes $7 an hour can do,” Brewer said. “It’s not downgrading the employees. It’s that the employees become managers of a bunch of different systems. They’ll become smarter and smarter.”

The value of a human touch

Not everybody, however, agrees that machines could make that much of a dent in labor costs. Implementing new systems is expensive, and mistakes can be devastating. And for some concepts, it’s possible that the presence of employees is actually a restaurant’s competitive advantage. Compared with grocery stores and gas stations, many people come to restaurants exactly because they want some human interaction.

Andy Wiederhorn, chief executive of Fatburger — who is testing tablet systems in his sit-down chain, Buffalo’s Cafe — doubts improvements in technology are going to be enough to keep up with the mandated wage increases, especially when actual people can be his best sales tool.

“I think that tablets have a place at the table, but it’s pretty hard to ask questions, get suggestions from a tablet. I don’t think they replace a server, they make a server more efficient,” Wiederhorn said. “We’re selling hamburgers shakes and fries, and [customers] want to talk to somebody and say, ‘Here’s how I want it.’ So I think in the hospitality industry, to assume that technology will take the place of workers is a false assumption.”

That’s why some restaurants have tiptoed in the direction of increased automation, rather than sprinted, even as minimum-wage hikes loom.

“Because the industry remains overall an industry of hospitality, their challenge remains how to remain high-touch in a high-tech environment,” said Hudson Riehle, the National Restaurant Association’s senior vice president for research and knowledge. If they’re not careful, restaurants could jettison the one thing that kept people coming through the doors.

“Being a service industry, and the need to deliver a personalized experience, means that many of the restaurant operators focus on ensuring that the overall customer experience remains competitive,” Riehle said.

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Norm Macdonald Takes Over as the Colonel

I caught an article on entrepreneur.com about KFC bringing in Norm Macdonald to replace Darrell Hammond in their attempt to revive Col Sanders as part of their latest marketing campaign. The author focusing more on the marketing aspect of the change, but he’s a little harsh on some points. Probably trying to get some shock value out of the article.

Both Norm and Darrell are funny and are hardly “marginal talent”, but everyone is entitled to their opinion.

A couple of interesting points that he brings up in the article:

  • YUM has invested $185 million in to turning KFC around
  • In the 80’s Burger King invested $40 million into the failed campaign, Herb
  • A recent survey showed that 20% of people hate the new Col Sanders campaign
  • 60% of millennials have not eaten at KFC

I don’t know that KFC and Pizza Hut are performing as horribly as the author makes it out to seem, but I don’t know that for sure. I have copied the full article below. We’d love to hear some of your thoughts on the article.

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The sky is falling, and KFC is trying to make chicken salad out of chicken scratch.

KFC, a unit of Yum Brands, has switched the actors who portray company founder Col. Harland Sanders, swapping in marginally talented Saturday Night Live alum Norm Macdonald to replace marginally talented Saturday Night Live alum Darrell Hammond.

It’s is an odd move. The idea that an actor change will make the ad campaign any easier to swallow is nonsense, since it isn’t the actor but the role that so many consumers don’t like. The real-life Harland Sanders was complicated, and he was authentic. Yes, Sanders lived his life as if he were in character, but he played that part well, far better than Hammond could and MacDonald can.

The new Colonel is a caricature, carefuly choreographed by the company and its creative hired hands. Instead of resurrecting the Colonel to lead KFC’s sales back to their former fried glory, the company has instead unleashed a childish pantomime that people old enough to remember Colonel Sanders don’t like and people too young to know him can’t possibly understand.

It’s tricky to exorcise the dead, which is why it’s so rarely done and why it always leads to bad consequences, whether it’s with a Oujia board,Pet Semetary or a $185 million investment from your parent company to spruce up your brand.

What’s more, KFC is trying to sanitize Sanders’ image, even though, in this day and age when many people glorify the role of the entrepreneur, it doesn’t need a comic cleansing. Harland Sanders had a string of failed businesses, left his first family in the dust, had a temper that caused him to brawl with associates, knew his customers better than his competitors and wore the same outfit every day to polish his image. Yes, before there was a Steve Jobs, there was a Colonel Sanders. The truth should be enough.

Yet, KFC, in a feint to its authentic roots, has opted to fake the history, focusing on the banjos and white limosuines, which belies the intelligence and vision that helped Sanders create Kentucky Fried Chicken in the first place — an intelligence that today’s consumers, particularly the sought-after millenials, can relate to and respect. Instead, watching these commercials is like buying a ticket to Paris and ending up in Epcot.

Bad ad campaigns have lasting impressions. The Colonel Sanders reboot is rapidly becoming the most ridiculed fast-food campaign since the “Where’s Herb?” fiasco of the mid-1980’s. There, Burger King spent $40 million, including a Super Bowl advert, to create “Herb,” a bald, middle-aged geek who had never been to Burger King. You got discounts if you ordered your Whopper and informed the counter worker that you weren’t Herb. (And fast-food workers nowadays think they’re overworked and underpaid?) You could win prizes if you found Herb in a restaurant. Trouble was, no one looked for Herb because smart families tended to avoid middle-aged, creepy men who hung out in Burger Kings. The campaign lasted three months, and they’re still teaching its lessons in college today.

Look, everyone makes mistakes, but most good leaders recognize that and learn from it. Sometimes big brands realize that their products are awful (New Coke) or shows like Saturday Night Live realize the talent sucks (Norm Macdonald). It is then incumbent on management to pull the plug quickly and focus resources elsewhere. In Lean Startup terms, you put out a minimum viable product, see customer reaction and decide where to go.

KFC, however, has decided to take its bad hand and double down. The company has said its research suggests that one in five people hate the campaign. Amazingly, during an investor conference in May, Yum Brands CEO Greg Creed said that was just fine with him.

“That’s better than 100 percent being indifferent,” Creed said, according to Food Business News. “And that really is what’s important. We had lost relevance in the U.S. Sixty percent of millennials had not eaten KFC.”

Not only that, but Creed said he was “very excited that this work is really distinctive and disruptive. And I am actually quite happy that 20 percent hate it, because now they at least have an opinion. They’re actually talking about KFC, and you can market to love and hate; you cannot market to indifference.”

Well, yes, but being hated doesn’t automatically make you relevant. It just makes you hated. Relevance equates to sales, but indifference and hate both breed people who would rather go eat at Chick-fil-A.

I suppose in some twisted ad-agency world being pleased with a campaign because it generates 20 percent negatives means you need to work harder to get that number up to, say, half. But the real world would say it’s time to rethink the mission. And KFC needs help. The only reason it isn’t the worst restaurant at Yum Brands is that the company is still keeping Pizza Hut on life support. Other competitors have credible chicken offerings. Fast casual is taking share from all traditional fast-food companies.

That means KFC has little room for error to continue down failing paths. The consequences are that, if it isn’t honest about the true disdain much of the public has for this campaign, sales will fall, customers will go elsewhere, franchisees will fail and people will lose jobs. That’s no laughing matter, even for people with a sense of humor so twisted they think Norm MacDonald or Darrell Hammond are funny and have millenial appeal.

Let Colonel Harland Sanders recquiescat in pace. It might be the easiest way for KFC to stop digging its own grave.

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Early Job Loss Results From Seattle

We have been actively following the minimum wage hike in Seattle very closely at OpsAnalitica.  We have written four blogs about it this year. We found this article from the American Enterprise Institutes that discusses restaurant job losses in Seattle since the beginning of 2015, it is only 3 paragraphs so I encourage you to read the whole article.  To keep politics to a minimum the American Enterprise Institue is a center right leaning organization according to wikipedia.  Here are the points that I found most interesting in there article:

  • Seattle city council passed a $15 minimum wage law to be phased in over time, with the first increase to $11 an hour taking effect on April 1, 2015.
  • The chart below shows that the Emerald City MSA started experiencing a decline in restaurant employment around the first of the year (when the state minimum wage increased to $9.47 per hour, the highest state minimum wage in the country), and the 1,300 job loss between January and June is the largest decline over that period since 2009 during the Great Recession (data here).
  • The loss of 1,000 restaurant jobs in May following the minimum wage increase in April was the largest one month job decline since a 1,300 drop in January 2009, again during the Great Recession.
  • In contrast to the January-June loss  of restaurant jobs in the Seattle area: a) restaurant employment nationally increased by 130,700 jobs (and by 1.2%) during that same period (data here), b) overall employment in the Seattle MSA increased 1.2% and by 21,800 jobs (data here) and c) non-Seattle MSA restaurant employment in Washington state increased 3.2% and by 2,800 jobs(data here).

Screenshot 2015-08-09 08.41.41

My issue with the Seattle minimum wage hike is that it isn’t being applied evenly, it is stacked against franchise operators from larger chains.  You could have two sub shops in the same strip center owned by the same person.  One a Subway or Quiznos and the other a non-franchise operation.  The employees would be paid at different rates as the franchise shop would have to pay more for labor creating unfair competitive environment for the non-franchise operation.  Don’t forget that your local Subway is often times owned by your neighbor who wanted to be part of a national chain for advertising and support.

You can read the article below or click here to see the original.

 

In June of last year, the Seattle city council passed a $15 minimum wage law to be phased in over time, with the first increase to $11 an hour taking effect on April 1, 2015. What effect will the eventual 58% increase in labor costs have on small businesses, including area restaurants? It’s too soon to tell for sure, but there is already some evidence that the recent minimum wage hike to $11 an hour, along with the pending increase of an additional $4 an hour by 2017 for some businesses, has started having a negative effect on restaurant jobs in the Seattle area.

The chart below shows that the Emerald City MSA started experiencing a decline in restaurant employment around the first of the year (when the state minimum wage increased to $9.47 per hour, the highest state minimum wage in the country), and the 1,300 job loss between January and June is the largest decline over that period since 2009 during the Great Recession (data here). The loss of 1,000 restaurant jobs in May following the minimum wage increase in April was the largest one month job decline since a 1,300 drop in January 2009, again during the Great Recession. In contrast to the January-June loss  of restaurant jobs in the Seattle area: a) restaurant employment nationally increased by 130,700 jobs (and by 1.2%) during that same period (data here), b) overall employment in the Seattle MSA increased 1.2% and by 21,800 jobs (data here) and c) non-Seattle MSA restaurant employment in Washington state increased 3.2% and by 2,800 jobs(data here).

Screenshot 2015-08-14 20.26.49

Perhaps Seattle’s restaurant employment will recover, or perhaps it will continue to suffer from the upcoming full 58% increase in labor costs for the city’s restaurants that will be phased in during the coming years – time will tell. What we know for sure is that there are now 1,300 Seattle area restaurant workers who were employed in January who are no longer employed today, so it looks like the Seattle minimum wage hike is getting off to a pretty bad start.