Tag Archives: Restaurant Industry

Working for Tips, by John Stossel

Most people pushing for higher minimum wages for restaurant workers have never worked in a restaurant and know nothing about the business. From John Stossell at downhill.com:

Union protestors and celebrity advocates have decided that waiters’ tips aren’t big enough.

They are upset that in 43 states, tipped workers can be paid a lower minimum wage, as low as $2.13 an hour.

Not fair! say celebrities like Jane Fonda, who recorded commercials saying, “That’s barely enough to buy a large cup of coffee!”

As usual, those who want the government to decide that workers must be paid more insist that “women and minorities” are hurt by the market.

But waitress Alcieli Felipe is a minority and a woman. She says the celebrities and politicians should butt out.

Thanks to tips, Felipe says in my new internet video, she makes “$25 an hour. By the end of the year, $48,000 to $50,000.”

She understands that if government raises the minimum, “It’ll be harder for restaurants to keep the same amount of employees … (T)he busboy will be cut.”

She’s right.

Minimum wage laws don’t just raise salaries without cost. If they did, why not set the minimum at $100 an hour?

Every time a minimum is raised, somebody loses something. “In the (San Francisco) Bay Area, you’ve got a 14 percent increase in restaurant closures for each dollar increase in the minimum wage,” says Michael Saltsman of the Employment Policy Institute.

Activists are unmoved. “The problem with tips is that they’re very inconsistent,” University of Buffalo law professor Nicole Hallett told me. Hallett is one of those activist professors who gets students to join her in “social justice” protests.

“I simply don’t believe that increasing the minimum wage for tipped workers will lead to a reduction in the restaurant workforce,” she said. “Studies have shown that restaurants have been able to bear those costs.”

I pointed out that last time New York raised its minimum, the city lost 270 restaurants.

“Restaurants always close,” she replied.

“Restaurants don’t always close,” responds Saltsman. “Yeah, there’s turnover in the industry, but what we’re doing now to an industry where there’s low profit margins, jacking up restaurant closures … Something’s not right.”

The media rarely focus on those closings. We can’t interview people who are never hired; we don’t know who they are. Instead, activists lead reporters to workers who talk about struggling to pay rent.

To continue reading: Working for Tips

Reasons Emerge for Worst Chain-Restaurant Slump since 2009, by Wolf Richter

Restaurants, which have been a bulwark of employment and growth, are hitting the skids. From Wolf Richter at wolfstreet.com:

Foot traffic at chain restaurants fell 3% in June year-over-year. Same-store sales fell 1%, the 16th month in a row of year-over-year declines, completing the sixth quarter in a row of sales declines, the longest downturn since 2009.

Food sales were down, alcohol sales were down. The only thing that was up was prices, but it wasn’t enough to make up for the decline in guest count: the average amount per check rose just 2% in June.

“Brands seem to be reluctant to implement significant price increases given the current environment. Price promotions have been widely utilized, especially by struggling brands and segments to drive traffic,” said Victor Fernandez, Executive Director of Insights and Knowledge for TDn2K, whose Restaurant Industry Snapshot tracks sales at 27,000 restaurant units from 155 brands, generating about $67 billion in annual revenue.

Sales rose in 45 markets and fell in 150 markets. California was the least bad region, with same-store sales up 1.4% and foot traffic down 1.1%. Texas was the “worst region” for the second month in a row, with sales down 2.2% and foot traffic down 4.1%.

How bad is the problem for chain restaurants? So bad that this decline was in fact “good news,” after all the even worse declines in prior quarters. Q2 was the least bad quarter since Q2 2016!

But for the wrong reasons, according to Fernandez: “The reality is that we are also lapping over some weak results in 2016 which make the comparisons much easier for the industry in 2017.”

As always, there are glimmers of hope, but not really, according to Joel Naroff, president of Naroff Economic Advisors and TDn2K economist:

“The summer season should be solid as people have money to spend. Unfortunately, until wage gains improve, which so far continue to be disappointing, no major acceleration in spending at restaurants should be expected.”

The high end – fine dining – was the top performing segment, according to the report, as “affluent restaurant consumers continue to respond positively to those brands that provide a more experience-driven dining occasion.” The upscale casual segment was the second best performer.

To continue reading: Reasons Emerge for Worst Chain-Restaurant Slump since 2009

Is the Chain-Restaurant Recession Becoming Structural? by Wolf Richter

Chain-restaurants are integral to the American way of life, but perhaps not for long. From Wolf Richter at wolfstreet.com:

A 15-month downturn, longest since 2009, and no end in sight.

There’s simply no respite for chain restaurants. Industry-wide, same-store sales fell again in May. The last time, same-store sales actually rose year-over-year was in February 2016. On that basis, the chain-restaurant recession is now in its 15th month, the longest downturn since the Financial Crisis.

In May, same store sales fell 1.1% year-over-year. Same-store foot traffic fell 3.0%. Food sales were down, and alcohol sales were down, according to TDn2K’s Restaurant Industry Snapshot, tracking sales at 27,000 restaurant units from 155 brands, generating about $67 billion in annual revenue. But the average amount of the check per person increased by 2%, and not because they ordered more food and booze, but because prices rose.

Florida was the least bad region, with same-store sales up 0.1% and foot traffic down “only” 1.9%. Texas was the worst region with sales down 2.4% and foot traffic down 4.3%. Of the 196 markets, 140 (71%) experienced sales declines.

The report – as the reports in prior months – is perplexed by the long downturn:

Recently, there has been an upturn in retail spending on most goods and services. That stands in stark contrast to the continued decline in sales growth at restaurants.

This change in consumer spending patterns was identified about a year ago, and how much longer it will continue is unclear.

Now the hope is that year-over-year sales comparisons this year will look less bad based on the “relatively soft sales” last year. That has been the hope for months, and it hasn’t happened yet.

But the pain is not evenly spread in this sector, according to the Restaurant Industry Snapshot:

Dine-in sales have been negative year-to-date, but to-go is up 2.9%. Sales are also up in catering, delivery, and drive-thru.

Breakfast and mid-afternoon sales offer continued opportunities for growth, while lunch and, especially, dinner sales continue to stumble.

While sales in May were “weak across all segments,” the fine dining segment “was able to achieve very small positive same-store sales growth.” Until May, that sector had done well. Now it too is losing its edge.

To continue reading: Is the Chain-Restaurant Recession Becoming Structural?

US Restaurant Industry Suffers Worst Collapse Since 2009, by Tyler Burden

The restaurant industry had been a pillar of strength for the US economy. No more. From Tyler Durden at zerohedge.com:

What tentative hope had emerged for a rebound for the U.S. restaurant industry at the start of the year, was doused last month when in its February Restaurant Industry Snapshot, TDn2K found that “Restaurant Sales and Traffic Tumble in February” and reported that same-store sales fell -3.7% in February, with traffic declining -5.0% . It did however leave a possibility that things may turn around as a result of the prompt disbursement of withheld tax refunds in the month, which it suggested may have adversely affected sales and traffic.

Alas, that did not happen, and restaurant struggles continued in March as sales and traffic again declined year-over-year: same-store sales were down 1.1% while traffic dropped 3.4%. March results were disappointing for an industry desperately trying to reverse performance trends; with sales now negative in 11 out of the last 12 months, the longest stretch since the financial crisis. There was a modest improvement sequentially, however, and while still negative, sales improved by 2.5% points compared to February as traffic rose marginally by 1.6%.

Source: TDn2K

Explaining the sequential “improvement”, Victor Fernandez, executive director of insights and knowledge for TDn2K, said “March sales were expected to be somewhat better than February due in part to the catch-up of tax refunds that were initially delayed in February. In addition, the industry likely benefited from the shift in the Easter holiday, which fell in March in 2016. For the largest segments (quick service and casual dining), this holiday represents a potential loss of sales.”

However, it was not enough: “The fact that sales were still negative in March given these tailwinds highlights the challenge chains have faced since the recession. Factors like restaurant oversupply and additional competition for dining occasions continue to take their toll on chain traffic.”

To continue reading: US Restaurant Industry Suffers Worst Collapse Since 2009

There’s A Massive Restaurant Bubble, And It’s About To Burst, by Tyler Durden

Governments are strangling the restaurant industry. From Tyler Durden at zerohedge.com:

In January 2009, just three days after his inauguration, an arrogant President Obama, a “community organizer” and one-term senator from Illinois, proclaimed to then Republican Whip Eric Cantor that “elections have consequences, and at the end of the day, I won.” Unfortunately, he was absolutely right and the consequences of Obama’s election, having already crushed the coal industry, are about to bring the restaurant industry crashing down as well.

To be fair, Obama hasn’t crushed the restaurant industry single-handedly. While Obamacare went a long way toward destroying the industry, it’s demise would not have been certain without a little help from leftist state legislators that have passed a slew of egregious minimum wage hikes in recent years (not that Obama didn’t try and fail twice to accomplish the same thing at the federal level). Add to that a multi-year run of near 0% interest rates that have driven commercial real estate soaring and a dash of “hope” from culinary grads looking to become America’s next famous celebrity chef and it’s easy to see that you’ve had a recipe for disaster simmering on low heat for years.

And while he avoided the political attributions we note above, a recent Thrillist article by Keven Alexander highlights the demise of one independently owned restaurant in San Francisco, AQ, that will be shutting down later this month for all the same reasons.

When it comes to minimum wage, Alexander highlights that just a $1 per hour minimum wage increase can reduce an independent restaurant’s already thin profit margins by $20,000, or 10%. So we imagine the $5 minimum wage hike that California just passed is probably slightly less than optimal for companies like AQ in San Francisco.

To continue reading: There’s A Massive Restaurant Bubble, And It’s About To Burst

Restaurant Industry Suddenly Tanks, Worst Plunge since the Beginning of the Financial Crisis, by Wolf Richter

One of the few bright spots in the US economy is no longer bright. From Wolf Richter at wolfstreet.com:

Plunges like this only occur when something big is going on.

The restaurant industry has been unscathed by the economic slowdown. The meme is that Millennials like to spend their money on “experiences” – such as eating out, drinking at their favorite watering holes, and going places (and eating out) – rather than buying stuff, particularly stuff at brick-and-mortar stores.

These brick-and-mortar stores have been singing the blues of dismal sales, earnings warnings, layoffs, and store closings as consumers refuse to splurge. And to add insult to injury, consumers have been shifting their spending online. But the restaurant industry has been flying above the fray, benefiting from Millennials’ preference for “experiences.”

Or that was the meme. The National Restaurant Association just released its Restaurant Performance Index for December. And it suddenly plunged.

The RPI is a composite of the Current Situation Index and the Expectations Index, both of which track restaurant operators’ responses on same-store sales, traffic, labor, and capital expenditures. “Steady-state level” is 100. Values above indicate expansion, values below indicate contraction. In the data series going back to 2003, the RPI has ranged from its peak of 103.5 in 2004 to its low 96.5 during the worst moment of the Financial Crisis.

“As a result of broad-based declines in both current situation and expectations indicators,” – as the report started out – the RPI for December fell to 99.7, from 101.3 in November and from 102.1 in October, 2.4% in two months, the worst two-month plunge since early 2008, at the cusp of the Financial Crisis.

The Current Situation Index dropped even more steeply, to 99.4 from 100.9 in November and 102.5 in October, 3.1% in two months, also the worst since the beginning of the Financial Crisis.

To continue reading: Restaurant Industry Suddenly Tanks, Worst Plunge since the Beginning of the Financial Crisis