The Congressional Budget Office (CBO) weighed in on the minimum wage debate and found a $15 an hour wage could boost the pay for as many as 27 million workers. Further, the $15 hourly wage could lift 1.3 million workers out of poverty. Proponents of the higher wage zeroed right in on these findings.
But the CBO also forecast that in a “worst case scenario,” 3.7 million jobs could disappear. This would impact the lowest of entry-level workers, such as minority teenagers, and keep them from learning necessary job skills. The CBO says that workers could experience long-term harm. Of course, opponents of raising the minimum wage jumped on this part of the report.
Just last week, the restaurant industry offered its own case study about the way higher minimum wages can impact operators. Restaurants Unlimited, a multiconcept operator with 35 units spread across 6 states, filed for bankruptcy citing “progressive wage laws.” The company reported rising wages pushed up its annual labor costs by $10.6 million.
Those in favor of higher mandated wage rates contend it is only marginal, poorly run businesses that would be affected but the simple truth is that foodservice is a low margin business.
Economic News This Week
- Initial jobless claims totaled 209,000, a decline of 13,000 for the week ending July 6. The 4-week moving average totaled 219,250, a dip of 3,250.
- Consumer borrowing increased by 5 percent in May, on an annual basis, according to the U.S. Federal Reserve. Revolving credit, which is essentially credit card borrowing, increased at an annual rate 8.25 percent. Nonrevolving credit, such as auto loans, student loans, etc., grew at an annual rate of 4.0 percent.
- The Producer Price Index for Final Demand increased 0.1 percent in June. The increase was driven by a 0.4 percent increase in the index for final demand services, while prices for final demand goods fell 0.4 percent. The Producer Price Index is up 1.7 percent in the 12-month period ending in June. The price index for food fell by 1.2 percent in June.
- The Consumer Price Index Increased 0.1 percent in June on seasonally adjusted basis. In the last 12 months the overall index increased 1.6 percent.
- May’s JOLT study showed interesting changes. At 7.3 million, the Job Opening Level changed little. There are still more job openings than people looking for work. The number of hires totaled 5.7 million, a decline of 266,000. The number of separations totaled 5.5 million, a decline of 192,000. The number of people voluntarily leaving a job totaled 3.4 million, meaning it changed little. The number of people who voluntarily leave a job is closely watched as it is thought to be a measure of confidence in the economy. At 1.8 million, the number of layoffs and discharges changed little, too.
Foodservice News This Week
- The Consumer Price Index for Food did not increase in June. Food at home prices fell 0.2 percent for the month and are up 0.9 percent in the 12-month period ending in June. Food away from home prices rose 0.3 percent in June compared to May. Food away from home prices have increased 3.1 percent. In effect, the price for food away from home has grown more than three times faster than the price of food at home.
- Subway undertakes a massive remodeling program. The chain plans to roll out its new design to 10,500 locations by the end of 2020. This represents almost half of Subway’s restaurants. Subway has struggled recently with declining store sales and store closings. Across the 400 locations that have the chain’s new Fresh Forward design, Subway reports an 11 percent increase in gross profit and an 8 percent increase in consumer traffic. Subway has been able to cut the remodel by half and has a grant program that will cover 25 percent of the changes.
- McDonald’s franchisees ask the franchisor for a premium chicken sandwich to better compete with Chick-fil-A. It is apparent that the chicken chain’s success has been at least in part at the expense of McDonald’s. But Chik-fil-A’s recipe for success includes more ingredients than a quality chicken sandwich. According to Mizsuho Securities, Chick-fil-A enjoys “unmatched” productivity, a good relationship with its franchisees, as well as a simplified menu leading to higher customer satisfaction and service scores.
- Corporate Stirrings: Boston Market closed 45 of its operations, which represented about 10 percent of the company’s stores. A company spokesman said the closings were necessary and part of its “multi-faceted transformation plan.” Boston Market is owned by Sun Capital Partners. Brinker International announced it will purchase 116 Chilli’s Grill & Bar restaurants from their franchisee of 14 years, ERJ Dining. Cost of the deal was not given.
- Perkin’s franchisee Campbell’s Land Company has filed for bankruptcy. The family dining chain took the company to court to shut down its 26 Perkins restaurants claiming the franchise operator owed $2.2 million.
- Comparable Store Sales Reports: Luby’s (All concepts down 4.0 percent, Luby’s Cafeteria down 3.1 percent, Fuddrucker’s down 6.1 percent, Cheeseburger in Paradise down 4.4 percent and combo units down 4.8 percent.)
For details and same-store sales of other chains, click here for the Green Sheet.