Thursday, July 19, 2018

"Restaurants to diet"/ "Minimum wage hikes are transforming Ontario menus"

Oct. 7, 2017 "Restaurants to diet after years of fattening up job gains": Today I found this article by Shobhana Chandra and Craig Giammona in the Globe and Mail:

U.S. restaurants have been on a hiring binge in recent years, far outpacing the rest of the economy. But their appetite for more employees looks to be waning.

McDonald’s Corp. and Subway Restaurants, two of the largest fast-food chains in North America, have cut back on new-store openings and closed some locations. 

Supermarkets including Kroger Co. are pushing prepared foods, while meal kits are making it cheaper and easier for people to eat at home. Wendy’s Co. and McDonald’s plan to install hundreds of digital ordering kiosks by year-end to boost sales as labour costs rise.

While eating out remains popular, restaurants face headwinds from competition, overbuilding and automation, especially at fast-food chains. The threats loom over an industry that’s punched above its weight in America’s labour market: Since the start of the expansion in mid-2009, it has added 2.3 million jobs, or 15 per cent of the private-sector increase, while employing only 9 per cent of private workers.

Now, that growth is looking more sedate. Hiring at restaurants and bars in 2016 was the weakest since 2010 and is running similar to that so far this year. A deeper slowdown would crimp nationwide payroll gains that have mostly beaten forecasts this year, with hurricane-impacted September data due Friday.

“The best times for restaurant employment have passed,” said Ryan Sweet, a Moody’s Analytics Inc. economist. While he anticipates demand may underpin a “fairly solid” pace of hiring the next few years, “it’s unlikely restaurants will be able to duplicate the kind of job gains we’ve seen since the expansion began.”

Thousands of restaurants, coffee shops and bars opened across the country as consumers recovering from the recession began spending more freely on eating out. In 2015, for the first time, Americans spent more at restaurants than traditional grocery stores.

Industry watchers say the landscape is changing rapidly. Quickservice chains that drove growth in new locations look especially vulnerable. NPD Group forecasts customer visits to fast-food restaurants will be little changed this year and next, with sales growth being driven mainly by menu price hikes rather than higher traffic.

There’s a growing sense the industry is saturated. McDonald’s, Burger King and Wendy’s are increasingly battling for market share. Compared with the spring of 2016, chain restaurants slowed openings this year while independent eateries with one or two units saw an outright decline in locations, NPD data show. 

Analysts are questioning whether Starbucks Corp. overbuilt, while rival Dunkin’ Donuts recently reduced its new-store target.

Then there are labour costs. Restaurant wages have grown about 4 per cent since mid-2016, twice the pace of private earnings, amid a tight job market and minimum-wage hikes in some states. While good for industry employees, pay gains may be behind some of the deceleration in hiring and thus “somewhat of a double-edged sword,” said Mr. Sweet, of Moody’s.

Fast-food chains are also diving headfirst into automation, including touch-screen devices that tend to lead to bigger orders. McDonald’s plans to have digital ordering stations at about 2,500 restaurants by the end of 2017. By then, Wendy’s plans to have digital kiosks at about 300 locations.

Shake Shack, the burger chain founded by restaurateur Danny Meyer, is opening its first location without cashiers this month in New York. At Panera Bread Co., about 25 per cent of sales come through digital platforms, including its website, mobile app and kiosks. Even Domino’s Pizza Inc. is testing consumers’ appetite for driverless delivery with Ford Motor Co.

While such innovations may eventually help restaurants function with fewer employees, the future hasn’t totally arrived yet. Job openings at restaurants and hotels climbed to a record in July, although that partly reflects high turnover, which makes it harder for chains to recruit in a tight labour market.

Jan. 29, 2018 "Minimum wage hikes are transforming Ontario menus": Today I found this article by Megan Marrelli:

The Brussels sprouts pizza was a bestseller at Toronto east-end restaurant Lil' Baci. But pressed by Ontario's Jan. 1 minimum-wage hike, owner Mark Bacci recently took the item off the menu, saying its costly ingredients, such as mascarpone, ricotta, pancetta and truffle oil, made the margins on the dish too small for what he felt he could charge.

"It was such a good pizza, but it was just killing us," Mr. Bacci said.

As with many Ontario restaurant owners, Mr. Bacci has restructured his menu and switched ingredients to be able to pay his staff the new provincial minimum wage, which jumped to $14 from $11.60 at the beginning of the month. The minimum wage is slated to rise to $15 in January, 2019, which will make it one of the highest minimum wage rates in the country.

Restaurants are particularly affected by the increase. According to Statistics Canada, restaurants in Ontario operate with about a 3.4-per-cent pretax profit margin. "The whole business is nickels and dimes. You have to be smart about it without giving up value," Mr. Bacci said.

In addition to the Brussels sprouts pizza, he removed 15 other high-cost, low-margin items from his menu.

"We're using fewer items, which helps control costs better, and scrutinizing what we bring in," he said. The Leslieville restaurant went from a 40-dish menu to 24 dishes.

Food suppliers have increased prices in light of the new minimum wage, making it more expensive for restaurants to buy ingredients for dishes, too.

Erik Joyal, owner of the Italian restaurant Ascari Enoteca, said that, during the first week of January, multiple suppliers sent him letters informing him of price hikes on their products.

"The impact is felt and the impact has been immediate," Mr. Joyal said. "My mantra for 2018 is 'mining for margins.' We're looking at costs across the board. Not just labour, but supply chains for paper products, our wine program, how we're pricing our alcoholic and non-alcoholic beverages. What we're trying to avoid as best we can is passing on those increases to the consumer."

Some restaurants have raised menu prices to accommodate the new cost, while others are trying to avoid charging more.

The owner of Farmhouse Tavern, a small restaurant in Toronto's west end, projects the new minimum wage will cost the business an extra $25,000 this year.

"You have to find 99 ways to save a dollar so nothing is noticeable," Darcy MacDonell said. "I don't want to raise the price of my burger." Instead, he switched to a less expensive burger bun.

Geoff Wilson, principal at the hospitality consulting firm fsStrategy, said if restaurants are going to increase prices, it's better to do so incrementally.

"If you wait too long, one big fell swoop is too hard for the consumer to handle," he said. "There really is a whole science to running a restaurant now, and when you get hit with an event like this where things are beyond your control, you have to be much more focused on generating revenue."

There are other ways to increase profit too, he says, such as emphasizing higher-margin items on menus, managing inventory and minimizing waste.

Mr. Bacci and his staff spent two weeks standing by the bread bin in Lil' Baci, counting how much of the restaurant's house-baked bread was getting thrown away. "We discovered that people were throwing it out, so we had to eliminate it."

Last year, he opened a new restaurant called Annabelle Pasta Bar in Toronto's west end, specifically with the wage hike in mind. Annabelle serves three pasta dishes a day for $10 each, and it operates out of a space that was formerly a convenience store.

"Because we have less expensive rent, we were able to bring costs down. We looked at the size of our menu and asked 'What are the hits?' And pasta is our thing. We've always made good pizza but it's labour-intensive, and we'd have to get a body in for that."

In a survey of Ontario restaurateurs last year conducted by industry group Restaurants Canada, 81 per cent of owners said they planned to cut staff to accommodate the wage hike.

Ascari owner Mr. Joyal said he thinks the rollout of the $15 minimum wage should have been more gradual.

"I think that the way in which the government has implemented these changes has been abrupt and that hasn't made it easier," he said. "To operate my business now in 2018 is way more difficult than it was in 2017."

The increase to $15 will be a 32-per-cent total increase in just 18 months.

Mr. Bacci said he'll still make the high-cost, low-margin Brussels sprouts pizza at Lil Baci's, but not for the regular menu.

"We'll remove it and run it as a special," he said.

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