Commentary

Fast casual CEO urges restaurateurs to stand against the assaults on the restaurant industry

David Jones, CEO of Blazing Burger, calls on cities and states to help save small businesses.

August 22, 2017

By David Jones, Blazing Onion Burger Company

My name is David Jones. My wife, Lorri, and I founded the Blazing Onion Burger restaurants in the Greater Seattle Market. We currently own and operate six of them with our seventh Blazing Onion being our first franchise location. In addition to being a franchisor of the Blazing Onion, I have been a franchisee of Subway Restaurants for 20 years, currently owning and operating three of them. It is basically too late to cure the decisions that have threatened my businesses, nor do I believe the people that have made the decisions are willing to listen. I write this blog hoping that neighboring states and cities might read it and be inspired to reach out earnestly to their small business community and listen.

The assault on the restaurant industry

The assault on the restaurant industry started in 2010, with the Affordable Care Act. No one really wants to talk about it out loud for fear of sounding like they don't care about their employees. The intentions were good, but the decision to make small businesses with 100 employees or more pay for the insurance had a huge and devastating effect on many small businesses like ours. Our business model wasn't menu priced correctly to sustain such a huge costs addition. While many larger restaurant groups cut hours to get more part-time employees, we felt like our team was our family.

This was not an option.

Slowly, we could replace turnover with part time, but that didn't help us immediately. Consequently, the ACA took every penny of our cash flow and forced us to struggle with a menu price solution. It penciled out to a pretty high menu increase just to 'break even', so we decided on a two-year strategy, eating 50 percent of the costs. Our growth of restaurants, and subsequent creation of 50 jobs per year, dried up in 2012. We still managed to grow through franchising and were named in the Fast Casual's Top 20 Movers & Shakers in 2013, but dropped out of sight in 2014.

A second assault

In April of 2015, the city of Seattle started the second assault. The mayor's office and the city council made the decision that a small franchise was the same as a big company. They brought small businesses to the table, but not franchisees, making the decision solely on SEIU rhetoric. The fact that a franchise starts from ground zero to obtain a loan, builds the restaurant, hires and trains the team and sustains the profitability was not considered.

Instead, they focused on the SEIU's talking points that the road map many franchisors offered as well as the ability to pool money for marketing put franchisees at an advantage over everyone else. Neither of which helped a franchise owner's bottom line with increased costs. The truth is that a franchise offers a business person an opportunity to open a business that has been tested and usually has an ongoing developing menu. They may get ongoing support, and they may be simply policed to operate under the company blue print. They will pay royalties, they will pay marketing fees, they will do all of the work and they will earn more or less than their neighbors as a result. They are a small business, period. No one on the Seattle City Council accepted my open invitation to look at my books, and thus my eight employee Subways were stamped big business. The SEIU told the city that this was an urgent situation and people needed help now, not tomorrow and Seattle agreed and turned its eyes to the next story.

This decision forced my Subways to survive a $1.53 increase in 2015, followed by $2 increases in both 2016, as well as 2017. I am currently paying $15 per hour with my average wage exceeding $16.25 at my Subways in Seattle. Again, I was forced to change my prices in an attempt to break even. The SEIU argued that the franchisor would help.

Did Subway help? No.

They kept us at an arms distance. You wouldn't even know Seattle was going through this if you listened to them. Not only did Subway not help, but the local development agents refused to come to meetings to even listen. Both the national and local focus has been on discounting, forcing most of the Seattle Subways into being rebels because we can no longer afford to discount.

In hindsight, I believe an annual increase in minimum wage of $0.55 for 10 years would have been sustained without the negative effect on the industry. That just wasn't fast enough for the SEIU Union. They started a movement and inevitably had the main seat at the table as Seattle jumped on board the fastest increase to $15 in the nation, a $5.53/hr increase in minimum wage in just 33 months to $15/hr.

In both 2015 and 2016, my traffic counts were hit hard which affected my sales. My customers made decisions to eat out less or visit my neighbors that weren't affected by the franchise tag. I went into this scenario committed to not cutting hours. I scheduled my staff according to traffic and thus with no intention to do so, over time, I did eventually cut hours as well as total employees. It was subtle but had an effect on all of us. It wasn't just me.

The University of Washington did a study that showed that despite increased wages in Seattle, the drop in hours cost the average low wage employee as much as $125 a month. They also felt that there were 5,000 fewer jobs available because of the change. In year three, our traffic finally sustained, but our guests started trading down on the menu, affecting our check average and again our sales. It seems we can't win.

The third assault

In 2016, the state of Washington joined the assault on the restaurant industry and passed a $13 per hour minimum wage that started at $11 per hour in the first year, similar to Seattle. This increase has once again taken our entire cash flow and put us back to ground zero. Despite increasing prices, we simply have not caught up to the wages, ACA and increased rents.

The fourth assault: Predictive scheduling

At the urging of the SEIU, disguised as Working Washington, the city of Seattle started its next assault by creating Predictive Scheduling. This forces large employers and small business franchisees to pay penalties for covering sick calls, making schedule changes because of banquets, catering or large parties, posting schedules with less than two weeks' notice, and much more. Again, the city created a Business Stakeholders Group but eliminated more than half of them from the equation, allowing very limited counter argument and quick debate. Similar to minimum wage, they met with the union reps in between meetings and brought newly added propositions to the table frequently. You really have to admire how the city pulled this off under the guise that the businesses helped in the decision process. Insert laughter here. Oops, must be a broken link. What's in the pipe line... soda tax, extended paid leave of absences, penalties for hiring part time workers and so much more.

You can close your eyes, but it's not going away. The restaurant industry boasts some of the largest fail numbers for any small business, yet it's also one of the first businesses to open new doors. Everyone thinks you make a lot of money, and it's so easy. Lorri and I have done alright for ourselves and our 240 extended family of employees, but sustaining it is proving to be a battle we're losing. We need to remodel to keep our loyal guests excited, and we need to grow to create opportunities for our teams. As our prices change in an attempt to recapture cash flow, many of our customers feel betrayed. They feel like their favorite restaurant is getting greedy. We're just trying to keep our heads above the water during perpetual high tides.

When is a decision impetuous? In this case, when a bully threatens, "Make the decision or else," then smiles and whispers, "It's really best for everyone". So here's my advice. Get to know your local council members and state Congress members now. Be transparent. Maybe, just maybe, one of them may call you for advice when the SEIU comes in town to bully them.

Cover photo: iStock

Operations