THE CONSUMABLES SHOW
We are hosting our weekly Consumables Show today, October 2nd @ 12 PM ET.
EVENT DETAILS:
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Every Monday at 12 PM ET our Consumables Team will be hosting a live event where we will go through Timely and Topical events/data that have occurred in our respective industries, as well as preview the week to come. We hope that you can grab your lunch and join us as we break down the Restaurant, Consumer Staples, and Cannabis space.
We will explore a number of topics including recent position monitor changes, top questions from client meetings, most frequent inbounds, pushback on our most recent calls, and updates on some of our best ideas.
Workers IN NYC and CA to See Significant Wage Increase
New York City
Third-party delivery workers in New York City are set to receive a significant pay increase after Judge Nicholas Moyne of the New York State Supreme Court denied attempts by delivery companies DoorDash, Uber Eats, and Grubhub to block the city's new minimum pay rule. This rule will raise the hourly wage for couriers to $17.96, a significant jump from the current average of $7.09. The companies had argued that this pay increase would harm the food delivery market. However, the judge dismissed their arguments, deeming the wage law as "reasonable and rational." Another company, Relay, was exempted due to its differing business model. The new wage represents a roughly 150% raise for delivery workers. The delivery apps have been in ongoing disputes with New York City over various issues, including delivery fee caps and customer data sharing.
California
Starting April 1, over half a million fast-food workers in California are set to benefit from a wage hike, seeing their hourly rate increase to $20. This marks a substantial 29% rise from the current $15.50 hourly wage. This change directly results from a groundbreaking bill recently signed by California Governor Gavin Newsom.
The Fast Food Council: A Novel Approach
The legislation introduces an unprecedented method for determining wages in the state's quick-service sector. Central to this is the establishment of the Fast Food Council. This panel is empowered to adjust the minimum wage annually, with the increase capped at 3.5% or in line with the Consumer Price Index's fluctuation, whichever is lower. The Council's composition ensures a balanced representation:
- Four members will represent fast-food workers and union officials.
- Four seats are earmarked for stakeholders within the restaurant industry, such as owners and franchise representatives.
- The ninth seat is for an unbiased individual without ties to the fast-food sector.
This pioneering initiative by California is the first in the U.S., but similar models are being explored in Delaware and Montgomery County, Maryland.
Union Leaders See a Bright Future
Union leaders are jubilant about this legislative milestone. Mary Kay Henry, the international president of the SEIU, emphasized the broader vision, stating, "This isn't the end, this is the beginning." The Fast Food Council's inception is a product of intricate discussions involving significant players like the SEIU, the National Restaurant Association, and the International Franchise Association. As part of the agreement, labor advocates retracted a proposal that would have held fast-food franchisors responsible for the employment decisions of their franchisees.
The Role of the Newsom Administration
Governor Newsom's administration was instrumental in brokering this deal, averting the re-establishment of the Industrial Welfare Council (IWC). The potential reintroduction of the IWC earlier this year posed a significant threat to the restaurant industry's stance against the Fast Food Council. The compromise journey began in June and wrapped up in September. Newsom revealed that the SEIU had first approached him in 2019 to reimagine how fast-food wages were determined in the state.
Mixed Reactions from the Industry
The industry's response to this landmark agreement has been diverse. Some major franchisees feel sidelined, believing the deal favors franchisors by eliminating the joint-employer standard while they grapple with the wage surge. However, those at the negotiation table argue that the alternative could have been far worse, with the IWC potentially mandating even steeper wages and the joint-employer standard discouraging chain growth in California. Matt Haller, the CEO of IFA, lauded the agreement, saying, "Signature of AB 1228 preserves the franchise business model in the state and solidifies the best possible outcome for workers, local restaurant owners, and brands. Common sense has prevailed." David Huerta, the president of SEIU's California chapter, sees the bill as a significant win for the labor movement and, more specifically, for restaurant workers. As the next steps unfold, all eyes will be on the appointment of the Fast Food Council members, with the timeline for this process yet to be announced.
Coffee in China
Post pandemic we have not seen how much SBUX has been cannibalizing in China. Slowing growth and increased competition will also not help.
Over the past two decades, café chains have expanded rapidly in Mainland China. As major cities become saturated, café chains like Luckin Coffee and Starbucks are moving into smaller towns. However, increased competition is leading to product innovation and price wars. GlobalData predicts that after a double-digit growth from 2017-2022, the growth rate of coffee & tea shop outlets will slow to a CAGR of 1.4% from 2023-2027. Luckin Coffee surpassed Starbucks China by opening its 10,000th outlet in 2023, while Starbucks aims for 9,000 stores by 2025. Other local and international chains are also expanding in China. Due to high rental costs in major cities, operators are moving to smaller cities. They also face competition from direct-to-consumer brands, convenience stores, and vending machines. The fierce competition is driving product innovation. Local operators are quickly adapting to consumer preferences. For example, Luckin Coffee's Moutai Latte, infused with a local spirit, became a viral sensation. Starbucks invested $220 million in its China Coffee Innovation Park to enhance its supply chain and sustainability efforts. Domestic operators are offering discounts and promotions to attract customers. While inflation isn't a significant concern in China, the economic slowdown makes budget offerings appealing. However, continuous price wars could hurt the revenue and profit margins of café operators. Bobby Verghese notes that high-quality coffee from the Yunan Province can help reduce operator costs. The demand from smaller cities will increase sales volume, but lower incomes in these areas will limit pricing power. Some operators, like the Yum China and Lavazza partnership, have already slowed their expansion plans; others might follow suit.
