Discover more from The 21 Hats Morning Report
Are Employers Regaining Leverage?
And could a looming recession mean "more butts in seats" and an end to the move toward remote work?
Here are today’s highlights:
Have you tried offering “returnships”?
Diners are starting to eat out less.
McDonald’s wants to change the rules it imposes on franchisees.
Here’s what it’s like to be the last business in a dying town.
Some small businesses are asking the SEC to show restraint on climate rules: “Farms, independent manufacturers and other small businesses that don’t trade on stock exchanges normally don’t fall within the SEC’s purview; the agency regulates public companies and some other market participants. But small firms fear they will be forced to cough up heaps of information on their roles, however small, in emitting carbon because the SEC wants large public companies to catalog emissions in their entire supply chains. ‘Small and independent businesses cannot afford the experts, accountants and lawyers needed to comply with complex government reporting regimes,’ the National Federation of Independent Business said in a comment letter filed with the SEC.”
“Gas stations, most of which are owned and operated as small businesses, might have to report their emissions information to publicly traded suppliers like oil companies and beverage companies, as those suppliers try to work out the emissions associated with the use of their products, the National Association of Convenience Stores said.”
“Jay Timmons, chief executive of the National Association of Manufacturers, said small manufacturers that are in his organization’s membership ‘simply can’t take’ the regulatory costs they might be facing.”
“The SEC could also propose changes that blunt some of the more controversial impacts of its proposal. The National Federation of Independent Business in its letter pleaded for that kind of regulatory restraint. ‘Please keep small and independent businesses in your mind and out of your grasp,’ it said.” READ MORE
As casual chains raise prices, diners are pulling back: “Customer counts for casual dining restaurants fell around 3 percent in the three months ended June 12, compared with the previous year’s period, according to restaurant analytics firm Black Box Intelligence, making sit-down restaurants one of the worst-performing groups in the restaurant sector. Sales for casual dining restaurants rose by 4.4 percent during the period, but price increases played a large role in the growth, Black Box said.”
“Sit-down restaurant chains are looking for ways to raise menu prices without scaring off diners, executives said, aiming to balance escalating inflation and weakening consumer sentiment.”
“Growing price sensitivity among consumers poses a new challenge for casual dining restaurants, which had largely recovered sales disrupted by the Covid-19 pandemic by pushing deals and to-go options.”
“California-based Red Robin said it plans to promote value options, and is currently offering bottomless fries and drinks to customers who dine in. ‘We’re prepared for a softening consumer as we move through this year,’ said Paul Murphy, Red Robin’s CEO, at an industry conference this week.’” READ MORE
More companies are looking to bring back recent retirees for so-called returnships: “Many are among the 3 million-plus Americans who retired early during the pandemic but are opting for ‘returnships,’ corporate-speak for flexible arrangements for veteran employees. ‘We’re seeing more evidence that retirees are looking for project-based work to combat boredom and ageism,’ says Jody Greenstone Miller, chief executive officer of Business Talent Group, a subsidiary of recruiter Heidrick & Struggles. She says demand for seasoned, interim leaders has more than doubled in the past year.”
“‘Older workers are coming back but with very specific needs,’ says [Angie Bergner, a vice president at analytics firm Veris Insights]. ‘They’re less concerned about things like perks and offices and just want something that pays reliably and is superflexible.’”
“Returnships have grown as labor shortages make recruiting expensive and difficult. ‘Companies are saying, Rather than spending to hire and train new employees and not knowing if it will last, isn’t it better to retain these known employees?’”
“Some companies offer bonuses that can reach $20,000 to bring back valued vets—money that can help rebuild retirement accounts battered by stock market losses.” READ MORE
Would a recession end remote work? “In the near future, then, management may regain the upper hand from labor, as the Great Resignation becomes the Great Labor Slackening. Company culture will more resemble what bosses want, rather than what workers want—and that could mean a lot more butts in seats. According to surveys by the Stanford economist Nicholas Bloom, nearly 80 percent of employees say they prefer to work at home at least one day a week. But managers are roughly split on the question of whether remote workers are as productive as office workers.”
“We’re already getting little glimpses of how a bleak economic situation might burst the WFH bubble. Several weeks ago, Elon Musk told his employees to return to the office or else lose their jobs.”
“This initially looked like a straightforward threat by an eccentric CEO with a passion for office-based proximity. But days later, Tesla announced that it would likely have to lay off 10 percent of its workforce, suggesting that Musk was using the threat of return-to-office to get some of his workers to quit on their own, without the indignity of announcing a large layoff.”
And yet: “From a purely mathematical standpoint, the most rational thing for a zombie-office company to do during a recession is to slash spending on everything related to the office. ‘Reducing office square footage and going fully remote is cost-saving for many firms,’ Adam Ozimek, an economist and a remote-work advocate, told me.” READ MORE
Yelp, meanwhile, is closing offices and doubling down on remote work: “In an interview with The Washington Post, Yelp co-founder and CEO Jeremy Stoppelman called hybrid offices ‘the worst of both worlds’ and noted that two things have become increasingly clear following the pandemic: Workers want to do their jobs remotely and the company benefits from meeting the demand. Stoppelman acknowledged the growing popularity of hybrid policies — in which employees work from the office part time — but called them ‘the hell of half measures.’ ‘It’s the worst of three options,’ he said.”
“Yelp plans to use the cost-savings from the office space to reinvest in hiring, in employee benefits and perks, and the business itself. Stoppelman said the company is figuring out the cadence and best ways to host in-person events so workers can meet, collaborate and bond in real life.”
“Stoppelman also pushed back on the idea that companies can’t create culture in a remote environment — as Yelp has had a somewhat distributed workforce years before the pandemic. Instead he says culture comes from who a company hires, who it fires and who it promotes.” READ MORE
The retail industry faces a wave of bankruptcies: “There could be an increase in distressed retailers beginning later this year, experts say, as ballooning prices dent demand for certain goods, stores contend with bloated inventory levels and a potential recession looms. Last week, 90-year-old cosmetics giant Revlon filed for Chapter 11 bankruptcy protection, making it the first household consumer-facing name to do so in months. Now the questions are: Which retailer will be next? And how soon?”
“The industry had seen a dramatic pullback in restructurings in 2021 and early 2022 as companies — including those that had been on so-called bankruptcy watch lists — received relief from fiscal stimulus that offered cash infusions to businesses and stimulus dollars to consumers.”
“The pause followed a flood of distress in 2020, near the onset of the pandemic, as dozens of retailers including J.C. Penney, Brooks Brothers, J. Crew and Neiman Marcus headed to bankruptcy court.”
“‘Consumers are getting more stingy with their wallets,’ Berliner said. ‘There are going to be the winners and losers like we always see. I’m just not sure yet how soon it’s going to happen.’”
“Berliner said he has been keeping a close watch on consumer debt levels, which are hovering near all-time highs.” READ MORE
We might be placing too much emphasis on consumer expectations for inflation: “It’s the question the University of Michigan asks respondents to its Survey of Consumers. Because that survey is the longest-running such survey of consumer attitudes, dating back to 1946, its data about price increases have become the benchmark for economists who obsess over expectations of inflation. When Federal Reserve Chairman Jerome Powell said last week that the Fed was raising interest rates by 0.75 percentage point, he cited an uptick in the responses people gave to the Michigan survey, saying, ‘It was quite eye-catching and we noticed that.’”
“The first quirk is that many people have only a vague idea of how much prices will rise, and tend to respond with large (sometimes implausibly large) round numbers: 5 percent, 10 percent, 15 percent, even 50 percent. In other words, people don’t gravitate toward a common assessment—they disagree sharply about how much inflation to expect, as Mr. Mankiw puts it.”
“Second, partisanship colors people’s views. This is a well-known trend when assessing measures of consumer confidence: Democrats become extremely optimistic, and Republicans extremely pessimistic, the moment a Democratic president is elected. And vice versa. It has recently come to hang over inflation data, too.” READ MORE
McDonald’s is tightening its ownership rules as it looks to reinvigorate its base of franchisees: “Executives this week notified the burger chain’s franchisees that they will have to go through a more stringent review every 20 years to keep their restaurants, according to an email to franchisees viewed by The Wall Street Journal. McDonald’s will consider new factors, like performance history, as it asks owners to apply to keep their locations. The company will consider new factors, such as customer complaints, to determine which McDonald’s franchisees can add new locations.”
“In a shift that could affect some of the chain’s longest-tenured restaurant operators, McDonald’s is also requiring that some next-generation heirs put up more cash to keep operating their locations—and to designate a single family member as the operator.”
“Chain franchisees are scheduled to meet with company executives next week, and some owners said they intend to push back at the changes. The National Black McDonald’s Operators Association sent a message to franchisees Thursday asking if they should issue a vote of no confidence toward company CEO Chris Kempczinski.”
“Total initial investment needed to operate a traditional McDonald’s franchise ranges from $1,366,000 to $2,450,000, including a starting franchise fee of $45,000, according to the disclosure document. Franchisees pay rent and service fees based on a percentage of total sales.” READ MORE
Elsie Eiler and her tavern are all that remain of Monowi, Nebraska: “In the mornings, she walks along the empty main street to open its one remaining business, the Monowi Tavern, which her family has run since 1971. She operates it 12 hours every day of the week except Monday. Half a dozen dusty pickup trucks emerge from the rural expanse of surrounding Boyd County as Mrs. Eiler, 88, turns on the lights and restocks the beer coolers. The regulars pour their own coffee, set down a dollar and join the conversation. The farmers want to know who’s selling hay and who’s buying it. Everyone is concerned about a nearby wildfire made worse by powerful winds and a prolonged drought.”
“Population loss has decimated other towns in Boyd County, a 550-square-mile region south of the Missouri River. About 2,000 people still live in the county, down from a peak of 8,800 in 1910. The decline is part of a trend playing out across the state.”
“Farm sizes have steadily grown in recent years, as larger, more efficient operations became better suited to survive the industry’s shift to a global market. Small family farms — once the backbone of the local economy — had to expand their operations or get out. Many got out.”
“‘We don’t have an industry,’ Mrs. Eiler said. ‘We just farm.’ The countryside ‘was full of little 180-acre farms’ like theirs, but not anymore. ‘You have to be big, or you can’t make it,’ Mrs. Eiler said.”
“One day not long from now, Mrs. Eiler will be gone, and with no one else to take it over, Monowi is likely to be wiped from the map. ‘The bar is the town, and I’m the town,” she said. ‘We’re all so intermeshed, you can’t quite imagine one without the other.’” READ MORE
THE 21 HATS PODCAST
Do core values matter? This week, Sarah Segal tells Shawn Busse and Paul Downs why she’s never articulated a set of core values for her business and why she’s thinking about doing it now. But she’s wondering whether establishing her values will really make a difference. Do employees care? Do clients care? Both Shawn and Paul say they do. In fact, Paul says his core values have been extremely helpful when it comes to recruiting. And Shawn says he thinks sharing values can be the best competitive advantage smaller businesses have. Plus: We get an update on how Paul’s big marketing initiative is going, and we follow up on why Sarah feels compelled to participate in almost all of her firm’s client calls.
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