How Much Tech Does It Take to Run a Restaurant?
As restaurants try to cope with inflation, labor shortages, and tight margins, the need to manage complex systems keeps growing.
Here are today’s highlights:
Google incorrectly designates retailers as counterfeiters: “No system is perfect.”
More businesses are offering 401(k) plans, especially in states with mandates.
Consumers pulled back on their spending in March.
The decision of whether to reopen streets to cars pits business vs. business.
The Dashboard podcast will not be published on Monday. It will return the following week.
Google incorrectly flagged some retail products as counterfeit, costing one company $150,000 in lost sales: “In recent weeks, two agencies that manage Google ads for retailers say that their clients' accounts were incorrectly flagged as selling counterfeit goods, which then shuts off the ability for retailers to run ads. January Digital CEO Vic Drabicky said his client, a large specialty retailer, had its ads shut down for about 14 hours last week, costing the retailer about $150,000 in lost revenue. A second agency exec said a department store client was not able to advertise for 18 hours in late March, and lost 80 percent to 90 percent of web traffic that day. Both agencies said that the issue started when their retail clients' Google Merchant Center accounts were suspended because they were erroneously flagged as selling counterfeit goods.”
“Google Merchant Center is a widely used tool that lets retailers upload their products so that they appear in search listings and the shopping section of Google's search engine. Google Merchant Center is a key sales driver because it helps consumers discover products.”
“A Google spokesperson said in an email that it uses a combination of human reviews and AI to detect violations. ‘From time to time, over-flagging may occur for a variety of reasons,’ the spokesperson said. ‘No system is perfect.’” READ MORE
More small businesses are offering 401(k) plans: “A relatively strong job market, new tax breaks and state mandates are leading more small businesses to offer employees a 401(k) plan. The state mandate boost can be seen in California, Oregon and Illinois. Those three states were among the first to require private-sector employers that don’t offer retirement plans to give employees access to state-sponsored programs. They automatically enroll workers in individual retirement accounts. Employees control their assets and can opt out of saving. Seven states have such programs, with another four developing them.”
“Brian Douglass, co-owner of San Diego restaurants Common Stock and Farmer & the Seahorse, said he and his business partner started a 401(k) plan in 2021 after discovering that CalSavers’ record-keeping system isn’t integrated with that of his payroll provider, Gusto. That would have required Mr. Douglass to manually enter employees’ contributions each week, due to fluctuating hours.”
“Mr. Douglass said 84 percent of his nearly 100 employees participate in the 401(k) plan, most of whom contribute between 3 percent and 5 percent of pay. The company provides a 4 percent matching contribution on the first 5 percent of pay a worker saves, an expense that was about $50,000 last year. The company pays about $700 a month in administrative fees.”
“The [state] initiatives are the latest in a decades long effort on the part of governments to reduce a retirement savings gap that has left an estimated 56.5 million Americans, or about 48 percent of the private-sector workforce, without access to a workplace retirement savings plan.”
“There were concerns the state programs would prompt some employers to terminate existing 401(k) plans since the state programs generally don’t charge employers administrative fees or permit them to make matching contributions. That doesn’t seem to be the case.” READ MORE
Gene Marks says restaurants are compelled to manage more tech than ever: “A typical restaurant today is managing an average of seven service models, including table, curbside, delivery, catering, and drive-through, according to a recent study from point-of-sale software maker Toast. Not only that, but because of rising prices and tight labor, it has become more important than ever for restaurant owners to better track their purchases, inventory, and labor budgets. As a result, many of my clients who own or manage restaurants are upgrading their point-of-sale systems to new versions that are helping them address these issues.”
“‘The pandemic forced the restaurant industry to address a key pain point in innovation: the limitations of legacy technology paired with a steadily growing ecosystem of disconnected technology point solutions,’ said Teddy Tsang, vice president of product marketing at Toast.”
“Whether it’s QR codes to read menus or individual credit card readers for each server, restaurant owners are using more types of technology to bring in money. Each different point-of-sale system requires its own workflow, training, auditing, and management.”
“‘The good systems make life easier, and the bad ones make it miserable,’ said Wolf Williams, the general manager for [Philadelphia] restaurant Abe Fisher. ‘A busy brunch is difficult enough — the last thing you need is someone exclaiming, Where’s my food? as you search, fruitlessly, for their order.’” READ MORE
During the pandemic, cities opened their streets to pedestrians to help businesses. What happens now? “From May to October since 2020, Waltham officials closed a half-mile of the commercial corridor to cars and let pedestrians wander freely. Al fresco dining abounded. Parking spots gave way to a fashion show of Indian evening wear. ‘And kids could explore,’ said resident Saul Blumenthal, ‘without looking for drivers not paying attention.’ Supporters called the program glorious,’ ‘freeing,’ ‘fantastic.’ Now, they worry, it all might go away. The pedestrianization of Moody Street happened hurriedly at the beginning of the pandemic to help flailing businesses, and it transformed the historic district near the river and commuter rail station into a vibrant destination for residents and visitors alike.”
“It’s a conversation going on all over Massachusetts, as municipalities from Boston to Springfield ruminate over open space extensions they launched in 2020 with little hesitation. Communities created patios, pedestrian paths, and outdoor dining at the height of Covid.”
“Now, as the statewide emergency declaration is slated to end, they’re considering which of the changes should stay for good, and what that would mean for people, businesses, and the very nature of public space.”
“In Waltham, that means balancing the impact of closing streets on different types of businesses that share the same block. Restaurateurs that set up outdoor tables believe the Moody Street closure benefits the community, and their bottom line.”
“But a cluster of businesses that serve nearby immigrant communities — boutiques, barbershops, and grocery stores — is against shutting four lanes of street space to cars again. Removing parking pushes customers to municipal lots farther away, they say, and pummels their profits.” READ MORE
Retail sales fell in March “as American consumers pulled back on purchases of vehicles, furniture, appliances and gasoline amid rising interest rates. Purchases at stores, restaurants and online declined a seasonally adjusted 1 percent in March from the prior month, the Commerce Department said Friday. Sales were revised in February to a milder 0.2 percent decline from a previous estimate of down 0.4 percent.”
“The retail-sales report mainly captures spending on goods rather than most services such as travel, housing and utilities, offering only a partial picture of spending. The Commerce Department will release its monthly report that includes more complete spending figures later this month.”
“‘Growth has started to slow down,’ said Jitender Miglani, senior forecast analyst at Forrester Research. ‘Consumers may be tempted to save more in 2023 because of all the talk of recession.’” READ MORE
To keep people in their homes, HUD is expanding eligibility for 40-year mortgages: “More homeowners will now be able to modify their mortgage to a 40-year term to reduce their payments, and experts believe the concept could gain steam. The Housing and Urban Development Department in March published a final rule that would let borrowers in default modify their existing 30-year Federal Housing Authority mortgage to a 40-year term to reduce payments and remain in the home.”
“It’s not a new concept, as Fannie Mae, Freddie Mac and other government loan programs already offer some 40-year modification options, but the federal government hopes the change will increase awareness of the availability, according to Peter Idziak, senior associate at mortgage law firm Polunsky Beitel Green.”
“Idziak said HUD received comments that reducing the number of foreclosures only serves to further restrict housing supply and affordability, which could run counter to HUD’s goals of increasing access to housing.”
“Some borrowers also may be better off declaring bankruptcy and starting fresh instead of a taking on a 40-year mortgage that could leave them struggling and locked into debt for a longer term.” READ MORE
Crux Climate plans to help businesses unlock the tax credits created by the Inflation Reduction Act: “The IRA tax credits are expected to be worth hundreds of billions (exactly how much is not known yet because some of these tax credits are not capped) for building electric vehicle infrastructure, wind power, solar power, nuclear power, clean hydrogen, manufacturing of component parts, and other businesses meant to reduce greenhouse gas emissions. Those incentives are expected to drive $3 trillion of infrastructure investments over the next decade, according to a March 2023 estimate from Goldman Sachs. There’s a problem with tax credits, though. They’re only helpful if you have significant income that you’re paying taxes on, and many startups aren’t there yet.”
“‘Many of the companies that earn the credits aren’t able to make use of them because they don’t pay large enough tax bills in the year that they get the credits to be able to use them,’ Crux co-founder and CEO Alfred Johnson told CNBC.”
“To address this problem, companies have historically bought and sold tax credits. Typically, the company that’s earned the credit sells it for less than its full value, landing much-needed cash. The buying party gets a discount, then takes the full amount of the credit against its taxes.”
“Conventionally, liquidating a tax credit required entering into a formal partnership with a company that could turn that tax credit into liquid cash. That process is not easy. So the IRA changed it so these tax credits can be transferred to unrelated parties. This has the potential to substantially increase the size of the tax credit marketplace.” READ MORE
Silicon Valley is still driving the startup economy: “Despite an extremely rough quarter for the region’s startups, the San Francisco Bay Area remains the nation’s leading metro area for venture capital deals. Startup investment during the quarter dropped precipitously, according to new regional data from PitchBook. Venture capital investment in U.S. startups dropped from $37 billion in 2023, less than half the $82.4 billion invested during the same period in 2022. And just over 1,000 startups were funded, down from more than 2,800 in 2022.”
“Though the collapse of Silicon Valley Bank—the financial base for much of venture financing—cast a pall over the entire innovation economy, the upheaval arrived in March as first quarter was wrapping up. What’s next for venture investment is a concern for startups around the country.”
“One signal of trouble on the horizon in the startup sector is the low portion of ‘angel or seed’ venture deals, says PitchBook. Though these initial rounds of capital awarded to the earliest startups usually account for about half of venture deals, angel financing only accounted for one-third of the first quarter 2023 total.” READ MORE
Meet James A. Sammons, CEO of the smallest bank in America: “Beyond its size, Kentland Federal Savings and Loan is unusual in other ways. It has one location, in Kentland, Indiana (population 1,641), no ATMs and no website. There are basically two things you can do as a customer of the bank: obtain a home mortgage or open a savings account or a CD. And when you do either, it will all be—quite literally—paperwork. Sammons, the fourth generation of his family to run the 100-plus-year-old S&L and its only full-time employee, confides that he’s a bit tech-averse. ‘Computers are great when they work,’ says the 55-year-old, laughing. ‘I don’t have the patience for them.’”
“Sammons seems fairly resigned to the notion that his way of doing business might end with him. He has four sons (including a set of triplets), and none are drawn to the family business. ‘When I am finished—whether it’s [regulators] pressuring us to be absorbed or me walking away—we will have to be acquired,’ he says.”
“Part of the reason is that his bank operates on paper-thin profit margins. There are two other banks in town, and Sammons says that while he’s able to draw local customers with slightly better rates on savings accounts and mortgages, Kentland Savings has no other source of income. That’s because Kentland doesn’t have—and this is truly astonishing—fees. No ATM fees, no wire fees, no transaction fees of any kind. ‘That’s not what we’re about. That would be undermining to what we believe in,’ Sammons says.” READ MORE
THE 21 HATS PODCAST
We’re Still Buying Inventory: This week, Jay Goltz tells William Vanderbloemen that even with an inventory glut, a cash crunch, and a weakening economy, he’s not going to stop buying goods for his home store. “It's kind of like cutting Samson's hair,” Jay tells us. “I don't want to mess with telling the buyer, ‘Stop buying stuff.’ Because that's the business we’re in.” All of which has Jay feeling the pressure, but he’s very glad he’s been maintaining a credit line equivalent to 10 percent of sales. Plus: William explains how hiring can go wrong even at a staffing company and how he managed to raise his prices without actually raising his prices.
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Thanks for reading, everyone. — Loren