‘It’s Going to Take $8 Million in Financing’
In the latest 21 Hats Podcast episode, we catch up with Stephanie Stuckey, who is expanding production of her pecan snacks and candies because she can’t keep up with demand.
Good Morning!
Here are today’s highlights:
Starting wages at small businesses have started to ease.
A red flag? Consumers are making fewer purchases at convenience stores.
Are the cookies sold by the fastest-growing dessert chain great or terrible?
In a crunch, would your employees show up and work for nothing?
THE 21 HATS PODCAST
This week, Stephanie Stuckey tells Paul Downs and Liz Picarazzi how she and her partners have taken their business from $2 million in annual revenue to more than $13 million in three years. What’s frustrating, she says, is that she could be selling a lot more pecan snacks and candies. But with production at capacity, she’s not doing much sales outreach until they can fully revamp their manufacturing operation, which will require a significant investment. “I spend my days doing financial paperwork,” Stephanie says. Plus: Liz explains why her business picks up when the weather warms up, and after a slow start, Paul gets a boost from a big manufacturer.
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HUMAN RESOURCES
Starting pay for new hires is easing: “Small-business owners grappling with increased labor costs are beginning to see some relief — at least where starting salaries are concerned. In March, starting pay among newly hired workers at small and mid-sized businesses was 7.5 percent lower than pay for those hired last year, according to data from payroll and benefits provider Gusto. That comes even as those businesses continue to hire, with employment growing by 0.5 percent in March — although that's below the 1.8 percent employment growth rate at the same time last year. It's yet another sign that employers are starting to tread more cautiously when it comes to pay in the face of an uncertain economy.”
“The biggest drops in starting pay were concentrated in industries that are particularly affected by the Federal Reserve’s efforts over the last year to cool inflation — and the job market — by repeatedly hiking interest rates. Starting wages for small and mid-sized businesses in the insurance industry fell 9 percent over the same time last year, with an 8 percent drop in real estate and a 5 percent drop in finance.”
“That’s in part why companies are so focused on retaining talented employees. About 61 percent of companies with fewer than 50 employees said the biggest challenge when it comes to retention was demand for higher salaries, with 72 percent of larger businesses also listing it as their job challenge. Businesses in both size categories pointed to competition from other firms as a big retention worry, according to ADP.”
“And while starting salaries are down, the salary for existing workers grew by 2.5 percent over the same time last year, down just slightly from previous months, according to data from Gusto.” READ MORE
The nursing shortage is pushing hospitals into the gig economy: “Some of the nation’s largest hospital systems including Providence and Advocate Health are using apps similar to ride-hailing technology to attract scarce nurses. An app from ShiftKey lets workers bid for shifts. Another, CareRev, helps hospitals adjust pay to match supply, lowering rates for popular shifts and raising them to entice nurses to work overnight or holidays. The embrace of gig work puts hospitals in more direct competition with the temporary-staffing agencies that siphoned away nurses during the pandemic. The apps help extend hospitals’ labor pool beyond their employees to other local nurses who value the highly flexible schedules of gig work.”
“‘We’re still short,’ said Elaine Zemel, business analyst for nursing administration at Henry Mayo Newhall Hospital, a Los Angeles-area hospital that offered gig workers at one point $106 an hour for a 12-hour intensive-care shift on Easter Sunday. ‘Nurses know that the ball is in their court.’”
“Gig apps give nurses even more control than other common temporary-employment options that lock in workers for multi-week contracts, at least. It opens shifts to a broader labor pool, too, but also a more fluid one, hospital executives said. That means less certainty for employers.” READ MORE
THE ECONOMY
Consumers are pulling back on purchases at convenience stores: “Convenience stores are known as purveyors of slushies, cigarettes, and day-old roller hot dogs. They’re less known for being inexpensive retail stalwarts during inflation when their low-priced but high-margin assortments offer shoppers a haven from soaring prices and provide brands an oasis of steady consumer demand. However, the industry reached a tipping point in recent months when shoppers cut back on purchases at one of the last bastions of affordability. By the end of 2022, consumers purchased 10.3 percent fewer items each time they visited a convenience store, while dollar sales declined a marginal 0.3 percent, indicating that the same budget now buys far fewer products.”
“It might seem counterintuitive, but higher sticker prices don’t offset cost increases at convenience stores the same way they do at, say, grocery or big-box stores. Instead, they cause consumers to balk at prices and reduce indulgences, a devastating blow for corner stores.”
“Retailers now face the arduous task of convincing shoppers to place more items in their shopping cart—even though rising prices mean they can afford fewer of them—by overhauling a proven, decades-old merchandising playbook and rejiggering their product assortment toward fresh food and private-label items, which deliver higher margins while remaining affordable.”
“Skyrocketing prices have accelerated a decade-long trend that’s seen convenience stores shed the gas station food stigma and transform into fast-food restaurants, as they aspire to be affordable one-stop shops for everything from gas to lattes to chicken bacon ranch pizzas.” READ MORE
Business lunches may never be the same: “For more than 40 years, the lobby of Philadelphia’s Oyster House was stuffed with suits at lunchtime. On any given afternoon, politicians, lawyers, and business executives reliably lined up to sip drinks and slurp oysters before heading back to offices. But that was before the pandemic. Lunchtime is looking pretty different these days, said owner Sam Mink. Oyster House is only open Tuesday through Saturday now. It’s not worth the expense to run service on Sundays and especially not on Mondays, when many professionals tend to work from home thanks to hybrid schedules. Fridays, which used to be the highest-grossing lunch days, have grown relatively quiet except for tourists and restaurant regulars. Mink has had to raise prices and reduce staff to try to make up the difference.”
“Professionals who consider lunch an essential part of doing their jobs are going out far less than they used to. Upscale restaurants in big business centers can’t count on commuters and are scaling back offerings and slashing their hours. Corporate cafeterias are upping their game as employers try to make offices more attractive.”
“When workers do go into offices or are working from home, many are opting for takeout. Three-quarters of restaurant traffic is currently consumed not at the actual restaurant, or off-premises, up from 61 percent before the pandemic, according to data the National Restaurant Association. Restaurant owners who were loath to get into takeout — which is much less lucrative for operators — have been forced to adapt to survive in the new landscape.” READ MORE
COMMERCIAL REAL ESTATE
Industrial space available for sublease is on the rise: “Sublease inventory in the national industrial market grew more than 50 percent in the first quarter of 2023 from Q1 2022. That's according to research by Savills PLC, which also found less than 0.5 percent of the entire industrial market is up for sublease right now. Still, growth in sublease space tends to be a leading indicator of a changing market and is extremely notable, given how hot the industrial market has been in the past couple of years, said Mark Russo, senior director and head of industrial research at Savills.”
“‘It’s not (that) the sublease availability in itself is going to upset the market,’ Russo continued. ‘I look at it more as a barometer as for what’s coming in the next six months. It’s a signal that businesses don’t need as much warehouse space anymore. More concerning, it’s going to trickle into new leasing activity.’"
“Companies that have put their industrial spaces on the market are facing a tougher economy and are looking to cut costs, including on their real estate. Some tenants are putting spaces they've never occupied on the sublease market these days, Russo said.” READ MORE
SOCIAL MEDIA
It’s not clear whether the cookies made by America’s fastest growing dessert chain are any good: “Crumbl is the fastest-growing chain of dessert shops in the United States, and the fourth-fastest growing food chain of any sort in the country, according to a 2022 report from Datassential, a food and beverage analytics company. In the last six years, Crumbl has opened more than 750 stores from coast to coast. The company says that last year it sold, on average, nearly a million cookies a day. The company has manufactured its own hype and turbocharged it by announcing weekly cookie flavors on TikTok as if they were limited-edition sneaker drops, with vaguely sensual, slow-motion videos reminiscent of Burger King commercials. The company has amassed 6.7 million followers on the platform, more than Taco Bell and Starbucks combined.”
“‘It actually put us on a different trajectory as a company very, very quickly,’ said Jason McGowan, 43, who founded the company in Logan, Utah, with his cousin Sawyer Hemsley, 30, in 2017.”
“Crumbl has become a highly sought-after tenant for developers, said Payton Kelly, a senior adviser at SVN, a commercial real estate brokerage in Santa Rosa, Calif. ‘Anyone who owns a shopping center that doesn’t have a Crumbl in a certain radius is reaching out to them right now.’”
“So are the cookies good or not? When you’ve got millions of people debating the question, the answer doesn’t really matter.” READ MORE
Meanwhile, Montana has passed a full ban of TikTok: “The GOP-controlled Montana House of Representatives sent the bill on Friday to Republican Gov. Greg Gianforte, who can now sign the measure into law. The bill makes it illegal to download TikTok in the state, with penalties of up to $10,000 a day for any entity, such as Apple and Google's app stores or TikTok itself, that makes the popular video-streaming app available. If enacted, the ban in the state would not start until January 2024. A federal court challenge from TikTok is expected well before then, likely teeing up a legal brawl that supporters of the law in Montana say could eventually wind up in front of the U.S. Supreme Court.” READ MORE
LOGISTICS
There’s another Sriracha shortage, but this one’s climate-related: “Huy Fong Foods, producer of Sriracha hot sauce, said last summer’s drought in Mexico continues to hamper its ability to churn out the iconic green-capped bottles of its popular spicy condiment. ‘Unfortunately, we are still experiencing a shortage of raw material,’ the Irwindale company said in a statement, referring to the chiles from Mexico that have ended up in short supply because of the bad weather conditions. Huy Fong Foods typically uses about 50,000 tons of chiles a year in producing its three condiments, which also include a chile-garlic sauce and a sambal oelek.”
“As customers again feel the squeeze from what Huy Fong Foods called an ‘unprecedented inventory shortage,’ they may have to look elsewhere for their sauce needs.”
“On Amazon, a single 9-ounce bottle of Sriracha cost $9.50 on Tuesday. Under the three-pack option, the site notes: ‘We don’t know when or if this item will be back in stock.’” READ MORE
PROFILE
Ami Kassar talks to Rich Trotter, who almost lost his business to the pandemic: “After graduating from the United States Military Academy at West Point and serving five years as an artillery officer, Rich eventually joined his dad's soft pretzel business. When the company was sold, Rich bought Rosati Ice – the ‘best Italian ice company’ – in 1997 and adjusted the business model. Instead of making the highest profits of the year just during the three or four months of summer, he focused on selling to K-12 schools to give him steady profits throughout the year. That model worked fabulously—making up 70 percent of the company's sales—until schools were suddenly shut down during the COVID-19 pandemic.”
“‘When the pandemic hit, it dropped our revenue by more than 50 percent,’ he said. ‘On paper, the company became bankrupt very quickly.’”
“In December 2020, after asking the bank not to foreclose on the company, he laid off the entire staff, including himself. Half of the employees arrived the next day knowing they wouldn't be paid.”
“‘They knew that if they stayed away, the business would certainly not stay in business. And they did whatever they needed to to help keep us afloat,’ he said. ‘And to them, I'll be forever indebted.’” READ MORE
Thanks for reading, everyone. — Loren