Raising Wages, Increasing Profits

How some companies are responding to the labor shortage.

Good morning!

Today’s highlights: Which price increases are here to stay? OSHA issues workplace rules. And Fred Deluca had an unusual relationship with his Subway franchisees.

STARTUPS

CarNow wants to help car dealers embrace technology: “In nearly 4,500 dealerships around the country, the Burlington company provides software that streamlines the sales process, from facilitating live chats to checking a buyer’s credit to assessing the value of a trade-in vehicle. Since its founding in 2015, CarNow has grown to more than $44 million in annual recurring revenues, according to Bob Davoli, founder of Gutbrain Ventures and an early investor. ‘The pandemic,’ he says, ‘actually sped us up.’”

  • “One big reason: dealerships that had to shut down showrooms in 2020 realized they needed to get more digital, and fast. No more asking customers to come into a dealership and sit at a salesperson’s desk for an hour or two.”

  • “At Planet Honda, a New Jersey dealership, general manager Bill Feinstein says using the CarNow software has ‘been a big part of our online success,’ as customers have shifted from e-mail to texting as their main mode of communication. ‘It takes blind shoppers you don’t know who are visiting your website and turns them into leads,’ says Feinstein.” READ MORE

REOPENING

OSHA has finally issued mandatory workplace rules for Covid—but only for health care workers: “The new rule mandates that employers develop and implement a COVID-19 plan and take steps to reduce the chance of transmission, including keeping people at least 6 feet apart indoors, installing barriers between workstations where distancing is not possible, ensuring ventilation systems are working properly, and providing and ensuring each employee wears a face mask when indoors, or a respirator and other personal protective equipment when exposed to people with suspected or confirmed cases of COVID-19.”

  • “For unvaccinated workers, employers are now required to provide paid time off to get vaccinated and to recover from any side effects from the shots.” READ MORE

THE ECONOMY

Prices are surging but some are more likely to stick than others: “Some of these increases—such as for airfares, restaurants and women’s suits—reflect a return to normal, or pre-pandemic price levels, after prices collapsed last year due to business closures and restrictions and consumers’ fear of traveling and getting infected. Some—such as car and truck prices—are due to shortages of specific components or materials. Such jumps are likely to prove temporary and unlikely to lead to persistent increases for years to come. Other price rises, however, could reflect more lasting changes in workers’ and consumers’ behavior over the past year. Here are some examples of May price increases hitting consumer pocketbooks directly:”

  • “[Restaurant] rice pressures may continue to build in coming months as people venture out more. The average number of seated diners tracked on the restaurant reservation platform OpenTable was down in the first week of June just 9 percent from 2019 levels.”

  • “The rush to return to the skies drove airfares up 24.1 percent in May from a year before, while hotel and motel prices rose by 9 percent over the same period, the most on record. While these increases are dramatic, they are not necessarily a sign of lasting price pressures.”

  • “Airfares are still down 12 percent from February 2020 levels, while prices for hotels and motels are off by 4.6 percent.” READ MORE

LOGISTICS

Starbucks is short on everything: “Across the country, customers and baristas are taking to social media to bemoan not only shortages of key ingredients for popular Starbucks drinks, like peach and guava juices, but also a lack of iced and cold-brew coffee, breakfast foods and cake pops, and even cups, lids and straws. A video on TikTok this week featured what appeared to be a group of employees screaming in frustration over a list of ingredients that the shop had run out of — including sweet cream, white mocha, mango dragon fruit and ‘every food item.’ The caption also said they were low on cold brew and the ‘will to live.’” READ MORE

A fresh wave of Covid in Asia is further scrambling supply chains: “An outbreak at one of the world’s busiest ports in southern China has led to global shipping delays, while infections at key points in the semiconductor supply chain in Taiwan and Malaysia are worsening a global chip shortage that has hindered production in the auto and technology industries. The new headaches add to inflation concerns, after China and the U.S. this week recorded their biggest annual jumps in factory-gate prices and consumer prices, respectively, in more than a decade. If such problems continue—and get worse—they could weigh on global growth.”

  • “Low vaccination rates across Asia could keep in place social distancing rules and travel bans, which would disrupt manufacturing and suppress consumer spending.”

  • “Taiwan, which accounts for a fifth of the world’s chip manufacturing capacity—including a significant proportion of the chips used in the automotive industry—is suffering its worst Covid-19 outbreak since the pandemic began.”

  • “Lars Mikael Jensen, head of network for A.P. Moller-Maersk A/S, the Danish shipping giant, said the backlog in Shenzhen would be felt globally, affecting goods sold at Walmart and Home Depot, companies that have established logistics bases around the port.” READ MORE

INTERNATIONAL

More people have died so far this year from Covid than in all of 2020: “It took less than six months for the globe to record more than 1.88 million Covid-19 deaths this year, according to a Wall Street Journal analysis of data collected by Johns Hopkins University. The university’s count for 2021 edged just ahead of the 2020 death toll on Thursday. These numbers underscore how unevenly the pandemic spread around the globe, often hitting poorer nations later, but before they had access to the vaccines that have benefited Europe and the U.S.”

  • “While Western nations such as the U.S., Canada, and the U.K. celebrate low caseloads and declining deaths thanks to mass vaccinations, the intensified pandemic in parts of Asia and Latin America propelled global deaths higher.”

  • “‘We are living through our worst moment since the start of the pandemic,’ Argentine President Alberto Fernández said late last month.” READ MORE

HUMAN RESOURCES

Some businesses are addressing the labor shortage by increasing wages (but also profits): “For Patrick Whalen, co-owner of the 5th Street Group, comprising five restaurants in Charleston and Charlotte, the breaking point came in late March. The restaurants were getting busier as more people started venturing out to eat. But applicants for the dozens of positions the company was trying to hire for were scarce. Understaffed and busy, the company was starting to get shredded with negative reviews online. After one of his managers told him that a line cook needed to borrow money to get groceries, Whalen was moved to reconsider wages at the company. ‘It was just one of those moments where you just kind of stop and you say, ‘Is there a real problem in our industry?’ he said. ‘We always kind of knew it was there, but we didn’t really know what to do with it.’”

  • “Applicants began pouring in nearly overnight, Whalen said. A manager at one of his restaurants, Tempest, told him that 10 people walked in to drop off résumés over the course of one week after the policy change, compared with just 15 people over the four previous months.”

  • “Within three weeks, the restaurant group went from about 50 to 60 percent staffed to nearly fully staffed. ‘There is no one in Charleston or Charlotte that can compete with what my guys are making,’ Whalen said.”

  • “While the staffing costs have gone up for the restaurants in 5th Street Group, overall sales also increased, and by a larger proportion, Whalen said. Customer reviews on sites such as OpenTable have gone up by nearly a half a point, too. Better service has translated to more sales and happier customers.” READ MORE

PROFILE

Subway Founder Fred Deluca asked a lot of his franchisees (and had no succession plan): “As DeLuca grew Subway from a tiny submarine chain into a behemoth with 27,000 locations and $17 billion in global sales in its heyday, he refused to relinquish much control. He ran Subway like a titan, maintaining a tight grip on the company operations and surrounding himself with employees who loved and feared him. DeLuca devised a system that gave him the final say and even philandered with some franchisees' wives, two sources said. And he got away with it. DeLuca was the brilliant center of the Subway universe, nearing godlike status for many franchisees and employees. He created a secretive, complex multibillion-dollar enterprise, and ensured no one knew Subway the way he knew Subway.”

  • “When DeLuca died, in 2015, at age 67, there was a power vacuum. He had insisted that Subway, the world's largest restaurant chain, stay in the family, but he failed to set up a functioning succession plan.”

  • “His death left his sister floundering as the new CEO; left his widow, who'd been absent from operations for decades, owning half of a multibillion-dollar business; and left insiders baffled by his lack of planning.”

  • “‘[Deluca] always felt that he could go and he could approach any woman’ at Subway conventions ‘because he was responsible for their husband's success in stores,’ the same associate said.” READ MORE

THE MORNING REPORT WEEKLY WRAP-UP

Every Friday, Gregg Stebben of the Small Business & Entrepreneurship Council and I offer our takes on the week’s most important stories for business owners and entrepreneurs. We post a new episode Fridays at noon. You can subscribe wherever you get podcasts or you can LISTEN HERE

THE 21 HATS PODCAST

Episode 63: Dana White Fears She May Not Be Ready to Franchise: This week, Dana tells Paul Downs and Jay Goltz why she’s experiencing FUD—fear, uncertainty, and doubt—over whether she’s really ready to sell franchises in Paralee Boyd. She’s concerned because her hair salon is having some issues with customer service. On the other hand, her head of operations is telling her, “If you wait to expand your business until every customer is happy and until everything is perfect, you will stay at one location for the next 50 years.” Plus, Paul resolves his cybercrime, and we find out whether Paul, Jay, and Dana have done anything to prepare for a ransomware attack. It turns out one of them has.

If you see a story that business owners should know about, hit reply and send me the link. If you got something out of this email, you can click the heart symbol, you can click the comment icon below, and you can share it with a friend. Thanks for reading, everyone. — Loren