Subway Franchisees Are Desperate

They say they face a choice between draconian procedures and onerous royalties.

Good morning!

Today’s highlights: Why SurveyMonkey changed its name to Momentive. Why JBS paid $11 million in ransom. And an inside look at a 16-year-old’s retail arbitrage.

FRANCHISING

Subway franchisees are desperate: “In recent weeks, insiders have been buzzing about a new deal that Subway presented to franchisees at renewal time. The agreement is significantly stricter than the prior one, granting Subway control over hours of operation, requiring franchisees to participate in menu promotions, and banning negative comments about the company ‘in any forum.’ A representative for Subway told Insider that the agreement was ‘competitive and comparable with other franchise agreements’ in the restaurant industry. John Gordon, an expert on the restaurant industry, said that ‘no one in their right mind’ would sign Subway's new ‘draconian’ agreement.”

  • “Subway franchisees have another option if they don't want to sign the new agreement, but it's financially onerous.”

  • “Franchisees can stick with their original terms if they pay a 10-percent royalty fee. Subway franchisees pay corporate 8 percent of gross sales every week, already higher than industry rivals such as McDonald's and Jimmy John's.”

  • “Gordon said Subway would be the only restaurant franchise to have a 10-percent royalty fee.” READ MORE

MARKETING

SurveyMonkey changes its name: “The Silicon Valley company best known for online survey tools has changed its name to Momentive to highlight to customers and investors that it also sells a range of business software. Still, online surveys remain the core of Momentive’s business, and the company will retain the SurveyMonkey branding for its flagship product, CEO Zander Lurie said.”

  • “The new name, Momentive, is ‘a made-up word’ that ‘symbolizes momentum, adaptability, active, momentous—this moment in time,’ Lurie said.”

  • “Executives spent the past year working with the corporate branding firm Salt to evaluate ‘hundreds of names’ and researching—through surveys, of course—how different constituents responded to various names, he said.”

  • “Some of the discarded names included Bellwether, one of Lurie’s favorites from early in the branding process, and Fireclay, a name representing the ‘idea of being able to mold something,’ Lurie said.”

  • “Lurie characterizes the name change as being ‘a more exciting day for me than the IPO day by far,’ representing “a signal of our ambitions to paint a bigger, bolder strategy.” READ MORE

THE ECONOMY

Consumer prices rose more than expected in May: “U.S. consumer prices continued to climb strongly in May, surging 5 percent from a year ago to reach the highest annual inflation rate in nearly 13 years. The Labor Department said May’s increase in consumer inflation was the largest since August 2008. The jump followed a 4.2 percent rise for the year ended in April. The core-price index, which excludes the often-volatile categories of food and energy, rose 3.8 percent in May from a year before—the largest increase for that reading since June 1992. Prices for used cars and trucks leapt 7.3 percent from the previous month, driving one-third of the rise in the overall index.”

  • “The annual inflation measurements are being boosted by comparisons with figures from last year during Covid-19 lockdowns, when prices plummeted because of collapsing demand for many goods and services.”

  • “This so-called base effect is expected to push up inflation readings significantly in May and June, dwindling into the fall.” READ MORE

PRICING

Uber isn’t sharing its price hike with drivers: “Uber passengers paying astronomical fares amid a labor shortage may think the extra money is going to their stressed and overworked drivers. But drivers are not being compensated based on what customers pay. Instead, they are paid for their time and distance — with added, predetermined surge bonuses controlled by Uber. And drivers in some markets say that is depriving them of tens and even hundreds of dollars per weekwhen customers are now paying multiples of the usual price to ride with the apps. While drivers in most of the country have operated under that model for the past several years, California drivers only recently shifted back to it, the company acknowledged.”

  • “The company had previously compensated drivers based on customer fares as it sought toprove they were independent contractors, not employees after the California legislature passed a law aimed at gig work.”

  • “Voters, however, codified ride-hailing drivers’ status as independent contractors in the state last year, and now drivers are back to the old system just as a driver shortage flares up and fares surge.”

  • “The change in pay structure in California arrived at the same time as a massive driver shortage drove up passenger prices as the nation slowly emerges from the pandemic.” READ MORE

Chipotle is raising prices to cover the cost of labor: “Chipotle Mexican Grill has hiked menu prices by roughly 4 percent to cover the cost of raising its workers’ wages. Across the restaurant industry, chains such as Chipotle, Starbucks and McDonald’s have been increasing hourly pay for employees of company-owned locations in a bid to attract new workers and retain their current ones. Consumer demand has come roaring back for restaurant meals, but the workforce has been slower to return, pushing eateries to sweeten the deal.”

  • “In May, Chipotle said that it would raise hourly wages for its restaurant workers to reach an average of $15 an hour by the end of June.” READ MORE

HUMAN RESOURCES

Amid the labor shortage, more companies are asking whether a college education is a must: “Glassdoor found that companies such as Google, EY, and Penguin Random House have dropped degree requirements for certain jobs. Among the roles that no longer require degrees are network specialists, financial service managers, and software engineers. With 8.1 million positions open in the U.S., the largest in recorded history, companies may need to turn to candidates they might not have considered in the past. Already leading the way in considering job candidates without four-year degrees are technology companies that instead opt for so-called competency-based hiring.”

  • “Hiring managers are starting to realize that, along with college degrees, a lot of the ‘prior experience’ requirements for jobs are unnecessary, Martin notes. Most of the tasks that candidates would have learned from prior experience can just as easily be learned on the job.”

  • “‘That raises the question for them as to why are they posting and why are they excluding potentially great people based on a predictor of success that either is (a) not very predictive or (b) based in something you could easily learn,’ Martin tells Fortune.” READ MORE

Technology is helping fill the labor gap: “The U.S. is in the midst of a productivity boom. That is positive for wages and inflation because higher revenue can absorb increased wages without companies raising prices. It isn’t such great news for the jobs outlook if employers conclude they can meet sales goals with less hiring. In recessions employers are typically slow to cut jobs as sales slump, which causes productivity to decline. When sales recover, they are slow to add jobs and productivity rebounds. The pandemic has broken with that pattern. Business output per hour has grown in three of the past four quarters. In the January-to-March quarter of this year, it was up 4.1 percent from a year earlier, the fastest in a decade.”

  • “Software investment rose 10.5 percent adjusted for inflation in the first quarter from a year earlier as businesses poured money into cloud computing, collaboration software and electronic commerce.”

  • “One of the beneficiaries is CardFree Inc., which designs and operates online and mobile ordering systems for food-service operators. CardFree’s apps enabled restaurants to better anticipate and regulate incoming orders to better match staffing and capacity, said Chief Executive Jon Squire.” READ MORE

CYBERCRIME

JBS paid $11 million last week after a ransomware attack: “The ransom payment, in bitcoin, was made to shield JBS meat plants from further disruption and to limit the potential impact on restaurants, grocery stores and farmers that rely on JBS, said Andre Nogueira, chief executive of Brazilian meat company JBS SA’s U.S. division. ‘It was very painful to pay the criminals, but we did the right thing for our customers,’ Mr. Nogueira said Wednesday in an interview with The Wall Street Journal. He added that the payment was made after the majority of JBS plants were up and running again.”

  • “JBS maintains secondary backups of all its data, which are encrypted, Mr. Nogueira said. The company brought back operations at its plants using those backup systems, he said.”

  • “While the company was making good progress, he added, JBS’s technology experts cautioned the company that there was no guarantee that the hackers wouldn’t find another way to strike, and JBS’s consultants continued negotiating with the attackers.”

  • “The FBI officially discourages companies hit by ransomware attacks from paying hackers, arguing that doing so supports a booming criminal industry and that often the decryption tools given in exchange for a ransom don’t work.”

  • “But senior officials in the Biden administration have said in recent weeks that they recognize the decision is tough for companies and have generally avoided condemning the practice.” READ MORE

OPPORTUNITIES

Sixteen-year-old Max Hayden has produced $1.7 million in revenue trading products in short supply: “He has bought and resold dozens of the newest PlayStation and Xbox machines for as much as $1,100—more than double their $500 sticker prices.  By doing the same with a selection of goods made scarce in the pandemic, such as patio heaters and Pokémon trading cards, Max ended last year with a profit of more than $110,000 on $1.7 million in revenue, according to the 16-year-old’s sales records reviewed by The Wall Street Journal. He expects to do even better this year as game consoles and other products remain elusive. ‘Some people call this retail arbitrage,’ said Max, of Hopewell Township, in central New Jersey. ‘I wrote an essay for school on the topic.’”

  • “Max spends about 40 hours a week handling orders, managing inventory, supervising his two employees and poring over spreadsheets. In addition to studying for AP history, physics and English from a home office, Max talks with other resellers and follows business and political news to help spot trends.”

  • “Most products go for around double the price, he said. An Amazon spokesman said that sellers set their own product prices in its store and that it has policies to help ensure sellers are pricing their products competitively.”

  • “Max pays two friends $15 an hour to assist with packaging and customer communications. He splits a warehouse rental fee with six other resellers.”

  • “Retail workers can be an asset, too. Max befriended one at a Walmart store near his home last summer while shopping for above-ground pools to flip. ‘I asked him if I could get his Snapchat to let me know if other pools come in,’ said Max, adding that the worker helped him land the roughly $300 items on three occasions. He sold them for about $1,000.” READ MORE

MANAGEMENT

A bakery in Texas sold rainbow Pride cookies and lost customers—at first: “But when cookie lovers from Lufkin and across the US caught a glimpse of the vibrant cookies (and the bakery's disheartened response to canceled orders and cruel comments), they turned what could have been a potentially devastating week for the business into one of the bakery's busiest weeks in 11 years. The initial poor response stung Confections bakery co-owner Dawn Cooley, who runs the bakery with her sister, Miranda.”

  • “The backlash was swift and shocking, she said. A customer canceled an order of five dozen cookies, and a ‘significant amount of followers’ un-liked the bakery's Facebook page”

  • “For a bakery that nearly closed several times throughout the pandemic, she said, the negative feedback was devastating.”

  • “She addressed the flood of criticism on the bakery's Facebook page and let customers know that there would be an ‘overabundance of cookies’ available for purchase from the canceled order.”

  • “The next day, customers lined up down the street and around the block to buy the bakery's cookies. Within hours, Confections completely sold out of its entire day's stock of 12 dozen cookies, plus the extra five dozen from the canceled order, and its cookie and cupcake decorating kits, Cooley said.” READ MORE

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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