The Great Utah Cookie War

There’s a nasty IP battle being fought among cookie chains in Utah. So far, it doesn’t seem to be hurting sales.

Good morning!

Here are today’s highlights:

• Is the Fed going to wreck Main Street’s small business boom?

• Ami Kassar is taking his fight over undisclosed APRs to Washington.

• As Black Friday fades, Cyber Monday continues to grow.

• The “office apocalypse” is sending the hottest new restaurants to the suburbs.

INTELLECTUAL PROPERTY

Two cookie chains are waging a nasty war in Utah: “Crumbl Cookies, a company started in Logan, Utah, in 2017 that has expanded to over 575 franchise stores, filed a federal lawsuit against more-recent cookie startup Dirty Dough in May, alleging the rival ripped off the whimsical designs of its cookies and packaging. As proof, Crumbl inserted side-by-side photos of its cookies and Dirty Dough’s, including ones showing similar icing swirls and sprinkle arrangements. It also claimed Dirty Dough copied the look of its logo, which includes a cookie with a bite out of it. In a subsequent filing, Crumbl alleged Dirty Dough got a hold of its secret cookie recipes.”

• “Companies typically take a more discreet—dare say, cookie-cutter—approach to litigation, with public statements kept to a minimum. Bennett Maxwell, owner of Dirty Dough, said he scrapped that playbook when he saw the cookie photos in the complaint.”

• “‘That was the thing that stuck out,’ Mr. Maxwell said, accusing Crumbl of being a bully. ‘I was like, Are you kidding me? They think they own the cookie with sprinkles?’ Dirty Dough put up billboards in Salt Lake City poking fun at the lawsuit: ‘Cookies so good we’re being sued!’”

• “In filings, Crumbl has accused Mr. Maxwell’s brother, a former Crumbl employee, of taking electronic files containing 66 recipes—some spanning 10 pages—as well as statistics on sales and information on internal cookie experiments. The brother provided the information to Dirty Dough, Crumbl has claimed.” READ MORE

STARTUPS

Is the Federal Reserve going to wreck a boom on Main Street? “If a recession is coming, someone forgot to tell the entrepreneurs. As interest rates rise, inflation lingers and home equity that many business founders use to get started shrinks, small business formations are doing something unexpected – they’re rising. Indeed, after a small lull earlier this year, new business formations have recovered to the elevated levels seen last fall, and their owners are hiring quickly, said John Haltiwanger, a University of Maryland economist whose new paper with Federal Reserve economist Ryan Decker documents the trend.”

• “If the data persists, the resilience in small business formation points to a ‘new plateau’ of activity that may add millions of jobs to the economy, Haltiwanger says. But the risks include the Fed itself choking off financial conditions so much that the small business boom is smothered.”

• “‘Even with the volatility and the surge [earlier in the Covid pandemic] we’re still 30 percent higher in 2022 than in 2019,’ Haltiwanger said. ‘People are being optimistic about the future and that’s a good sign.’”

• “The largest number of new businesses opened have been in non-store retailing, which surged as shoppers avoided stores in 2020 and has held its market share since. The second-biggest category of new companies were in professional services like Meyer’s, many started by people who decided to work from home or open an office near home.”

• “The biggest question has been whether these new businesses were growing enough to create jobs for anyone other than their founders. Haltiwanger says the answer is yes.” READ MORE

FINANCE

Mr. Kassar goes to Washington: “I am going to Washington this morning to meet with Senators and discuss the pending legislation to open SBA lending to Fintech lenders. Our purpose at MultiFunding is to do everything we can to ensure that entrepreneurs have every opportunity to succeed. Almost every entrepreneur I know has hit various cash flow crises along their journey. When you hit these walls, an entire industry is ready to put cash into your bank account in 24 to 48 hours. Sound appealing? The devil in the details is that the annual percentage rate on these loans could be as high as 200 percent, putting companies into a debt trap. There is almost invariably a better way.”

• Ami wrote his 21 Hats column about this topic last week.

• That same day, a Congressional report blamed the fintechs for exacerbating PPP fraud.

RETAIL

Black Friday is losing its luster: “Sales at brick-and-mortar stores over Thanksgiving weekend fell short of pre-pandemic levels and were behind last year’s totals, another sign that Black Friday is losing its status as the crucial kickoff to the holiday-shopping season. Unlike in previous years, when shoppers would rush out after Thanksgiving dinner to start deal hunting, most retailers didn’t offer significant promotions pegged to Black Friday this year, said Marshal Cohen, chief industry adviser for retail at the NPD Group, a global market-information company. Instead, retailers tried to lure shoppers with discounts earlier in the season.”

• “Foot traffic to all types of bricks-and-mortar stores was down more than 10 percent this year compared with 2019, according to Placer.ai, an analytics firm that tracks mobile data.”

• “The glum store sales stand in contrast with robust retail activity online. Cyber Monday sales were up 5.8 percent over last year to $11.3 billion, according to Adobe Analytics. The figure was the biggest for that day since the data company began tracking e-commerce transactions in 2012.”

• “Mr. Cohen said he expects the overall holiday season to see minimal sales growth of 2.5 percent to 3 percent, indicating shoppers are returning to historic patterns of spending after a surge in purchases during the pandemic.” READ MORE

The hottest restaurants are opening in the suburbs: “To attract diners who work increasingly from home or who have moved out of the city, some destination restaurants are planting flags in the suburbs to offer a more polished dining experience without the parking hassles or long trips home. They aim to offer serious wine lists and pricey ingredients that stand out against competition often consisting of chains or more casual dining. ‘There’s a lot of pent-up demand,’ says David Rekhson, co-founder of DineAmic Hospitality, a Chicago-based restaurant group that opened its first two suburban offerings this year. He estimates that a quarter of diners to his 10 city restaurants come from the suburbs.”

• “Taylor Daugherty opened Canard this year in Oregon City, Ore., as an offshoot of his nearby Portland brasserie. Mr. Daugherty wanted to expand to a suburban location that offers an outdoor area with a quality wine list.”

• “He tweaked the menu to offer what he calls ‘heartier, homier portions’ while using larger serving plates. He also swapped out an adventurous duck dish for a more casual Salisbury steak. To make local families feel welcome, a kids’ section is now printed on the front of each menu. Business is comparable to the Portland location, he says.”

• “With 23 restaurants mostly around New York, Jacopo Giustiniani, chief operating officer of SA Hospitality Group, opened a location of his Tuscan restaurant Felice in Roslyn, N.Y. This marks the first suburban Felice location for the company, which has restaurants in Manhattan and Brooklyn, Mr. Giustiniani says.”

• “Since the September opening, the suburban location has had higher check averages than some of the Brooklyn and Manhattan locations, with roughly half of the guests previously familiar with Felice’s offerings, he says. The group is exploring additional offerings in Connecticut, Bethesda, Md., and upstate New York. And he is already seeing some regulars pop in multiple times a week.” READ MORE

Will remote work gut downtowns? “Before the pandemic, 95 percent of offices were occupied. Today that number is closer to 47 percent. Employees' not returning to downtown offices has had a domino effect: Less foot traffic, less public-transit use, and more shuttered businesses have caused many downtowns to feel more like ghost towns. Even 2 1/2 years later, most city downtowns aren't back to where they were pre-pandemic.”

• “Even in cities where more workers have returned, like Austin or Dallas, occupancy rates are still only 60 percent of what they were pre-pandemic.”

• “Without more-robust policies to address failing downtowns, cities are going to start hurting. Even small declines in foot traffic and real-estate use compounding over time will lead to reduced tax revenue and sales receipts for small businesses.”

• “The increased cancellations of office leases have cratered the office real-estate market. A study led by Arpit Gupta, a professor of finance at New York University's Stern School of Business, characterized the value wipeout as an ‘apocalypse.’”

• “The solution to the office-housing conundrum seems obvious: Turn commercial spaces like offices into housing. Empty offices can become apartments to ease housing pressure while also bringing more people back to downtown areas.” READ MORE

CUSTOMER SERVICE

More businesses are making contacting an actual human almost impossible: “No matter how many times you yell ‘representative’ into the phone, you won’t reach an employee at Frontier Airlines. The budget carrier dropped its phone service option last month, leaving customers to use chat functions or social media to resolve issues. The airline joins a growing group of companies—from Breeze Airways to Resy to Facebook—that eliminate or make phone numbers extra hard for customers to find. Instead, they rely on automated or text-based customer service. Others still have operators, but are pushing more customers to use online services rather than the phone.”

• “Consumers say those options leave them spending hours sorting through FAQ lists, sending emails to nowhere and talking to less-than-helpful chatbots to resolve issues that could have taken minutes to fix with a human on the phone.”

• “Frontier says the shift to digital service ensures customers get the information they need as efficiently as possible. The airline says it had found that most customers prefer communicating via digital channels and that live agent support is available 24/7.”

• “In an investor presentation last month, the airline said voice calls are ‘unscalable, inefficient, and expensive,’ and leave an ‘avenue for customer negotiation.’ While phone agents can only talk to one customer, chat agents can talk to three, the company said.” READ MORE

SMALLBIZ TECH

Upgrading small business tech could bring greater supply-chain resiliency: “While there are some signs of improvement, the reality is that it takes a long time for disrupted supply chains to get back on track. As David Simchi-Levi of MIT has shown in his recent work on semiconductor supply chains, a 10-day disruption in a firm’s production leads to at least 300 days before its inventory is back to normal. The U.S. has an opportunity to do more than just get its supply chains back on track. It can prevent future disruptions by fundamentally improving how they operate. The key is to focus on small and midsize businesses that are critical to supply chains but which typically lag in costly technology investments — particularly enterprise software and advanced manufacturing innovations.”

• “These companies represent an enormous opportunity to improve supply chain resilience while also increasing overall competitiveness. To do this, we have three recommendations.”

• “Software such as Enterprise Resource Planning systems (ERPs), Cloud Product Lifecycle Management, and ‘digital threads’ across supply chains can smooth information flows.”

• “Companies must invest in their workforce, but national and regional workforce training programs can also help to create a larger pipeline of digitally skilled workers — especially for smaller firms with fewer resources to invest in training.”

• “Customers can help suppliers by accelerating their payment timelines, advancing partial payments before final delivery, and by providing financing vehicles that help smaller suppliers access lower cost capital based on supply chain relationships.” READ MORE

THE 21 HATS PODCAST

I Want to Double Sales Again Next Year: This week, Shawn Busse, Paul Downs, and Liz Picarazzi talk about their plans and goals for 2023. Shawn, whose marketing efforts still haven’t recovered from the pandemic, is hoping to build on the success of a recent event. Paul, coming off his best year ever, is investing $150,000 in a marketing campaign, including a new website targeting a different set of customers. And Liz, too, is attempting to shift her customer base, in her case from residential to municipal work. More immediately, however, Liz, who does not relish dealing with legal issues, has to decide how to confront a copycat competitor.

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

Thanks for reading, everyone. — Loren