The Most Powerful Person in Pizza
Social media has given Dave Portnoy, founder of Barstool Sports, the power to make and break independent pizza shops around the country.
Here are today’s highlights:
A couple of tech bros thought they could disrupt the grandmas of the yarn industry. It did not go well.
More businesses are finding that paying employees daily can be a worthy benefit.
The Wall Street Journal says business owners don’t know what the SBA has to offer.
For co-founder Peggy Cherng, a degree in electrical engineering was key to building the McDonald’s of Chinese food.
Dave Portnoy, the controversial founder of Barstool Sports, has made himself the most influential person in pizza: “Tito Ibarra traveled from Clemson, S.C., to New York City with one mission: to eat a slice from all 35 pizzerias at the One Bite Pizza Festival. He was in the city for just about 12 hours: He landed in the morning, after driving two hours to Atlanta and taking a two-and-a-half-hour flight. Then, he booked it to a minor-league baseball stadium in Coney Island for the outdoor event, which unfortunately coincided with Tropical Storm Ophelia. ‘I love pizza,’ Mr. Ibarra, 35, said emphatically, his soaked green bucket hat pushed back as his Instagram story cataloging slices eaten played on a loop in his hand.”
“Beyond Mr. Ibarra, from a stage just inside the outfield fence, Dave Portnoy stoked the crowd. He thanked them for braving the elements, cursed at Mother Nature — and media organizations he believed were trying to take him down — and offered up a simple observation for a decidedly complicated festival: ‘People just want to have fun, eat pizza!’”
“He may be better known as the caustic founder of Barstool Sports — with a history of misogynistic and racist remarks, and sexual misconduct accusations against him — but Mr. Portnoy is almost certainly the most influential person on the American pizza scene.”
“With more than three million followers on TikTok and more than 136 million likes, he can change the fate of a pizzeria with a single utterance. A score higher than 8.9 can vault a shop to fame, filling it with customers for months.”
“‘One review from Dave was enough for me to make enough money to remodel the whole place,’ said Al Santillo, who owns Santillo’s Brick Oven Pizza in Elizabeth, N.J., standing under his tent kitchen on the festival field.” READ MORE
A couple of ecommerce tech bro investors seriously misjudged the small businesses of the yarn industry: “For well over a decade, the domain Knitting.com was on sale. Through this time, it was sparsely populated: It displayed around a dozen knitting-related links at any given time and the contact information for the site’s owner, Roy Edward Messer—the man who sold Vodka.com to Russian Standard Co. in 2006 for $3 million. Nothing on the site suggested the makings of a firestorm. Then, in February 2022, two ecommerce bros plucked it from obscurity. Dave Bryant and Mike Jackness, calling themselves the EcomCrew, bought the site for $80,000. Neither had any knowledge of knitting—but they did have a goal of flipping the undeveloped domain into a million-dollar business within a matter of years.”
“In a podcast, Bryant and Jackness described knitting, with its high search volume and SEO potential, as the ‘perfect niche’ for sales on Amazon. Many competitors in the space were ‘pretty unsophisticated,’ they said, and amounted to little more than a ‘grandma who has the little blog that she’s run for the last 20 years.’”
“The EcomCrew’s ambitions, as well as their overt sexism and ageism, sparked mass backlash from knitters online. Fiber arts forums exploded. ‘Knitting.com is capitalism and sexism at once,’ read a post on Indie Untangled, one such forum. ‘They want to swoop into a community they don’t even care about and take whatever they can.’”
“Bryant, in a show of repentance, explained in a blog post that they had started knitting and were learning ‘pearl stitches.’ But the misspelling of the word ‘purl’ only seemed to add insult to injury. Knitting.com is still up and running, meanwhile, but it is marketed specifically to ‘brand new never-held-needles-before knitters,’ giving the existing knitting community a wide berth.” READ MORE
Amazon used a secret algorithm code-named Project Bessie to raise prices and increase revenue by as much as $1 billion: “The algorithm helped Amazon improve its profit on items across shopping categories, and because of the power the company has in e-commerce, led competitors to raise their prices and charge customers more, according to people familiar with the allegations in the complaint. In instances where competitors didn’t raise their prices to Amazon’s level, the algorithm—which is no longer in use—automatically returned the item to its normal price point.”
“The company also used Nessie on what employees saw as a promotional spiral, where Amazon would match a discounted price from a competitor, such as Target.com, and other competitors would follow, lowering their prices.”
“When Target ended its sale, Amazon and the other competitors would remain locked at the low price because they were still matching each other, according to former employees who worked on the algorithm and pricing team.”
“The algorithm helped Amazon recoup money and improve margins. The FTC’s lawsuit redacted an estimate of how much it alleges the practice ‘extracted from American households,’ and it also says it helped the company generate a redacted amount of ‘excess profit.’ Amazon made more than $1 billion in revenue through use of the algorithm, according to a person familiar with the matter.”
“Project Nessie is one of a number of instances where the FTC’s complaint contends that Amazon’s monopoly power had broad impacts on raising consumer prices across retail.” READ MORE
Gene Marks says more businesses are paying their employees daily: “Payroll company ADP reports that the average salary increase so far this year is about 6 percent. Average hourly wages have increased about 17 percent since the beginning of the pandemic to as much as $34 per hour, according to the Bureau of Labor Statistics. But for many employees, it’s still not enough during these inflationary times. People are running out of money faster. Which is why more employers are discovering that although the amount of compensation paid to their employees is important, there’s something that’s quickly becoming just as important to many of them: when they’re paid.”
“According to a recent study from financing firm LendingClub, 76 percent of consumers earning less than $50,000 a year and 62 percent of those earning between $50,000 and $100,000 were living paycheck to paycheck as recently as this past July, a figure little changed from a year ago.”
“To get cash quicker, many employees find themselves going to payday loan services. But these services charge a high amount of interest and transaction fees and can potentially lead to more debt. Over the past few years a growing number of employers realized that getting money into the hands of their workers as soon as possible is becoming increasingly important to them and have begun offering ‘earned wage access’ or ‘on-demand pay.’”
“‘We’ve been offering this benefit for a few years now and it’s had a huge impact on our staffing,’ said Liz Fifis, director of human resources at Philadelphia-based stir-fry restaurant chain Honeygrow. ‘In our industry, there is a lot of competition for good talent, and this service has significantly helped us not only find but retain great people.’” READ MORE
A Goldman Sachs report says union wage hikes are not stoking inflation: “The paper offers a straightforward response to concerns that union demands, like the UAW's initial ask for a 40-percent raise, will be a big hit to the economy — at least in terms of stoking inflation. Union wage hikes are essentially an echo of the big wage increases we saw in the private sector over the past two years. That's because unionized workers are locked into longer-term contracts, and many couldn't immediately demand higher pay during the high inflation moments of 2021-2022.”
“There just aren't enough unionized workers in the U.S. for their raises to make a huge difference to the economy. Just 10 percent of the overall workforce is unionized, a number that hasn't budged despite the recent flurry of high-profile organizing pushes.”
“And the headlines about 40 percent raises are misleading — those numbers don't represent annual increases, but the percentage growth over the life of a multi-year contract.” READ MORE
The Wall Street Journal says many business openers overlook valuable SBA programs: “Most of the SBA’s programs are designed to work through or with partner organizations and lenders. While the numbers of small businesses using the programs have been growing—currently about 33.5 million—there is always a desire to reach more businesses and provide more programs to companies in need, an SBA spokesman says. ‘We always want to get the word out more.’ Here are several SBA programs that many small businesses aren’t aware of and should be, according to consultants, government officials, and trade-group executives who routinely work with small businesses:”
“Small Business Development Centers: These SBA centers provide counseling and training to small businesses in areas such as accessing capital, improving business planning, financial management, marketing and more. Counseling can help ferret out what the business needs and offer appropriate resources; it may be money, it may be something else, says Karen Mills, former director of the SBA under President Obama. Owners can locate centers in their ZIP Code at the SBA site under the Local Assistance tab.”
“Small Business Innovation Research programs: Also known as America’s Seed Fund, SBIR initiatives provide technology-focused entrepreneurs, startups, and small businesses with more than $4 billion in early-stage funding each year to develop innovative research and development ideas into commercial products and services. This highly competitive program delivers more than 6,000 awards every year, with about 18 percent of applicants selected annually, based on the past five fiscal years of data. Owners can visit sbir.gov to find more information about the program as well as resources and opportunities to participate.” READ MORE
In Massachusetts, a worker cooperative rises where a coffee chain closed: “Late last year, the Cambridge coffee shop chain Darwin’s Ltd. closed in the midst of its employees’ crusade for more of a say in the workplace. Now, with the debut of the Circus Cooperative Cafe in one of Darwin’s’ former locations, they have finally spoken. On Sept. 12, a little under nine months after Darwin’s poured its last cup of coffee following a stretch of contentious union negotiations, four of its one-time employees launched the new cafe at 31 Putnam Ave. They’re slinging many of the same sandwiches as Darwin’s, in the same turquoise-and-yellow interior. But what was once a traditional proprietorship is now an employee-owned cooperative, where hires are eligible after six months to become ‘worker-owners,’ entitling them to a say in business decisions and a slice of the profits.”
“Last October, the Darwins announced their decision to close the original Mt. Auburn Street location, citing ‘workload and personal health concerns.’ In response, employees, who unionized in 2021 — part of a wave of labor activity at local cafes — picketed outside Cambridge City Hall and the Darwins’ home. They sought guaranteed employment for displaced workers, improved health care, and paid-time-off policies, and $24-an-hour wages. Shortly after, the Darwins announced they would shutter the three remaining coffee shops.”
“The worker-owners crowdfunded about $13,000 from more than 150 donors, put in $10,000 of their own capital, and took out a ‘pretty sizable loan’ from the Cooperative Fund of the Northeast, said [worker-owner Caleb] Zedek, declining to give a specific number. They bought the business, including equipment, from the Darwins, who are now their landlords.”
“‘It feels much better doing it for yourself than for your boss — who’s making money off of you,’ said Bartholomew Cass, another worker-owner.” READ MORE
Peggy Cherng built Panda Express into the McDonald’s of Chinese food by using her engineering background and big data to exponentially spice up sales: “She emigrated from Hong Kong in the 1960s, got a doctorate in electrical engineering in the 1970s, then promptly quit a promising career developing software to use her STEM skills in an altogether different industry: fast food, creating the perfect mix of Chinese cuisine for American palates. Four decades later, what began as a single restaurant in a Southern California shopping mall has grown into a 2,400-store juggernaut, dishing out more than $5 billion worth of chow mein, Beijing beef and orange chicken every year in food courts, airport terminals and drive-thru windows across the nation. Most Americans grab their Chinese food from one of two places: the mom-and-pop joint around the corner—or Panda Express, which has eaten up 43 percent of the Asian takeout market and has ten times as many locations as its closest competitors, sit-down chain P.F. Chang’s and hibachi grill Sarku Japan.”
“The Cherngs moved at Ray Kroc speed, surfing the 1980s mall wave by opening locations in new shopping centers around the country, no matter how far it stretched their supply chain. This is not how an MBA would do it. ‘The Harvard Business School approach would be to see if you could go from one region to another—not build stores everywhere,’ says Sean Dunlop, an equity analyst at Morningstar.”
“But the Cherngs used the Ph.D. approach. Computerized cash registers (known as point-of-sale systems) were just catching on at the big chains, but the Cherngs had been using them at Panda Inn since 1975. Not long after IBM introduced the first digital POS system, Peggy set one up herself, enabling the Cherngs to track daily sales and analyze things like whether beef was outselling pork at a time when few independent restaurateurs understood the technology, let alone saw the need for it.”
“The Cherngs took their mall profits and branched out into building freestanding stores of their own. Today, mall locations account for just 156 of their 2,400 U.S. restaurants and 5 percent of total sales. They self-funded along the way, refusing the outside financing that has most of the major chains answering to public shareholders or private equity overlords. They have also resisted franchising their stores, which helped giants like Subway and Dunkin’ Donuts balloon in size.” READ MORE
THE 21 HATS PODCAST
It’s Like Planning Your Own Funeral: This week, Jay Goltz tells Shawn Busse about the latest stop on his journey to figuring out whether an employee stock ownership plan is right for his business. Jay’s latest adventure includes waking up at 4:30 in the morning in Minneapolis too anxious to sleep—“Oh my God, what am I getting myself into here?”—and deciding to leave the seminar and drive back to Chicago. But on that six-hour return trip, Jay says his anxiety turned into clarity. In fact, he thinks he’s pretty sure he knows now what he wants to do. Of course, he has said that before. And we continue to learn more about ESOPs, this week hitting upon an interesting issue: ESOP enthusiasts love to tout the benefits of turning employees into owners. But are they really owners? And is that the right message to send them? “If you bought 10 shares of General Motors stock,” Jay asks, “would you tell your neighbors that you're an owner of General Motors?”
Plus: We also talk about when business owners should ignore their accountants and whether Shawn and Jay expect their employees to come forward and tell them if they see another employee doing something they shouldn’t be doing.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren