We Have a Meeting With Costco!

In our latest podcast episode: What does it take to get a product on Costco’s shelves? And how can anyone be prepared to deliver the volumes they require?

And we’re back!

Here’s hoping you had a delightful Labor Day break. I certainly did! But there’s much to catch up on, so let’s get started.

Today’s highlights:

• California will drastically increase its regulation of the fast-food industry.

• Gene Marks says businesses should offer paid parental leave, and there’s a tax credit that can help.

• Are you paying attention to what you’re paying employees who haven’t left (yet).

• Businesses are still learning to adapt to supply-chain snafus.

THE 21 HATS PODCAST

This week, Hans Schrei and Sarah Segal talk about what it takes to break into Costco. How do you get on their shelves? If you do get there, how do you make sure your product will fly off of those shelves? And if you succeed, will you have the financing you’ll need to ramp up production? Along the way, Sarah offers some tips on enlisting Costco influencers, and Hans explains the inner workings of Wunderkeks’ equity crowdfunding campaign, where you can invest as little as $150 and where the company hopes to raise $1 million. Plus: Sarah responds to listener Buzz Park’s suggestion of how to avoid getting ghosted by potential clients after you’ve prepared elaborate and expensive proposals.

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

POLICY

Governor Newsom signed a bill that will drastically increase California’s regulation of the fast-food industry: “Amid resistance from fast-food companies, the State Legislature last week approved the bill, which will set up a 10-member council composed of representatives from labor and employers to oversee the industry’s labor practices in California. The council can raise the industry minimum as high as $22 an hour next year versus a $15.50 minimum for the rest of the state, after which the minimum will be adjusted for inflation. The council can also issue new labor standards.”

• “Industry groups complained that the bill would raise costs that restaurants would pass on to consumers at a time of rapidly rising prices. They argued that state regulators already had the authority to improve health and safety conditions at fast-food restaurants.”

• “‘This bill is a fork in the eye to franchise owners and customers at a time when it hurts most,’ Matthew Haller, the president of the International Franchise Association, said in a statement.”

• “Many advocates have noted that traditional enforcement relies on workers being willing to come forward with claims against their employers, something fast-food workers are often reluctant to do.”

• “The bill is a major step toward so-called sectoral bargaining, in which workers and management negotiate wages and conditions across an entire industry as opposed to at individual companies, often location by location, which is the standard approach in the United States.” READ MORE

Insider says 15 states make it easier to launch a business by offering more tax credits and less regulation: “Over the past couple years, some states have made entrepreneurship easier by passing legislation that lifted certain restrictions, enacted tax breaks for young companies, and banned red tape that can make it difficult for some to survive. For example, state Rep. Travis Fitzwater of Missouri introduced the Right to Start Act last year to encourage entrepreneurship in the state with tax incentives and increased government contracting. ‘The best way to incentivize new businesses is to remove barriers to start,’ he told Insider months before the bill was signed into law. ‘Startups are the ones that create jobs, not large businesses.’”

• “Starting January 1, businesses in Colorado can apply for the Employee Ownership Tax Credit to allow employee shareholding in exchange for a tax break. The state covers half the cost of converting a company's equity into stock-ownership plans, employee-ownership trusts, or worker cooperatives.”

• “In 2020, Florida became one of several states to reform licensing requirements with the Occupational Freedom and Opportunity Act. Barbers and cosmetologists who move to Florida from another state may use their active out-of-state licenses. Home inspectors and electrical-system contractors can continue to work in the state if they have held a license for at least 10 years in another state.” READ MORE

HUMAN RESOURCES

Gene Marks says offering paid parental leave is smart business, but many businesses are headed in the other direction: “A recent study of approximately 3,000 employers by the Society for Human Resource Management, reported in the Wall Street Journal, found that the share of employers offering paid maternity leave beyond what is required by law dropped to 35 percent this past year, which is down from 53 percent in 2020. The share of employers giving paid paternity time off fell to 27 percent in 2022, from 44 percent in 2020. Rising costs and a desire to return to pre-pandemic norms are some of the reasons cited for this trend.”

• “This is a tricky issue, particularly for a small business with fewer resources than a larger organization. And there are tricky questions to answer. Is it biased to offer paid leave to new parents? What about those who don’t or can’t have children?”

• “Is it fair to tell a new mother or father that you need them to be responsible for at least some of their work duties from home, now that we know remote working is a valid option? How long can a small business owner keep a job open without operations being significantly affected? How long can we afford to cut a paycheck every week when no work is being done?”

• “Thanks to the Section 45S employer credit — a relatively little-known tax rule that was extended through 2025 — if a business allows an employee to take the time off and continues to pay at least half of their wages, the company can receive a tax credit for up to 25 percent of the wages paid.”

• “Speaking of tax benefits, an employer can deduct up to $5,000 a year in contributions to an employee’s flexible spending account, which can be used for childcare and is not taxable to the employee.” READ MORE

Are you paying attention to what you’re paying employees who haven’t left? “Labor shortages and inflation are lifting wages across the economy, particularly for workers changing employers. Those who recently left for a new employer netted an annual raise of about 8.5 percent as of July, up from 7.9 percent in June and the biggest median pay increase for job hoppers in more than 20 years, according to the Federal Reserve Bank of Atlanta. The gap in pay raises for job switchers versus those who stay put is also the widest it’s been in decades: People who kept at the same job reaped a median annual wage increase of 5.9 percent in July, a slightly smaller gain than workers reported the month before, the Fed data show.”

• “The raises that job switchers are commanding demonstrate the leverage workers continue to wield despite signs the job market is cooling somewhat.”

• “Nearly 4.2 million U.S. workers left jobs in July, near the record highs of the past year, Labor Department data show—suggesting many workers remain bullish about their prospects.” READ MORE

One business owner, Nesha Pai, says it took her a year to find a bookkeeper for her North Carolina accounting business: “Pai reviewed more than 150 resumes and interviewed about 10 people for the part-time position, which offered $25-35,000 a year, benefits, and a 401K plan matching contributions. ‘It's just been hard to find good talent,’ she said. Pai CPA already has five employees, serving about 80 small businesses accounting needs across different industries. Demand boomed during the pandemic, as small companies asked for accounting services to apply for PPP loans and survive the lockdowns.” READ MORE

BUSINESS TRAVEL

Maybe business travel won’t return to pre-pandemic levels: “A recent report from the Global Business Travel Association notes that while business travel spending rose 5.5 percent year-over-year to $697 billion in 2021, that figure still pales in comparison to the $1.4 trillion spent on business travel in 2019. A new report suggests the decline in briefcase-toting passengers may well be permanent. Among people who traveled for work at least three times a year before the pandemic, a striking two in five Americans say they never expect to travel for business again, according to a new report by decision intelligence company Morning Consult. The report surveyed more than 16,000 people across the Americas, Europe, and the Asia-Pacific region between October 2021 and summer 2022.”

• “One big reason business travel has lagged behind leisure travel in the wake of the pandemic is that people have adjusted to videoconferencing and hybrid work.”

• “Corporate belt-tightening is also making business trips less prevalent, particularly in the face of high inflation and (possibly overblown) concerns about a recession.”

• “A recent New York Times report found that while individual business trips have taken a hit in the wake of the pandemic, companies are still happy to spend on travel to conferences and conventions.” READ MORE

TOURISM

The tourists came back this summer but for many businesses, it was the toughest summer yet: “Tammy Luba of Waterford, Pa., was among [the tourists], having just spent two weeks traveling Maine in a camper van: Bar Harbor, canoeing, a moose tour, goat yoga. It had been the trip of a lifetime, Luba said, with a few hitches. ‘Everything closes at 8 o’clock,’ she said. ‘And there’s been a lot of traffic.’ You hear that a lot up here lately, thanks to our current crazy-quilt economy, where little makes sense on paper right now.”

• “Hospitality businesses have had to contend with high gas prices, soaring food costs, and labor shortages fueled by the state’s unique demographic woes. Recession fears have everyone on edge.”

• “Just ask Kylie Raymond, co-owner of the Pilot House and the Spirit of Massachusetts floating restaurant in Kennebunkport. ‘This year has been the toughest year,’ she said during a break from one of the double shifts she’s been working six days a week.”

• “The Pilot House has only three kitchen staff to handle 800 seatings daily, so her parents, who retired after owning both places for three decades, are back pulling shifts in the kitchen. Raymond used to stay open late for locals who work in the industry; now she closes at 9 p.m.”

• “‘There is no normal, there is no going back,’ said [Matthew Lewis, chief executive of trade group Hospitality Maine]. ‘It’s never going to look like it did before the pandemic.’” READ MORE

LOGISTICS

General Foods is a huge corporation, but when it experienced supply-chain issues with the 21 ingredients that go into a Totino’s pizza roll, it learned some lessons that any company can benefit from: “The company’s scientists, supply-chain heads, and procurement managers began meeting daily late last year. The solution? The company found 25 ways — recipes, if you will — to make the pizza rolls, each with a slightly different list of ingredients, swapping in corn starches, for example, for tapioca starch that had become hard to find, or substituting one kind of potato starch for another. The pizza roll conundrum is a microcosm of an issue that’s affecting the food industry more broadly. Managing soaring prices for most of the ingredients in cookies, chips, and pizza is one thing. But for many food executives, the bigger headache now is wondering each week which ingredients will — or won’t — show up at their factories.”

• “After years of whittling down the number of their suppliers to get better prices and keep up with quality control, food companies are racing to find alternatives.”

• “Just-in-time inventory systems that worked just fine for years are being overhauled, with companies adding warehouses, silos and storage tanks to hold raw ingredients and finished products for longer periods.”

• “They’re trying to reduce transportation costs, either by looking for manufacturers nearby or removing water from goods like vegetable and fruit juices — used frequently in beverages — and transporting them as concentrates.” READ MORE

ECOMMERCE

Online retailers are looking for solutions to a tidal wave of returns: “One solution involves adding friction. Last year Uniqlo, a Japanese fashion brand, became one of the first retailers to levy a small fee for posted returns. Zara, a rival, followed suit in May. Other firms, including Amazon, are selling more refurbished goods as a way to cut losses. Startups are getting in on the action. Using artificial intelligence to help retailers decide what to do with the returned goods, taking into account factors such as price trends in second-hand markets, is the brainchild of Gotrg.”

• “In America 21 percent of online orders, worth some $218 billion, were returned in 2021, according to the National Retail Federation, up from 18 percent in 2020. For clothing and shoes it can reach around 40 percent.”

• “Retailers typically recoup about a third on a $50 item, says Optoro, a firm that helps with returns.” READ MORE

STARTUPS

A small coffee chain with big ambitions is exploding in New York City: “In August 2020, a tiny, seafoam-green, electric-powered coffee cart opened in Williamsburg, Brooklyn, advertising local pastries and bagels and coffee beans. On Wythe Avenue, in the heart of one of New York City’s most coffee-saturated neighborhoods, another cute spot to buy an iced latte wasn’t cause for commotion. But looming behind that friendly little vehicle, labeled Blank Street, was a stack of market research, venture capital, and new technology.”

• “In just two years, Blank Street has opened 40 shops in the city, more than any locally owned competitor.”

• “That curiosity-to-loyalty arc was all part of the plan for Issam Freiha, 27, and Vinay Menda, 29, Blank Street’s founders, who moved to New York for college and came to the coffee business not from behind the espresso machine but from the world of tech start-ups.”

• “‘We don’t need to be the most amazing cup of coffee you’ve ever had,’ Mr. Freiha said. ‘We want to be the really good cup of coffee that you drink twice a day, every day.’”

• “‘Blank Street is a tech company,’ wrote one commenter on TikTok. ‘They just Xerox-copy shops on every block of NYC.’ Others shrugged. ‘Do you really care how your iced coffee is made as long as it’s good?’” READ MORE

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