Reviving a Family Business, a Progressive Fast-Food Chain, and Why Turnover Can Be Good

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HUMAN RESOURCES

Tom Gimbel, founder of fast-growing staffing company LaSalle Network, says turnover is actually a good thing: “If your business is declining, the need for turnover should be obvious. Whether it’s being overstaffed in back-of-the-house positions relative to the amount of business you currently have, or realizing your sales team isn’t succeeding at an acceptable rate, people need to go. If your business is steady based on your industry, product, service, or niche, then your turnover will be the occasional replacement.

“If you are a growing company, you should not take pride in having low turnover. It’s a marketing trap that many, many companies fall into. ‘Come join our growing companywe have almost no turnover and are growing like crazy.’ It’s insane to think that’s a good thing. There isn’t a growing company on earth that bats 1.000 in hiring, and you shouldn’t want to. Even when you think you have a good hire in a certain role, you know for certain only after you hire an additional person to perform the same role and see how they do. And in a high-growth company, it isn’t one person you’re adding in the same job or even two. It’s 10, 20, or 100 people. And when you are comparing at that level, you need to have turnover. When you default to saying, ‘We are so busy, we need the people,’ you are purely validating my point. If you are hiring to simply hire and don’t have turnover, you are actually saying short-term growth is more important than quality output. Everyone can’t be a rockstar.”

&Pizza wants to be known as the most progressive fast-food employer in the US: “That starts with pay: Store employees, whom the company calls ‘tribe members,’ are among the best-paid fast-food workers in the nation. At &Pizza the mean hourly wage is $14, compared with an industry average of $9.84, according to the market research firm TDn2K. The company uses input from tribe members to inform everything from store music choices to uniform fabrics to the decision to pay extra for late-night shifts. So far, [cofounder Michael] Lastoria says, the approach is working. A recent store opening in Washington drew 1,000 job applications, and in a sector where job tenure is measured in months, &Pizza estimates that around 100 of its 750 employees have gotten the company’s ampersand logo as a tattoo. …

“Twenty years after Chipotle Mexican Grill Inc. began advertising humanely raised pork and local produce, workers employed by quick-service restaurants are still among the lowest-paid in the country. Industry groups such as the National Restaurant Association and the American Pizza Community actively lobby against increasing the federal minimum wage, which has been stalled at $7.25 for a decade. If Lastoria has his way, &Pizza will do for the American fast-food worker what Chipotle has done for its ingredients: persuade customers to pay a little more for food that supports their values.”

With more travelers and fewer job seekers, the tight job market is squeezing the hospitality industry: “A typical hotel with 100 occupied rooms supports 137 direct jobs and about 104 indirect ones, such as those with suppliers, according to the report. With the equivalent of nearly 1.3 billion rooms sold for an overnight stay last year (some of which would have had multiple guests) more than one in every 25 jobs in this country is somehow intertwined with the hotel industry, according to the report. ‘There are simply not enough domestic job seekers to meet our workforce needs,’ said Jennifer Myers, an AHLA spokeswoman. Immigrants make up about 13 percent of the population in the United States and 31 percent of workers in the hotel and lodging industry, according to a report from the Chicago Council on Global Affairs.”

TAXES

Here’s how Uber hopes to one day save billions on taxes if it ever figures out how to make a profit: “‘Uber looks to be using a strategy popular among tech companies. They shift ownership of their own intellectual property (IP)—things like patents, copyrights, business processes, trademarks, and trade secrets—to a wholly owned subsidiary in a low-tax region. As different elements of that business require use of that property, it can be leased back [to those elements] to optimize where profits may fall within a corporation,’ said Jason Gerlis, USA sub-regional director of professional services firm TMF Group. The parent company and all its other divisions need legal access to the IP to operate, so they pay licensing fees to the subsidiary.

“US and international accounting rules treat the fees as expenses, even though the cost is really only on paper as money remains with the overall corporation and the parent company typically developed the IP. Uber would now pay its division in the Netherlands for the rights to use the business processes, software, and probably even trademarks and branding. The process is called ‘earnings stripping’ because it shifts profits from the higher tax area to the lower one by treating use of the IP as a business expense. The fees turn profits in one country into expenses that become revenue in another. All perfectly legal.”

SUSTAINABILITY 

In Europe, supermarkets, restaurants, and startups are looking for an answer to food waste: “‘Happy hour’ at the S-market store in [Helsinki’s] working-class neighborhood of Vallila happens far from the liquor aisles and isn’t exactly convivial. Nobody is here for drinks or a good time. They’re looking for a steep discount on a slab of pork. Or a chicken, or a salmon fillet, or any of a few hundred items that are hours from their midnight expiration date. Food that is nearly unsellable goes on sale at every one of S-market’s 900 stores in Finland, with prices that are already reduced by 30 percent slashed to 60 percent off at exactly 9 p.m. It’s part of a two-year campaign to reduce food waste that company executives in this famously bibulous country decided to call ‘happy hour’ in the hopes of drawing in regulars, like any decent bar. …

“About one-third of the food produced and packaged for human consumption is lost or wasted, according to the Food and Agriculture Organization of the United Nations. That equals 1.3 billion tons a year, worth nearly $680 billion. The figures represent more than just a disastrous misallocation of need and want, given that 10 percent of people in the world are chronically undernourished. All that excess food, scientists say, contributes to climate change.”

THE ECONOMY

JP Morgan has developed its own index measuring how the bond market changes based on President Trump’s tweets: “JP Morgan devised a ‘Volfefe Index’ to analyze how the president’s tweets are influencing volatility in US interest rates. JP Morgan found that the index, named after Trump’s infamous and still mysterious ‘covfefe’ tweet, explains a measurable fraction of the moves in implied rate volatility for two-year and five-year Treasurys. ‘This makes rough sense as much of the president’s tweets have been focused on the Federal Reserve, and as trade tensions are broadly seen as, first and foremost, impactful on near-term economic performance and, likewise, the Fed’s reaction to such developments,’ wrote the authors of the JP Morgan report.”

STARTUPS

Escapex, an app maker focused on building out clients’ digital profiles, believes that everyone is famous to somebody: “Escapex, along with similar companies like Disciple, is premised on the idea that, on the familiar social media platforms, those with hundreds of thousands of followers are leaving money on the table. Escapex’s name suggests the alternative these companies offer: that these people should ‘escape’ from Instagram, Facebook and Twitter and build private, walled-off platforms for their most engaged audience. … Escapex apps can’t match the big networks for user experience. But they can create a place for exclusive content, private conversations and a proximity to celebrity. For Escapex clients, it means controlled access to their most fervent admirers, a way to reach the superfans, ignore the haters and make money. Users are ranked on a ‘fanboard,’ based on their in-app activity, for all to see.”

LITIGATION

A court ruled in favor of a startup that extracts workforce information from LinkedIn profiles: “The US Court of Appeals for the Ninth Circuit in San Francisco upheld a previous ruling Monday siding with hiQ Labs, a San Francisco company that analyzes workforce data scraped from profiles. LinkedIn invoked a federal anti-hacking law in telling hiQ to stop. It also installed technical blocks to prevent hiQ from accessing otherwise publicly available information on LinkedIn users. … ‘It doesn’t establish that scraping websites is completely legal, but it goes a long way toward establishing that it’s not a federal crime,’ [Orin Kerr, a law professor at UCLA-Berkley] said. The decision, he added, means that, while a hacker could be arrested for breaking into a website, a person ‘can’t be arrested and prosecuted just for visiting it.’”

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REGULATION

Businesses are scrambling to comply with California’s new data-privacy law: “Starting next year, all California residents will have the right to ask retailers, restaurants, airlines, banks and many other companies to provide them with any personal information they may have, including individual contact information, purchases and loyalty-program history. Consumers also can ask that businesses delete their information, or opt out of letting it be sold.

“‘You have to find a way to capture all that information and track it so you know what’s happening with that information,’ said Dan Koslofsky, associate general counsel for privacy and data security at Gap. ‘And that’s a pretty significant undertaking for most companies. Unless you’ve been in a regulated space like health care or financial services, you probably haven’t done that previously.’ … Few companies keep all their customer data in one place, and now many are scrambling to build tools to match up individuals’ data across disparate systems, such as directories, purchase histories and customer-service request logs. Companies also have to review their data-sharing arrangements with vendors and disclose them in their terms of service.”

OXFORD STRATEGIC ADVISORY DEAL OF THE DAY  

McDonald’s has acquired Apprente, a company building conversational agents that can automate voice-based ordering in multiple languages. 

VENTURE CAPITAL 

The Earnest Research Company, a developer of a data analytics platform designed to offer market analysis and assistance in investment related decisions, raised $15 million in a Series B round.

WaveOptics, a developer of an augmented reality technology-based display device, raised $39 million in a Series C round.

CasperLabs, a developer of an open-source blockchain platform, raised $14.5 million in a Series A round.

FAMILY BUSINESS

The heir to a tofu factory has returned to Chinatown to revive the family business:Fong On was known not only for its tofu but also for soy milk, rice cakes, grass jelly and a dozen other traditional products. Mr. Eng didn’t know how to make any of them, and he had almost nothing to work with. ‘We had dismantled all the old equipment and nothing was written down.’ …

“Born in New York in 1966, Mr. Eng was part of a different generation—so he turned to YouTube. ‘There were Chinese videos, videos from Hong Kong. I would watch and try to match what I heard from our former employees to what people were doing in these videos.’ From there, it has been two years of trial and error—hunched over a counter trying different concentrations of soybean solids in his soy milk, comparing spec sheets on various brands of baking powder, fine-tuning temperatures and timings until things tasted like they used to in the glory days of the shop. Even with his recreated family recipes in hand, Mr. Eng doesn’t think he can rely solely on the shop’s old customers. …

“As a nod to this new kind of customer, a large part of the shop is now dedicated to a kind of tofu pudding topping bar, with sweet and savory options. Mr. Eng is refashioning his family’s old-school tofu pudding (doufu fa) as a trendy, Instagrammable dessert—and it seems to be working. … Mr. Eng is marketing to vegans, to hipsters, to foodies, ‘to anyone who has an open mind to try new things from different cultures.’ What remains to be seen is if the shop can bring in this younger crowd while still serving its original customers. Mr. Eng knows that this can be hard in a place like Chinatown, where small price changes can hit hard. ‘I don’t want to sticker shock the community on a block of tofu,’ he said. ‘But also, we can’t sustain—we didn’t sustain—at the price we used to sell at.’”

And that’s what’s ahead.

Please send comments and suggestions to mattg@oxfordcenter.com and lfeldman@oxfordcenter.com

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