Morning Report

What you need to know one minute before daylight

Why Restaurants Are Firing Reliable Employees During a Labor Shortage

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Despite a severe labor shortage, restaurants may be forced to fire many of their employees: “Restaurants across the country are trying virtually everything to recruit cooks and dishwashers, from offering quarterly bonuses to providing training programs for ex-convicts. Now, the specter of increased immigration enforcement is putting many of those restaurants in a more fraught situation: let go of trusted employees or risk criminal prosecution.

“The problems began in March and April, when the Social Security Administration sent letters to hundreds of thousands of business owners, notifying them that the names of some employees did not match the Social Security numbers on their tax forms. These ‘no-match letters’ sowed fear and confusion in workplaces that depend on immigrant employees, like farms, factories and construction sites. But few businesses have felt the impact of the government notices more than restaurants, which have long relied on undocumented labor and struggled with high turnover. …

“The experiences of two restaurant owners in New York City show how the pressures that face the industry have elicited strikingly divergent responses. The owners spoke on condition of anonymity because they did not want to attract attention from ICE. One of them, who owns a restaurant group with locations in New York and Miami, said he had consulted with five different law firms about how to respond to the no-match letters, which he said named 350 of his employees, or about a quarter of his staff. At the advice of several of those lawyers, he said, he is considering firing employees who cannot produce documentation. He has also hired a company to inspect the I-9 forms of all future employees. Over the past few months, a number of his employees have left of their own accord, he said, concerned that the no-match letters could portend a federal immigration raid. The second owner, whose restaurant is in Manhattan, said she received a no-match letter alerting her to issues with almost every member of her kitchen staff, many of whom she had suspected were in the country illegally. Ultimately, she said, she decided not to tell any of her employees about the letter because losing the workers would doom the establishment.”

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Job gains have actually been considerably weaker than originally reported: “Employers added a half-million fewer jobs in 2018 and early 2019 than previously reported, the Labor Department said Wednesday. The revisions, which are preliminary, are part of an annual process in which survey-based estimates are brought into alignment with more definitive data from state unemployment insurance records. Wednesday’s revision covers the period through March; final updates, which will include the rest of 2019, will be released in February. The revisions don’t change the overall picture of a healthy job market. But they do mean that 2018, which had ranked among the strongest years of job growth in the decade-long recovery, was weaker than previously believed. After the revision, hiring probably averaged under 200,000 jobs per month last year, down from the 223,000 initially reported and only modestly better than the 179,000 monthly jobs added in 2017.”


Amazon is an increasingly viable option for retailers looking to advertise products: “Earlier this week, Amazon Advertising released a new directory of managed-service providers and tools to help marketers in the US using its ad platform. Much like the advertising duopoly of Google and Facebook before it, which both released directories of preferred service providers as their advertising businesses grew, Amazon is looking to help brands figure out who to work with to understand its ad business. With the creation of this directory, Amazon provides a sense of direction and simplifies the search for retailers and marketers who may need an advertising partner for its platform. At the same time, the company is signaling that its advertising business has matured and that it wants to have a bigger hand in helping retailers and marketers figure out the ecosystem around it.”


Kara Swisher asks of WeWork: Is there any there there? “The company has only $3 billion in cash on hand, billions in debt, tens of billions in future lease payment obligations and no clear road to profitability. Also worrisome: Despite revenues of $1.8 billion last year, its net loss was more than $1.6 billion. Revenues are growing strong so far in 2019—but so are losses. Another key question is whether it is a ‘tech’ play or not. It’s clear that the company is trying mightily to make the case that it is indeed a tech company by calling its analog renting of workstations ‘space-as-a-service.’ … 

“Which is why Rett Wallace of Triton Research, which has a good record of calling this kind of thing, gave that tough assessment of the situation in the interview with Bloomberg, calling it an ‘obfuscation.’ He added: ‘If the underlying facts were positive, why would a company go to so much trouble to prevent you from understanding them?’”


Danish bank Jyske wants to pay customers to take out a 10-year mortgage: “‘We don’t give you money directly in your hand, but every month your debt is reduced by more than the amount you pay,’ said Jyske’s housing economist, Mikkel Høegh. In recognition of how puzzling the new mortgage is for customers, the bank’s FAQ is littered with questions and statements such as Hvordan kan det lade sig gøre? (How is that possible?) and Ja, du læste rigtigt (Yes, you read that right). The mortgage is possible because Denmark, as well as Sweden and Switzerland, has seen rates in money markets drop to levels that turn banking upside-down. Høegh said Jyske Bank is able to go into money markets and borrow from institutional investors at a negative rate, and is simply passing this on to its customers.


Solar-as-a-service companies like San Francisco’s Sunrun built a clean-power boom off the back of a solar power tax credit that may be about to end: “It allowed businesses and individuals to deduct 30 percent of the cost of installing new solar panels from their taxes. The tax credit became essential to helping the company attract investors, says Fenster. … Now, however, the solar industry’s tax break may be coming to an end. Starting late this year, the value of the subsidy will fall for three years until it ends for residential solar and permanently drops to 10 percent for commercial solar. In late July, a bipartisan trio of representatives and one Democratic senator brought the Renewable Energy Extension Act to Congress, which would keep the tax credit at 30 percent for another five years. Its fate is not assured.


Third Haus is a co-working space focused on retail experimentation: “The Third Haus concept is housed, symbolically enough, in a former Tuesday Morning store. It is set up with many of the hallmarks of a typical co-working space: sleek white tables, green hanging plants overhead, Wi-Fi, a printer, lots of outlets, coffee and, occasionally, cookies made by [co-founder Chris] Walton’s mom. There’s also a podcasting studio where Walton and [Anne] Mezzenga record their weekly musings on retail news and interview those pushing the boundaries in retail. And there is a large open space they call the ‘retail experience studio’ with display tables, mannequins and other fixtures where brands, tech startups and retailers of all sizes can experiment with how to merchandise and how to roll out innovative concepts in a physical space. … “‘Here, companies can think through about if this is going on a floor pad, if you’re going to take up that real estate, how do you make sure it’s merchandisable and how do you make sure it fits the brand.’”+


Splunk, a data processing an analytics company, acquired SignalFx, a cloud monitoring solutions company. The acquisition is reported to be for approximately $1.05 billion. … “the acquisition will likely make Splunk a far stronger player in the cloud space as it expands its support for cloud-native applications and the modern infrastructures and architectures those rely on.”

Rich Products, a multinational food supplier has acquired Christie Cookie Company, a Nashville-based gourmet cookie maker. 


Crimson Education is a New Zealand-based tech platform that helps students find prospective colleges and what they need to do to get into the school of their choice: “The company currently works with 1,500 tutors and has had 20,000 students use its platform to date. There have been more than 60 offers of places at Ivy League schools to Crimson students; a further 160+ to Oxford, Cambridge and other competitive schools; and over 500 successful applications to the top 50 universities in the US. As for the business model, pricing varies depending on the stage of the student (it offers programs for kids as young as 11), and what that student does—eg straight SAT tutoring or a full-service program that includes identifying schools, getting the right qualifications in order and applying—but in either case, it’s lucrative for Crimson. The average revenue per student in the US ranges between $5,000 and $10,000. Tutoring starts at $80 per hour, and $2,000 per module for the younger program.”

Kansas City-based SouveNEAR sells local knick-knacks to tourists from vending machines: “SouveNEAR was co-founded in 2014 by Tiffany King of Leawood and Suzanne Southard of Kansas City, Missouri. By working with local designers and makers from each city that has a SouveNEAR machine, King and Southard can ensure that each souvenir in each machine actually comes from the city where it was purchased. … Their first SouveNEAR machine was installed in the Kansas City International Airport. Makers who live and work in Johnson County represent a chunk of the products in this machine, including: SewKC (‘KC Connected’ shirt), Zim’s Sauces (Kansas City hot sauce, 2-pack), It’s Vann (felt poppies headbands), Ampersand Design Studio (Retro Kansas City rainbow tee and patch), Snake Oil KC (Gin Lab – make your own gin kit.”


Computer Data Source, a provider of mission-critical data center hardware maintenance and support for high-end storage and service equipment was acquired by New State Capital Partners through an LBO.

Brandywine Communications, a designer and manufacturer of mission-critical time and frequency devices that serve the military and infrastructure markets was acquired by Cache Creek Industries through an LBO.


Capacity, a developer of an artificial intelligence platform, raised $13.2 million in a Series B round.

Kobiton, a developer of a mobile device cloud platform, raised $5.2 million in a Series A round.

And that’s what’s ahead.

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