Should your Brand enter the political arena…?

https://www.mercurynews.com/2024/02/28/how-panera-bread-ducked-californias-new-20-minimum-wage-law/

One of the tougher questions facing growing and/or established restaurants given the complexities and risk(s) associated with the adoption of political engagement as part of the Brands strategic direction. Some considerations include the duration of time, the necessary capital (both human and financial), and the desired outcome coupled with the financial evaluation of the investment. Using the link to the article above as a reference, let us discuss the often-complex relationship between politics and business to start your day.

 The article referenced above, essentially outlines how a well-capitalized and well connected, portfolio Franchise owner successfully carved out an exemption for his Panera Bread franchise, with regards to the recent minimum wage reset law in the state of California. Arguing that when a restaurant “bakes” its own bread on site and sells it as a stand alone menu item, it should not be classified as a “fast food” restaurant, and is therefore exempt from the new California minimum wage requirement. Given the financial impact of this argument, it could be concluded that the Franchise owner was successful in that he saved $4.00 per labor hour for all minimum wage staff members at each Panera location. Effectively, the cost in labor for one employee making $16 versus $20 per hour over the course of an eight (8) hour shift is a labor savings of $32. When extrapolated over approximately 200 California locations and several hundred employees, this $32-dollar per shift saving adds up very quickly. Remember, these are “soft dollar” cost savings that maintain existing labor models, versus the absorption of significant labor cost increases by other restaurant brands in the same market.

Now let us take a look at the cost associated with this success. According to other published news articles the Franchise owner contributed in excess of $200K to governor Gavin Newsome over the past five (5) years. Now while this number may fluctuate depending upon who you speak with, for this exercise let us compare this cost with the benefit. Preliminary estimates put the California Panera franchisee annual potential labor cost avoidance at $33M. This using the same $4.00 per hour labor saving and extrapolating across 200 locations with 20 full time employees per location. (All assumptions at this point) So in this example, the $200K political investment that earned a potential annual labor avoidance of $33M makes sense.

The financial success above is actually somewhat of a rarity given specific nature of the exception. As usual the "devil is in the details" with political activism separating one Brand from the "herd". Additionally, most political contributions and relationships are fraught with very real risks, to include Brand integrity, Brand equity, and / or possible consumer resentment. Further, will the success of this Panera franchisee actually help other competing brands like Subway. Subway could now argue that they also “bake” their own bread on site and will now begin to sell it as a stand alone menu item. If so, then will the approximately 2,000 Subway locations in California also be except from the new minimum wage law? Will all restaurants begin to bake bread on site? Are pizza brands eligible if they bake their dough on site and sell pizza as a stand alone item?

The “tentacles” of the California Panera exception are not fully known, and it will be interesting to watch as attorneys, restaurants, and other stakeholders jockey for position to protect their interests, as they should, given the fiduciary responsibility to shareholders, coupled with the financial consequences of doing nothing.

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