Leadership Imperative in Fast Food Management

leadership and cultural develop needed in fast food

Not to overstate the impact, but this is a pivotal moment for the fast food industry to be better employers. With seven major players in that market agreeing to forego their anti-employee ‘No Poach,’ clause. For many workers, a job in fast food is a stepping stone on a career path to a livable wage. Granted, there is some that move into supervisory roles and management who can flourish in the industry. At the minimum wage levels for ‘associates,’ it is not a career. Despite this, the impact for associates can be profound. With the no-poach clause removed, employees are effectively at-will. Now, food franchise leadership must differentiate themselves to retain employees. Yes, the ability to move around more freely will pressure the wage levels and that will be balanced with the move to further automate stores. Now, like any industry, they must inspire and lead effectively to retain workers.

There are two fast food restaurants near our office, which are different brands, within walking distance. Based on proximity, they are recruiting from the same pool of candidates. What continually amazes me about these two stores, is the distinct contrast in the customer service between them. The store that has been here longer has predictably poor service. [poor leadership?] On a number of occasions I have received my sandwich and then, driven to the office, only to find that it is a bun with condiments only, the star of the show (egg, chicken, beef, etc) is missing! After an initial attempt going back to the store, the general indifference from the associate made the effort appear fruitless. Based on the lines at each register and drive-thru queue wrapping the entire parking lot, it seems that my dissatisfaction will not be a blip on their radar.

The other store, which is opened in the last seven years, is a completely different experience. Every time I go in or use the drive-thru, the experience is prompt, accurate and positive. Over the time they have been opened, I notice the faces change, but the experience remains the same. [good leadership?] With the predictable, positive experience, I go back. Colleagues remark that they do not like the food there, but it is easy and dependable, so when they are in a pinch, that is where they grab a quick bite to eat.

It would be easy to lament that for several generations, fast food was the common first job, to learn responsibility, experience leadership from an adult that is not from home, school or church, and to gain the skills of money management. Certainly, there are a lot of first jobs that can teach those skills, but with the transition from fast-food to fast-casual and the decline of teenagers with summer jobs, the face of fast food has gotten older. With the ‘No Poach’ clause, these older workers, with the skills developed in fast food, were relatively captive, unless they could make the leap to another industry. With that barrier removed, employees can now move around and earn more where their skills may pay better. But the impact now is greater than the wage.

The difference in customer experience between the two restaurants belies a greater issue: leadership and culture. The first store does not hire all the indifferent employees and the second store filters through and only picks the good ones, over and over. The restaurants, and particularly the franchisees, have to assess their culture and the leadership environment they foster, or lack thereof, to make the jobs they offer a meaningful experience for the employees. The head of the International Franchise Association indicates that these minimum wage jobs were not meant to be livable or permanent. If that is the case, then beyond the explicit task of getting the job done, these store owners need to focus on the value of the job to the employee, for the time the employee is there, to develop their skills for that next job, and to foster the environment and a leadership culture. Then, when the inevitable employee turnover occurs, the next wave of personnel embrace the established culture and can propel it forward, in a sustainable way.

For anyone leadership looking for a valuable tool to share with employees, here is a great podcast from organizational psychologist Adam Grant on emotions at work. And for further reading for leaders, take a look at A More Beautiful Question.

March 6, 2018March 19, 2018

Section 232 Steel Tariffs – How to Respond

On heels of the Commerce Departments Section 232 Report, the Trump Administration indicated they will impose aluminum and steel tariffs on those imported materials: 25% on Steel and 10% on aluminum. As written about previously, there are several concerns about the basis of the section 232 report and its assumptions of how steel is a national security concern. With the steel tariffs imminent, it is time to move from critiquing the report to considering what effects this may have on business and in the market. What situations could this protectionist move cause? How will interest rates affect consumers of steel? How will steel sourcing change the trucking market.

Inventory

Inventory costs will increase, a concern for manufacturers that fund their inventory through revolving credit. This will decrease how much inventory they can effectively carry or it will impede them from using their credit line for other needs, such as unplanned maintenance. With the Federal Reserve expected to increase interest rates three times this year, that will amplify the inventory challenge for manufacturers by making it more expensive to service their credit facilities.

Challenge: Cost Increases

Response: ???

Raise Prices?

When input costs increase, particularly raw materials, there are a few options in response. Manufacturers could raise prices. In an expanding market, it is possible to do so with minimal concern of losing market share. But in a tight market, and in the current environment, where customers could search for another vendor, who may have a lower price as they are working off older, less expensive inventory, there is a potential to lose business.

Product Redesign

The challenge can be put to engineering to redesign products to decrease the requirement of expensive materials. Is the material cost impact enough that a product can be redesigned to use non-metallic material? For example, with the cost of steel going up and oil remaining steady, could a manufactured sheet metal component be replaced by molded plastic? This has already occurred in consumer products, such as Honda’s polymer lawn mower deck.

Lean Lean Lean

Manufacturing operations may review how to reduce the non-material costs of production. This is typically thought of as reducing labor, which can be accomplished by re-evaluating the manufacturing process and adopting automation. Depending on the industry and whether the manufacturer is an OEM or a subcontractor will change whether selling price can be adjusted, product redesigned or changes in the manufacturing process.

The Capital Question

One solution is increasing automation. Those well-capitalized manufacturing companies can invest in more automation to reduce the labor component of their manufactured product cost. Hopefully, the employee can be redeployed on some other function in the business, and based on the shortage of technical workers, this should be realistic.

In an environment where raw material costs and interest rates are increasing, the investment in automation is limited to those that can pay cash for capital expenditures or are able to service an increased debt load. The option of investing in capital equipment is limited to those with sufficient, unused cash in the bank, as increased material cost and stagnant prices reduce cash flow.

Choices: Inaction and Investment

For those companies manufacturing who have used the last 8 years to right the balance sheet and build a rainy day fund, this is a time to separate themselves from illiquid competitors. The question then becomes strategy:

Do you keep prices down, absorb the cost increase and wait out competitors, who cannot do so, in an effort to gain market share?
Do you take this as a challenge to make that next step in automation, to decrease the labor cost of the product being manufactured?

The biggest concern I see is these market challenges causing a greater dichotomy among manufacturers of steel products. As mentioned in the previous review of the Section 232, right after the Commerce Department’s announcement, a local midwest distributor took the opportunity send out 15% price increases on steel material. Manufacturers can invest in automation, to reduce labor, as a way to counteract that material cost increase. For those manufacturers that have not been able to pay down debt and do not have the flexibility to invest in automation, the gap will expand between them and their market’s leaders.

December 20, 2016January 1, 2018

Communities Left Behind and the Rise of Populism

http://1.bp.blogspot.com/-6UU12_lM720/VERVtVUJb-I/AAAAAAAAAUU/fwAswBKgbf8/s1600/Youngstown_Sheet%26Tube_Abandoned.jpg

It is always a fun going to a new pool, where I have not coached or visited in many years: see what changes have occurred, new starting blocks, different lane lines, and to check out the record board. It is a peak into history at some places and in others, a way to connect with high performing student-athletes perhaps All-Americans or Olympians, who may have competed there in the past.

This evening coaching a high school swim meet, before warm-ups I found myself staring at the record board for longer than I care to realize. I had not been to this pool before and the high school is in an area where there are two Big Three auto plants in the community. What most captured my attention, looking at the pool’s scoreboard, it seems to be an analogy of middle America, particularly here in the Midwest Rust Belt. This place, the pool like the community, was booming and peaked in the mid-60s when the Ford engine plant and the GM plant in the next town over employed more than 10,000 people.

How do we measure progress and identify those communities that have been left behind — This Scoreboard is Updated as of 12-2016

This town and the school have been in steady decline since 1980, until 2010. The plants that counted employees in the thousands now count in the hundreds. That shrink inevitably caused a declining tax base. To remain economically feasible for the community, this school district was forced to merge with the neighboring town in 2011.

I took a picture of the scoreboard because it is, in a way, an illustration of this decline. I go to a lot of pools and nowhere are the peak performances so centered in the distant past like this place. For those unfamiliar with swimming record boards, the second and fourth columns are the record setter, listed as first initial, last name, high school name, and year the record was set (two digits). There has been a huge increase in swimming technology and performance in the last decade, which has catapulted performances and records everywhere, the full breadth of that topic is a series of posts in its own right. Looking at the dates on the record board (centered in the 1970s) makes me think this community, with its primarily low technology, outmoded jobs, was left behind.

As I look at it I think, is this the type of decline that the populist voter experienced, this left behind feel, whether it is due to insufficient opportunities or their jobs being replaced by automation or exported to some low-cost country? Are these the communities that incited and excited the new presidency. Where the populist idea ‘making things great again’ resonates. The reality is the average American, regardless of sex or race, is better off today than they were in 1965, but the average American white male with only a high school diploma is much worse off. Those are the ones that strived for and passed down the jobs at the Big Three plants, only to have those well paying, low barrier occupations replaced by automation, outsourced to a supplier, or eliminated completely.

I grew up in a community like this, so the experience and this visual illustration really hit me. The experience and visit tonight generated conflicting emotions of interest, nostalgia, and empathy. Like most issues, the real answers here are complex and prone to heated debate.

Youngstown Sheet & Tube Company image from http://postindustrialrustbelt.blogspot.com/2014/10/rust-belt.html