In this Weekly Wrap, we’re looking at phased-in minimum wage increases across the country, Dig [Inn]’s renaming misstep, how Red Lobster is clawing its way back from bankruptcy, and more.
Also, there will be no feature email this Friday because of the July 4 holiday. You'll hear from us again on Monday, July 7, with the next Weekly Wrap.
Minimum Wage Hikes Across the Country
The Headline: “July will bring another step up in minimum wage rates around the country”
The Source: Restaurant Business Online
What You Need to Know:
As July brings another round of phased-in minimum wage increases in various states around the country, the debate over the tip credit also remains in play in some markets.
In Chicago on Monday, state lawmakers and labor activists plan to celebrate the phase-out of the tipped wage there with a release of a report on its impact, with hope the legislation will be adopted statewide.
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In Washington, D.C., meanwhile, voters had passed a ballot initiative to phase out the tip credit, and the city is two years into a three-year phase-out. But city lawmakers earlier this month voted to pause the phase-out while it considers a repeal of the law.
Mayor Muriel Bowser last month called for a return of the tip credit in her proposed budget next year, arguing that restaurants in the city are already facing a “perfect storm” of increased operating and supply costs, higher rents and unique labor challenges.
As a result of the pause, D.C.’s tipped wage will remain at $10 per hour, and will not be increased to $12 per hour in July, as previously scheduled.
In Michigan, where lawmakers earlier this year agreed to a compromise that kept the tip credit alive there, One Fair Wage is reportedly seeking a ballot initiative in a new attempt to repeal the tip credit again and increase the minimum wage, which is already set to increase to $15 per hour by 2027, with annual inflation adjustments after that. In February, Michigan’s minimum wage increased to $12.48 per hour.
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Meanwhile, advocates of a higher minimum wage appear to have a new ally in Republican Senator Josh Hawley, who earlier this month introduced a bill that would increase the federal minimum wage to $15 per hour from the current $7.25. The federal minimum wage hasn’t been increased since 2009.
Our Take:
Any time minimum wage and tip credit come up in news feeds, you can be certain we will be discussing them and this is no exception.
The most interesting news is not Chicago or Michigan pushing for the abolition of the tip credit, it’s that D.C., which passed an initiative to phase out the tip credit, is pushing to get it reinstated.
Several states don’t have a tip credit and some of those states are also where restaurants are hurting the most. The fact that a city voted for and enacted a plan to cut out the tip credit, only to try and reinstate it, is the most telling fact. It means that it may not be working in the way it was intended. Indeed there have been numerous articles about the challenges of the restaurant industry in D.C. Coupled with the current political climate in D.C., layoffs, and other factors, those issues have been exacerbated.
As it pertains to the national raising of the minimum wage, this makes total sense and is long overdue.
Dig Changes Name Back to Dig Inn
The Headline: “Dig is rebranding back to Dig Inn”
The Source: Nation’s Restaurant News
What You Need to Know:
The restaurant formerly known as Dig Inn will be known under that name once again. The New York City fast-casual brand, known for its plates of hearty proteins, vegetables, and grains, is changing its name back after being known as simply “Dig” since 2019.
In 2019, Dig Inn joined a growing group of brands, like Jamba and Dunkin’, that were shortening their names. At the time, Dig Inn said the company was rebranding because it had “become more than just a restaurant” and wanted a name that represented that transition to more of a healthy lifestyle brand and community presence.
Now the company said it is “making a nostalgic return to the company’s 2011 roots.”
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Dig Inn has more than 30 locations across the Northeast.
Our Take:
While it’s not said explicitly in this article, it’s clear that the 2019 name change from Dig Inn to Dig did not resonate with consumers the way the company had hoped. What we see is a valuable lesson in not just knowing your market, but knowing where you sit in the market. Pre-pandemic, I was a massive fan of Dig Inn — I liked the food, it was quick, healthy-ish, and, most importantly, very good value for the quality of food I was receiving. Simple.
I haven’t been to a Dig space since I dined at their now-shuttered full service restaurant, 232 Bleecker, back in 2021. I can’t say exactly why — I never had a bad experience, maybe it just fell off my radar. Granted it’s hard to judge anything that happened 2020–2022 because it was the Wild West. But I can’t help but think the name change didn’t help.
Dig Inn had a good but not massive following. And while I realize they only removed the “Inn” from the name, it still was confusing to many. Dunkin’ Donuts and Jamba Juice shortening to Dunkin’ and Jamba makes sense as they are massive brands with a national audience, and at least in Dunkin’s case, ingrained in our culture. With just over 30 units mostly in the Northeast, Dig Inn’s brand recognition just wasn't there. Changing the name, as small as it may have been, just did not make sense.
Hopefully this decision will uplift the business, I was always a fan. Though, let’s not call the name change “a nostalgic return to our company’s 2011 roots.” 1911 is nostalgic, 1950 is nostalgic, even 2000 is nostalgic. 2011 is not nostalgic…it’s 14 years ago.
Red Lobster Crabfest
The Headline: “Red Lobster bets on seafood boils to fuel comeback”
The Source: Restaurant Business Online
What You Need to Know:
As Red Lobster continues to claw its way back from last year’s bankruptcy filing, it is turning to a menu item that has proven successful for other seafood chains: the seafood boil.
The communal feasts, typically served in a plastic bag or spread across a paper-lined tabletop, have caught a wave of popularity in recent years, giving rise to a number of upstart seafood concepts. The 500-plus-unit Red Lobster is now getting in on the action with a pair of seafood boil options as part of its Crabfest promotion, which runs from June 23 to Sept. 14.
The Mariner’s Boil features lobster tail, shrimp, crab, corn and potatoes for around $50, while the Sailor’s Boil has shrimp and smoked sausage for $30, though prices vary based on the market. They are tossed in a choice of garlic or Cajun butter or Old Bay seasoning and presented in a hot shake-and-serve bag. Both are also available in a family-size portion.
Chains specializing in seafood boils, such as 68-unit Hook & Reel and 26-unit Boiling Crab, have enjoyed a mini-boom in recent years. Last year, sales at seafood boil chains on Technomic’s Top 500 rose by an average of 3.8%, while overall seafood sales fell 0.3%.
Seafood boils are experiential and good for groups, two strategies that have generally worked well for restaurants coming out of the pandemic. And they tap into a Cajun food tradition that feels authentic and unique.
Our Take:
The seafood boil is a step in the right direction for Red Lobster. If this had been five years ago, all of the seafood for this promotion would have been purchased from then Red Lobster owner, Thai Union, at a premium, and with quality that many would consider an inferior product. But, this isn’t five years ago, and CEO Damola Adamolekun is making smart decisions regarding promotions, marketing, and cost-cutting policies while upping the quality of product at the stores.
It will be a year or two before we see the true windfall from the strategies employed, but we expect that the turnaround will be swift. In a couple of years we could be talking about Red Lobster the way we talk about Chili’s, as a leader in the casual sit down dining sector.
Krispy Kreme McDonald’s Split
The Headline: “McDonald’s and Krispy Kreme will end doughnut partnership next month”
The Source: CNBC
What You Need to Know:
Krispy Kreme and McDonald’s are ending their partnership for good.
The chain will stop selling its doughnuts at McDonald’s restaurants on July 2, the companies said in a press release Tuesday. McDonald’s USA’s Chief Marketing and Customer Experience Officer Alyssa Buetikofer said the collaboration was going well for the burger chain and its franchisees, but it “needed to be a profitable business model for Krispy Kreme as well.”
Their deal had placed Krispy Kreme doughnuts in 2,400 McDonald’s locations. The companies paused their partnership in May after sales slowed down, and Krispy Kreme withdrew its full-year financial outlook in part due to economic “softness.” The chains are scrapping the deal after they announced plans last year to roll out Krispy Kreme doughnuts at McDonald’s locations nationwide by 2026.
“Ultimately, efforts to bring our costs in line with unit demand were unsuccessful, making the partnership unsustainable for us,” Krispy Kreme CEO Josh Charlesworth said in a statement Tuesday.
Our Take:
Volume is great, except when it isn’t.
I’m not sure what the exact financial deal was as it pertained to the partnership, but from the statements being made, it seems like the deal was working out well for McDonald’s, and not so well for Krispy Kreme. Sounds like the demand was outstripping the supply chain and the price of producing the volume required.
This is a problem that can translate to restaurants of all sizes. You offer an amazing product at a great price that gets people in the door and sells, but maybe the product isn’t as profitable as you need to survive. That’s fine if you have other higher margin products that you are now able to push when guests come in for that “underpriced” product. But if you don’t have other revenue streams, what you are stuck with is a low margin, high moving product that you can’t keep up production of and, in turn, one you need to hire more employees to execute, making it even less profitable.
I’m sure there are more variables here that aren’t public knowledge, but this is my takeaway.