Minimum-Wage Debate Divides Hong Kong

In response to growing public calls to tackle the widening wealth gap, lawmakers passed the minimum-wage bill after a 41-hour session in July. Some of Hong Kong's lowest-paid workers, such as toilet cleaners or security guards, earn as little as HK$20, or about US$2.60, an hour. A Provisional Minimum Wage Committee appointed by the government has yet to recommend a new the hourly rate. HK$28 per hour is the median between what labor representatives and business groups are calling for.

A dispute between labor groups and the business sector last week raised the question of whether a minimum wage might backfire more directly against the workers it is meant to help. Trade unions called for a boycott of one of the city's largest fast-food groups, Café de Coral Holdings Ltd., which operates restaurants in Hong Kong as well as the Manchu Wok chain in North America (Steger).

While the minimum-wage law has yet to take effect, Café de Coral last month acted pre-emptively by increasing hourly pay by between HK$2 and HK$3.50 (Steger). However, because the company eliminated a paid 45-minute paid daily lunch break, the move turned into a public-relations fiasco. Employees found out their original earning of $22 an hour would end up being less less each month if they worked eight hours a day, 26 days a month. The boycott plan soon followed.

Hong Kong Chief Executive Donald Tsang, addressed to business groups that the government was forced to legislate a minimum wage after a "tepid" response from the business community to a voluntary plan for a minimum wage proposed in 2006 (Steger). "[T]ensions are developing in society because the fruits of the economic recovery have not trickled down to all levels of the community," said Mr. Tsang. "Some people feel that they are being ripped off" (Steger).

Workers will not only respond to low wages with boycotts; but it will also be reflected in their work ethic. If employees at restaurants are not working as hard this will directly affect customer satisfaction. Meals may not be prepared as quickly or there mite be less effort put into making them. If the workers got paid normal wages all the disputes between employee and employer will be settled and the consumer will be happy.

http://online.wsj.com/article/SB10001424052748704737504575601832288088158.html

Rise in Input Prices Causes Higher Prices for Consumers

Prices of milk, beef, coffee, cocoa and sugar have gone up recently and restaurants are raising their prices to make consumers bear most of the cost. However, this could cause problems for the restaurant industry because of the position many consumers are in. With high unemployment consumers have found ways to save extra cash by not going out to eat as much, or buying generic brands.

Cheif executive of Stater Bros. Market, a grocery store chain in California said, "The big challenge will be, how much can we swallow and how much can we pass along?" Recently, cereal prices for Stater Bros. has risen 5%. They dealt with this increase by passing half the cost onto consumers, by rising the prices they pay, and by bearing the other half of the cost by cutting other expenses.

Starbucks has decided to leave the costs of their coffee the same, to keep from losing supporters of their main product, but to rise the prices of other harder to make drinks. Kraft, General Mills, and Safeway have decided to pass the rise in prices on to the consumers.

Foood prices are rising faster than overall inflation. The CPI (consumer price index) for all items minus food and energy had risen 0.8% up until September. The Bureau of Labor Statistics has recorded this as the lowest 12-month increase since 1961. However, the food index rose 1.4%. It is predicted that overall food inflation will be at about 2% to 3% next year.

If overall inflation does not begin to rise more sharply then I think the restaurant industry is going to take a huge hit. They will not be able to put a 2% to 3% rise in prices on consumers within the next year. They will have to take some of the burden and cut their costs just as Stater Bros. Market has done. Otherwise, consumers will find the cheapest prices and resort to them if they have to.

http://online.wsj.com/article/SB10001424052748704506404575592313664715360.html?KEYWORDS=restaurant++industry

Can Starbucks Adapt Like McDonald's Has?

According to Forbes, starting seven years ago, McDonald's Corp has been growing slowly in the total amount of restaurants. Also, for the past seven years, McDonald's has been making a serious effort at "smarter more cost-efficient operations." In turn, this change has increased McDonald's stock.

Starbucks, on the other hand, has only recently decided to enter the "slow growth stage". Since then, the company has closed 1,000 locations and similar to McDonald's, tightened up its operations. This has also led to an increase in Starbucks' stocks. Another important change Starbucks is pursuing is making more of its stores licensees. This is also similar to McDonald's.

The article states that McDonald's has a better profit margin due to its "larger network of franchisees." Furthermore, the productive at McDonald's restaurants has risen over the past few years, because of new menu items, cleaner restrooms and faster drive-through times.

With McDonald's as its model, Starbucks is trying out the same idea. Though Starbucks is trying, it is too early to tell if the company is making any progress.

I think Starbucks has the potential to adapt like McDonald's does, but not in the same magnitude. Even though the two companies "operate from very similar real estate" by hiring the same workers and competing for casual dining and snacking spending by consumers, I think McDonald's has more of an edge over Starbucks. McDonald's offers more selections than Starbucks does, it has been around much longer than Starbucks has, and its restaurants are open longer than Starbucks' restaurants on average. Based on the article, it would be great if Starbucks can adapt because it would most likely lead to greater shares, but I am not sure if Starbucks is the type of restaurant that should adapt in the way McDonald's has adapted.

http://blogs.forbes.com/investor/2010/11/04/can-starbucks-adapt-like-mcdonalds-has/

Low Cost Comfort Foods Save Restaurants

Restaurants in the Bay Area of San Francisco were hit hard by the recession, just as everyone else had. However, restaurants are very vital to San Francisco because they draw in many of the tourists. Employment in San Francisco has declined about 6% over the past year, a result of restaurants unable to adjust to the changes in the economy.

Several restaurants have adjusted to the economy by increasing comfort foods, like fried chicken and pizza, and and cheaper menu items on their menus. Those who have failed to do this, have gone out of business. Even restaurants who have adjusted their menus have not all found success.

Anne Le Ziblatt, owner of Tamarine in Palo Alto, has added more affordable dishes to her menu. Rather than serving the same dishes that range from $14 to $28, she began selling Vietnamese dishes that sell for $13 each. This has helped Ms. Le Ziblatt's business to increase 15% from last year.

These kinds of changes have made the future look promising for the Bay Area restaurants. Restaurant employment has decreased at a slower rate than overall employment has in the Bay Area over the past two years. Some restaurants have even found the opportunity to expand higher end restaurants. The most important fact however, is that customer numbers are increasing to pre recession numbers. For without the customers, restaurants can not make a comeback.

http://online.wsj.com/article/SB10001424052748704141104575588982760967058.html?KEYWORDS=restaurant+industry

Holiday Inn to Turn Bars into Social Hubs

According to an article in the WSJ, Holiday Inn intends to "edesigning and expanding its hotel bars to make them livelier." Holiday Inn is a part of InterContinental Hotels Group. InterContinental's reasoning for turning Holiday Inn's bars into social hubs is "dogged midmarket full-service hotels" with 150 rooms or less do not have enough customers to provide full-service food 24/7 that will make a profit.

Another reasoning is frequent customers of Holiday Inn, which are primarily "middle managers, route salespeople, entrepreneurs, and government supervisors, want to be around other people than holed out in their rooms." Holiday Inn came across this through a survey it offered to its most frequent customers. It is replying to its customer's wants.

The way Holiday Inn is approaching this request is impressive. By making the bar area more of a social hub, Holiday Inn plans to have the bar staff serve food, which would allow the hotel to reduce restaurant staff - which will reduce labor cost. This applies to all meals during the day. For breakfast, there will be "buffets and cook-to-order stations." This will also cut labor costs for the Holiday Inn.

However, Holiday Inn will "go slow" with the idea of social hubs, especially because most of its hotels are owned by franchisees. The social hubs will be tested in newly renovated and newly built hotels, most likely beginning in 2012. Holiday Inn is planning to have all of its hotels have the new menus and the breakfast programs (at the least) by 2012. The "pricier changes" will probably happen while the hotels are under periodic renovations. As of right now, Holiday Inn does not have an estimate of the cost of installing these hubs because "the concept is likely to undergo changes during the test during next year."

I think this is a great idea! I feel like these midmarket full-service are too impersonal (obviously not for the people sharing a room). The feeling of these types of hotels are "come in, sleep, wake up, leave, do work, come back," and restart the cycle. There aren't many opportunities in these hotels to meet other guests. Even though some people think of a hotel as just a place to sleep on the go, I believe they will benefit from these social hubs. I also believe these social hubs will attract more people to the hotel, which should raise its profits and help the hotel industry recover in general.

http://online.wsj.com/article/SB10001424052702303443904575578613162270270.html?mod=WSJ_Hospitality_leftHeadlines

City Center failing to pay bills

Last December, the City Center in Las Vegas opened amidst the largest decline in tourist travel in decades. This project, roughly worth 8.7 billion dollars, is more than just a hotel: there are condominiums, a casino as well as a giant mall.  The hotel was supposed to start a new wave of "sophistication and urban living in the gaming capital".  But the innovation of this building has almost been over-shadowed by its huge scale and cost.  There is an outlined plan to seek relief for $1.8 billion loan, but if terms cannot be negotiated then City Center could be responsible.

MGM resorts reported a net loss of $1 billion, which includes a write-down of nearly $600 million.  Also the hotels worth has reported fallen from $5 billion to $2.4 billion in a single year.  MGM is still spending money to end construction as well as keep operations at City Center going.  There was a report in July that stated within a year City Center would see major improvements and for right now they have seen an increase in earnings, yet the hotel is still on track to violate their loan.

The cost control problems with City Center have seemed to induce problems between the partners as some wish to close certain operations while others believe it would be more detrimental to the center.  The executives are also faced with what to do about the nearly 2,000 condos that are unsold.  At first the 2,400 condos were expected to produce a revenue of $2.7 billion, but now the total sales are $372 million.  By maintaining 530 of these unsold units, the center is set to witness an additional $11 million loss in profits.  One plan is to lease 200 of the condos while another is to make City Center more livable by installing a grocery store.

These financial problems co-inside with complaints from customers who say the casino is too dark as well as other design faults.  I believe that this center was built at a completely wrong time in American society.  With the economy still reeling from the crash, people are clearly not making to trips to Las Vegas regularly and spending thousands of dollars to stay the night.  I think that this center should try to target international waters because they might be looking for an experience they could provide.  I believe that it is going to take a very long time before the hotel is going to see a complete pick-up in revenue and for now they are going to have to search for ways to maintain their creation.

Developer Recaptures a Maritime Motif

"Frank Fusaro, of Handel Architects, embarked on a historical reclamation mission of sorts when he took on the job of designing the new Dream Downtown hotel now taking shape in Chelsea with its distinctive punched-out porthole windows"(Rubenstein). Now a developer by the name of Sant Singh Chatwal is converting the annex into a $230 million, 316-room hotel scheduled to open this spring.

After Mr. Chatwal bought the annex for $70 million in late 2007, Mr. Fusaro designed the plan to cover the building in stainless steel tiles fabricated in Kansas City with a special-made coating dubbed the Dream Finish: "it's polished enough to reflect the blues and whites from the sky overhead, but not so reflective as to mirror passersby" (Rubenstein).

In today's recession, consumers are seeking high quality hotels for lower prices. This annex that Mr. Chatwal purchased will prove to fit that standard. He turned the old hotel into a $230 million, 316-room hotel. The hotel industry has been a very competitive industry lately in the United States. Companies differentiate themselves from each other by having different promotions, offering special rates, and basically become the best they can be. For this key industry player, after purchasing the annex for $70 million, he has invested a lot into the annex in hopes of achieving big things in the near future when it becomes operational.

http://online.wsj.com/article/SB20001424052748703708404575586591685653962.html#articleTabs%3Darticle