Combined, the three franchisees on stage have nearly 3,000 restaurants across 10 brands, each with a sizeable footprint in California, where Gov. Gavin Newsom in September signed the FAST Recovery Act into law. It creates a government-appointed 10-person council to set wages as high as $22 an hour at fast-food chains with more than 100 units nationwide. The council will also set working conditions and address alleged worker abuses.
“Let’s call it the California question—what’s going on there?” asked Cristin O’Hara, the restaurant group head at Bank of America who moderated the session November 15 at the Restaurant Finance & Development Conference.
“It won because we weren’t paying attention,” said SG Ellison, president of Diversified Restaurant Group, a franchisee with 330 units across Taco Bell and Arby’s. “We didn’t take it seriously until it was too late.”
Also known as the Fast-food Accountability and Standards Recovery Act or AB 257, the legislation was pushed hard by the Service Employees International Union, which said fast food workers in the state face low wages, wage theft and unsafe working conditions.
“They created a narrative that was inaccurate with how we run our businesses,” continued Ellison, and “that narrative stuck.” He called it a “gateway” to unionization, which is already hitting chains such as Starbucks and Chipotle, and said DRG is responding by sending its human resources teams into restaurants to educate employees and train managers to understand potential unionization activity.
“We have better benefits in our company than the State of California does,” said Ellison, as he noted his father was a union member working in copper mines, but adding unions today don’t serve the same functions.
Days after the bill was signed, a coalition made up of business trade groups such as the International Franchise Association, along with fast-food corporations and franchisees, launched a referendum effort that would allow voters to decide whether to overturn the law.
To appear on the November 2024 ballot, some 623,000 voter signatures must be submitted by December 4. AB 257 is set to take effect January 1, 2023, but would be put on hold until voters can weigh in.
“I believe this law will go to referendum,” said Ellison.
“This bill obviously is a disaster … it’s the epitome of stupidity,” said David Beshay, whose Beshay Enterprises operates 260 locations across Jack in the Box, Denny’s, Popeyes and Corner Bakery. He’s not, however, “as optimistic” about the success of the referendum effort.
“When is the last time you or I trusted the voter in California?” he said.
Greg Flynn, meanwhile, the largest restaurant franchisee in the United States and who spoke out against the bill over the summer, said during the panel that he thinks it can be beaten, but “it will take a lot of money.”
Switching to a discussion of the benefits of scale and diversification, Flynn, a franchisee with 2,400 restaurants in Applebee’s, Taco Bell, Panera, Arby’s, Pizza Hut and Wendy’s with more than $4 billion in sales, noted beyond administrative advantages, “scale has a really positive recruiting and retention aspect to it.” Top general managers and other key restaurant-level talent view Flynn Restaurant Group as a stable organization and want to be part of it, he said.
Beshay called out his company’s ability to grow and have access to capital even in an otherwise tough environment. Beshay Enterprises took advantage of some pandemic-related panic in the real estate world to acquire assets it’s using to execute on its Popeyes development agreement, with nine open “and we will own the majority of the real estate,” he said.
On the M&A front, a hot topic in multiple conference sessions as activity slowed in the second half of 2022, Flynn said sellers have last year’s pricing in mind, which could deter buyers. 2023 will be “kind of a ho-hum year,” he said. “I hope people want to sell, but just get real.”
The Restaurant Finance & Development Conference, presented by Franchise Times’ sibling publication the Restaurant Finance Monitor, continues through Wednesday noon at the Wynn hotel in Las Vegas.