California's high costs, legislation make No. 1 foodservice market look

Nation's Restaurant News, August 23, 1999 by Amy Spector

Trujillo says she is keeping a close eye on SB 320, legislation that would increase the cost of workers' compensation benefits by 220 percent yet "doesn't take care of [the] severe, long-term injured."

Trujillo, the CRA's Dunlap and others are awaiting word on nominees to the state Industrial Welfare Commission, or IWC, the body that sets California's minimum wage but which recently was inactive. Reactivated by Gov. Davis, the IWC has pending as commission members two nominees from the CRA: restaurateur Jeff King, chairman of Long Beach-based King's Seafood Co., and Michael Hawkins, president of Pasadena's Green Street restaurant. If selected, the two would fill seats on the five-member IWC, whose members are appointed by the governor and have input on issues critical to the restaurant industry, such as defining the duties of a manager.

Scott McIntosh, chief operating officer of the 23-unit Claim Jumper dinner-house chain, based in Irvine, Calif., says the labor shortage has prompted his company to identify and train management candidates from current staff prior to new unit openings. He says the company currently has about 40 employees training to staff the six new Claim Jumper locations slated to open by the first quarter of 2000.

Claim Jumper, which reported $110 million in sales in 1998, successfully entered the Arizona market earlier this year. It has one unit open in Phoenix and two more under construction in Tempe and Scottsdale.

Larry Sidoti, partner of Irvine-based Juice Ventures Inc., which owns and franchises the 41-unit Juice It Up! Juice-bar chain, previously vowed never to franchise in California but changed his tack to maintain product control, which he says is easier with franchisees located in the state. Juice It Up! will undergo its second price increase in five years to cover increased labor and product costs, Sidoti says. His entry-level wage has risen from $4.25 in 1995 to the current market price of $7, he says.

At Glendale-based IHOP Corp., operator and franchisor of 864 International House of Pancakes restaurants worldwide, including 168 in California, growth is focused on the Southeastern and Southwestern states, vice president of marketing Susan Hernandez says. IHOP's challenge in California, where 17 restaurants are company owned and 151 locations are franchised, is in filling the pipeline with new products. "People [in California] are used to having lots to choose from," she says.

The chain's rollout of its "After Breakfast" menu, firming up IHOP's position as an all-day dining option, should be complete by September, Hernandez says. Although she says it is too early to state sales gains from that promotion, IHOP continues to post monthly same-store sales gains and reported a 21.5-percent increase in net income for its June-ended second quarter. System-wide sales for the quarter were $278 million, an 11.2-percent increase over the previous year's quarter, according to company reports.

CKE Restaurants of Anaheim, which operates and franchises the nation's fourth-largest system of fast-food hamburger restaurants, including Hardee's and the California-based Carl's Jr. chain, is committed to growth in its home state, although president and chief operating officer Tom Thompson admits concern over the daily-overtime reversal. "Now managers are watching the clock. They've lost some flexibility," he says.