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It's been a crazy year for the restaurant industry, and not just because Denny's created a menu based on The Hobbit or the long-awaited return of the McRib (apparently, McDonald's (NYSE:MCD) got a few of my letters). This has been the year in which restaurants, perhaps more than ever before, got heavily involved in politics, especially with regards to President Obama's pet project, the Affordable Care Act (although Chik-Fil-A made its own waves with its stance on gay marriage).
Fearing that Obamacare would raise costs by mandating health insurance for all full-time workers, several CEOs and franchise owners issued statements against the bill, threatening to cut employee hours and raise prices in order to defray costs. Shockingly, consumers and employees alike reacted badly to petty, spiteful threats from millionaires, and many of the companies have suffered quite badly.
Here's the Wall of Shame for three companies whose knee-jerk reaction to the ACA cost them dearly. Whatever your feelings on the bill, you've got to agree that blindly alienating employees and customers isn't exactly great business.
1. Olive Garden
Sometimes consequences don't rear their heads until it's too late. Darden Restaurants (NYSE:DRI), which owns Olive Garden and Red Lobster, did a double take after looking at last week's earnings report, which showed a staggering 37% decrease in net income and a 2.7% revenue decrease for all US locations open at least one year. The stock price followed suit, plunging from $53.65 to $45.13 in the month of December alone. This came after an October announcement that Darden would look to shift its employees to part-time status in order to skirt Obamacare regulations. The company has seen its stock drop by nearly 11% in the past month after it became clear the bad publicity over its stance would hurt revenue; last week's report revealed that despite huge menu overhauls, customers have been voting with their feet and not their stomachs.
2. Papa John's
Papa John's (NASDAQ:PZZA) CEO John Schnatter has had to do some pretty desperate backpedaling over the past couple of months. After President Obama was elected for a second term, Papa John announced that health care reform would force him to go through with the threats he'd made in August: to cut employee hours and potentially raise prices by $.15 to $.20 per order. Backlash was instant and decisive: YouGov Brand Index, which measures brand perception by a score called "Buzz," showed Papa John's dropping from a score of 32 to a score of 4. Schnatter was later forced to roll back his statements. Nevertheless, there was no organized boycott among Schnatter's detractors, and despite a major dip in November, Papa John's stock price is trading at $54 per share, a yearly high.
DineEquity (NYSE:DIN), the parent company of Applebee's, has managed to keep its stock price up despite comments made by Apple-Metro Inc. CEO Zane Tankel, who inspired pretty universal backlash by declaring that he will need to actually fire workers in order to keep costs down when the health care law goes into effect. However, public perception of its flagship brand has dropped; YouGov's Brand Index saw Applebee's fall from a score of 35 to 5. It wasn't just customers who voiced their displeasure, though, as many employees took to the press and social media. Waitress Krista Trovato, who worked at a Pittsburgh Applebee's, complained to the press that her employers do "everything they can to make sure people work as cheap as possible to make sure their profits are as high as possible, with no regard for their employees." While Tankel is popular with management in his restaurants (he takes them on a cruise every year), the waitresses and kitchen workers aren't so thrilled with him.
This article by Jonah Loeb originally published on Minyanville.
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Disclaimer: The views represented on this blog are those of the individual authors only, and do not necessarily represent the views of Schaeffer's Investment Research.