P&L: The Restaurant Industry Is in a Perfect Storm of Problems

and CEO of the One Groom and St. K restaurants. Um, this is you can find them uh in the meatpacking district and uh, you know, across the country. Uh. Jonathan, are you expecting to see any kind of meaningful change either in your customers or the amount of money people are willing to spend um in your restaurants or other Well,

good morning to you, good money. I certainly think there's been a change up until now with the election, people tend to be a little bit more cautious about going out and spending money, and I think, I think, to be honest, people are going to wait and see what happens. Can you back up because a lot of people have said this, A lot of companies have said that people have been more cautious. Really, people don't go out to

eat because of the election. I think people it becomes it becomes a mainstream event that people are focused on amongst themselves, and they tend to become more isolated, and they're more focused on what's going on. And whenever any major event happens, whether it's a sport event and the Olympics, World Series, anything that's major that really embraces the a great many people, it has an impact on people's expenditure because they also become aware of the implications of the results.

And that's also part of what affects their decision to spend money. Do they think the economy is going to boom, they think it's not going to boom. Do they need to save more money? Is look what's happened this morning. Obviously the small in the market things that Clinton is gonna win, and and the markets up two hundred fifty seven points. So there's absolutely a correlation between economics and spenditure and investment and and and obviously uh election results.

You know, I can tell by your accent that you come from the heartland of America in the center. How how did you did you call the brexit? I mean, you know, so I have connected the completely got the Brexit wrong. I thought that we would stay um And what is unbelievably interesting now that seems to have been washed over is what occurred last Friday in London where the part of the High Court ruled that there has to be an Act of Parliament in order to exit

to enforce Article forty. You think that we washed over that were bloomberg. So this is an unbelievable constitutional will that affect your business? With that affect you because I know, for example, you've got projects in the lands. You've got business in London, Toronto, or land on Miami, Chica. I mean, I want you to tell people about some of these places. So let's just talk about that for a minute, because this is a great question in the Again, in the

lead up to the Brexit, our business was impacted. Following the Brexit, our business returned to where it was. It's uncertainty that creates cautiousness. Once that uncertainty has gone, it doesn't necessarily have to gone the way you wanted it. To go. But once that uncertainty has past us, people become a little bit more relaxed. If you look at our businesses, particularly in the United Kingdom where we operate

seven facilities, seven venues in two facilities. In the lead up to Brexit, we were impacted and post Brexit business to kind of return and in fact is up and where it was at this time last year. Restaurant, we just gotta make sure food restaurant hospitality, right, I just giving example some people understand. So so we have a number of venues in England we operate as part of our business we go into hotels and run their entire food and beverage. So we do that in the Mere

Hotel in London. We also have an STK restaurant. We also have a rooftop bar, and then we have a facility in the Hippodrome casino. So really in our London is a snapshot of what we do globally as a company. And it's also training across the board of people that are at all different levels of disposable income. We're sitting with someone who lives much better than I do. I am sure with all of the food and the entertainment

and the beautiful hotels that you can go visit. One thing I am wondering once the uncertainty settles, there are some policies that could make a big difference. Another word for one, in particular minimum wage. Do you think that if a minimum wage was lifted in the US that would affect your business at all? So it definitely affects our business, and and part of the problem that's driving this minimum wage issue is a very complex arena. Part of the problem. For first, you have to split out

the beneficiaries of it. People that earn money in fast casual or in fast food restaurants are not benefits of the tip structure, so minimum wage is a really important asset for them. The people that work in in casual or in fine dining our benefit from the tip structure. So you have situations where as you systematically increase minimum wage, you're still you're paying your waste weight staff more. And whilst tipping still exists, they're still going to twenty percent tipping.

Do you think that the tipping structure should go away? Well, tipping needs to change. One of the ways. It either needs to change or the laws that impact it need to change. The biggest problem with the tipping sits and which is I don't understand why the authorities haven't really worked out because it doesn't take a brain surgeon to work it out. The rules require that the only people that can benefit from the tips and the people that actually touched the consumer, So the the the servers, the

bar staff, et cetera. But if you work in the kitchen, or if you work in the back of house, or if you work at any other areas where you don't impact the guest, you don't actually get to share in the tip pole. Now, the truth is you can't sit and arrest on and have a meal and this there's a kitchen cook in it. But because we can't share the tips round amongst everybody, you have this terrible imbalance.

So certainly at the fine dining and the casual dining in arena, one of the areas to fix the the split or the or the differential between the back of house and front house is just enable everybody down for managers to share in the tip pole. That one little fix will change that whole category of income, and then you can really start to focus on people that are not necessarily in a tip pool in the in the in the fast food restaurant, where obviously people are entitled

and should should earn a living wage. The cost of doing business. Maybe speak a little bit about that, whether it's the input costs, or the real estate costs, or just the cost and the risk of going bus Because the restaurant industry, as I heard, well not a short thing. No, no, Well listen, the restaurant industries in recession at the moment. There's no question of doubt about that. And it's it's based on all that. It's we're in the perfect storm.

We have rising rents. You know, every year our rent to go up three five, the landlords do not put them up. We have increased food costs and we now have increased labor costs. We have uncertainty, we have increased petition, We have competition from disruptors. You know, you have situations with the seamless and the internet food delivery service that

impact what's going on in the actual restaurant. Sure that those that will argue to say, well, you're still getting you're selling a meal if you sell it through seamless, if you sell it in store. But the truth is you're not getting the liquor sales that help to add to the profitability of the company, of the of the business, and therefore, as a result, we're in a perfect storm,

in a perfect storm of problems. And the and the authorities need to wake up to this because if you start to to marginalize the restaurant industry that has overwhelming imployments are mostly self inflicted. Yes and no, the rents certainly are not. Food costs are certainly not. Um I think you know, the let the register, the the legislation that we work under, and the and all the enforcement rules are crazy. I mean, if you're sitting and understand,

here's a crazy enforcement law. How about this, It's going to give you a five seconds. Okay, if you don't see your patios the way they're supposed to be seen, but move them to put two fours together, you're breaking the law. Charlathan Siegal, thank you very much, Founder, chief executive the One Group and S t K Restaurants. This

is Bloomberg, all right. Thirteen hours, seven minutes and fifty six seconds until the first poles open in the clearly three towns in New Hampshire are set to vote at midnight. So Lisa Brahmins, I think he'll be staying up quite a late night, and I think that Mark Niquett also better it gets some sleep in the afternoon because he'll be spending the night watching. He's our politics and national

government reporter. Normally he joins us from Columbus, Ohio, but he joins us here in our studios in our global headquarters in New York. Thank you very much for being here. Mark. So what are we supposed to take What's going to happen in the next thirteen hours that is going to matter to the outcome of the election. Well, we're gonna see sort of the final push by the campaigns. We have Hillary Clinton with rallies all the way up to midnight,

her last rallies in Raleigh, North Carolina at midnight. Donald Trump will be doing the same and this is sort of the last push to get you know, the final late, late, late deciders, the people who are actually going to the polls tomorrow who haven't already early voted, you know, maybe sway just the last few folks that could make a difference in some of these key battleground states that could

decide the election. So you wrote a story basically saying that even though James Comey, the FBI director, came out and said that he wasn't going to charge any charge Hillary Clinton with any crime and that the new review of emails did not change the FBI's deliberations. This clears the cloud. But you're saying the damage is done. Yeah,

on a couple of levels. I mean, one, you've had millions of people casting early votes at a time this cloud was sort of hanging over her head, and to the extent that it affected votes, you know, there's no way to change those, of course, but I think fundamentally it really did change that, you know, the trajectory of the race. You know, think about before the first um FBI letter came out from Director came Um, I was actually was aboard the Clinton campaign plane, you know, when

that news broke. We were in mid air and they were doing a press conference on the plane talking about how we can't be complacent, you know, complacencies our enemy. Because the polls at that time looked like she was headed toward victory and maybe a decisive victory, and that you know, letters just sort of reset the race where it reinforced you know, questions that people might have had about her use of emails. It gave Donald Trump, you know,

something to to talk about on his campaign rallies. And it also you know, what we're seeing is maybe affected independence or you know, even Republican leaning independence or um suburban women who you know, maybe weren't enamored of Trump, but we're you know, unsure about Hillary Clinton, and this sort of made them pause about supporting her. So it made the race tighten, no question. But why wouldn't they

reverse that. I mean, if it had such a big effect in the other way, why wouldn't people say, all right, this, there's nothing to see here. Well, I think the people were talking to say it will have some of that effect that Again, these are late, late deciders, you know, who may have had concerns about Clinton. Maybe this removes that cloud and they go ahead and vote for her. But I think the feeling was the race was already

tightening with Republicans coming home is what they say. You know, if you're a Republican and maybe you're not sure about Donald Trump, but you're not sure about her either, you still vote Republican. So this could help on the margins with you know, a really really close race, but you know, the feeling is a lot of it's already baked in. If you cared about this issue or didn't care about this issue, you know this isn't gonna change your opinion.

Mark Niquette, the use of polling data and projections. Uh. Major news organizations do not call elections until after the polls have closed, but using projections during the election day is something that apparently is gonna gonna happen. There's a something called vote Caster, and they're going to team up with Slate and Vice, I believe, and they're gonna be giving information out about the polling while the election is still taking place. Right, And traditionally we've also had exit polling.

This is somewhat similar to that, where you know, they take a slice of the electorate coming off the you know, from from voting and get a sense of, wow, the vote's going to break down. Uh. And it is always a little bit you know, dicey, from the standpoint of people are still voting, and like you say, there's sort of a tradition it might discourage people. It might discourage people from actually going to the polls if they think that their vote doesn't matter because of these early estimates.

For example, Right, and you've got people on the West Coast voting after you know the race has been called or some states have already come in, And you know that that's always been a sort of attention in terms of, you know, we want to get the information as quickly as we can, and we want to see what the trends are. But you know, ultimately all that matters is what's the final vote count when you know when all

the ballots are counted. So since I want to get a sense of who's winning and I wanted the information, Now, what are the early polls saying, Well, the polls suggests that the race has stabilized, that you know, Hillary Clinton still has a structural advantage. What about the actual early voting, Well,

the early vot voting. Again, I think the the early voting suggests that you know, Clinton had an advantage there, but she had to have an advantage, I mean the way that traditionally works, as Republicans are better at election day turnout. You know, even if you know Republican like Mitt Romney and twelve loses the election, he'll often win in terms of the vote that actually comes out on election day. So the idea for Democrats has been and

certainly the last three cycles. Bank your votes early, get your supporters to cast their ballots early, and sort of build up a lead that can't be overcome on election day. And that's what you're seeing in states like Nevada, where the Clinton campaign, for example, estimates Donald Trump would have to get ten percent of all of the ten percentage points of all the election day votes to overcome the lead that Clinton has built with early voting. Mark Niquette,

thank you so much for joining. I just ask, where's Hill? Where's Hillary Clinton going to vote? Yeah, that's a good question. I haven't seen any announcement. I'm assuming it's New York, but also Donald Trump obviously New Yorkers. Mark Niquette, Limberg Politics reporter, thank you so much for joining us. Market cat has a full party ready to go just to celebrate the end of the election season. He cannot wait. An Lisa bram Waits. I am here with Tim Fox.

This is Bloomberg. You know who we call on when we want to know everything about the retail industry, our own pun. I'm Goyal, senior US retail analyst for Bloomberg Intelligence. Great to have you with us. Tell us about the big department stores and they're upcoming all important holiday selling season. So the department stores have been struggling, as you know, at least to most of them, are many of them, and I don't think there will be any different this

holiday season. Um. They're all slated to report earnings this week, beginning Thursday with Macy's North German Cold and then UM we have DC Penny reporting on Friday. Now, what I can tell you here is that sales likely suffered for many of them UM in third quarter, and that's not a good sign heading into holidays because it shows the lack of customer interest in big box retailing and the

lack of desire to go to a mall. That said, we think margins will likely hold up better because they are managing their inventory well, and from what I can see in the space, the promotional cadence has somewhat moderated. Now that doesn't mean that there aren't any more promotions, but they're being very strategic with them and they're more planned. Held. One second, when you say that you're talking about how

much discounts they're giving. That is right. So you know, typically you've seen sixty seventy percent clearance racks and many of these retailers, and that's largely because of lots of inventory left over. So they're watching their inventory, they're keeping an eye on how much they're selling, and they're cutting back orders just to make sure that they don't get into that position they did last year where they had way too much, couldn't sell it and had to discount

it aggressively to make room for new merchandise. Right. Well, these are not all the same either. I mean, Nordstrom usually caters to a higher end UH clients help were whereas Coals is more um of sort of middle or lower h tier of shoppers. Correct, I mean there's there there is a split here. So which do you which do you expect to do better? So for a third quarter, I think nord Storm will do, but better only because they have that one week of their anniversary sale moving

into the third quarter, and even in general. You know, the problem that Nordstrom has right now is tourism and just that the luxury consumer that's coming from abroad isn't hitting those key tourist areas, whether it's Miami, New York City, Los Angeles, or so forth. If that starts to come back, I think they'll do better. But when you look at the Macy's, the Colds, the Dillards, the more mid tier retailers that are essentially overstored. I mean I feel like

a Macy's they have a hundred stores. Coals has over a thousand. Too many stores. Uh, no real place of why I should come here. I mean, there's little differentiation, so consumers are just opting to go elsewhere. T j X, Ross Stores, Burlington's stores, these are the thrifty retailers. Fort off retail prices. Are they going to benefit Absolutely, They've been benefiting for the last at say seven eight years,

and they continue to do so. And it's not so much about the discount Well, the discounts great, it's not when you walk in there, you'll always find something new. So customers like that element of surprise when I walk in, I grab it. If I don't get it, it may not be here. And that's really what's been helping these retailers. These retailers don't have an online presence. T j X is very small, so all the business that they're doing is in the store and they're getting customers to come

to that store. So we've heard a lot of excuses over the quarter as We've heard about whether that was too warm, We've heard about whether that was too cold. We've heard recently about the election and how that's crimping

people's expenditures. What do you expect to be the excuse this time around and maybe whether again, um, you know, it's it's very important, as much as we'd like to call it an excuse, but apparel retailers needed to get cold and for key to self sweaters and cold weather accessories. So as of right now, temperatures are i'd say, you know, have so many degrees here last week, so they're not that cold where it would prompt you to get a

coat or a sweater. But if they don't turn cold, we will have another excuse, and it will be whether if temperatures do cool, though, I think they'll all be positioned for a very good fourth quarter because last year November was just very bleak. I don't think that the weather really affects anything in the cosmetic industry, or am I wrong? Maybe I'm wrong there. You know that's the one industry that's on fire. Okay, I want you to

tell me about Alta salon. I want you to tell me about the details because there are all new ways that cosmetics are now being introduced into the marketplace, whether it is dry bars, whether it is all kinds of services combined with products. So I don't cover cosmetics closely outside of Sapphora, which is in J. C. Penny, but I can tell you our hardlines there. Analyst that does UM had just mentioned in our holiday preview that Alta us on fire growing um double digits for the last

few years and will continue to do so. And that's largely because it kind of fits back into the experience. And you know, you want to dress up because you want to go out, you want to have nice makeup, you want to have your hair done, and you want to have the right products to do so. So the whole shift that we're seeing from buying things to spending money on experiences beauty just sits right into that. Well.

They talk about things like salon services including hair, brow and skin bars, as well as prestige boutiques, and also the point is made that their share of the wallet and the shopping frequency at an ALTA salon sets them apart from their rivals. Yeah, I mean, speaking to ALTA, I don't follow it. Once again, I was closely, but I can tell you that, you know, it's cheaper right to go there, So it kind of fits into the discount the value chain, and that's something that the customer

is looking for right now. So the more expansion that they can have, or the more bread that they can have in the types of seauty services they offer should continue to help them. So what about currency? Does the dollar? Are we going to hear anything about the dollar strengthening and the potential for that, especially as the Federal reserve hikes or is that sort of over? It's not over,

it's still there. But given that we've seen a lot of the surge already with the dollar strengthing in the past twelve d eighteen months, I think the pressure is somewhat abate heading into four Q and next year. That said, if the dollar materially strengthens again, it's it's definitely a headwind at least for the retailers with international presence. What is your most contrarian belief Who do you think is going to outperform who everybody else is discounted or the

other way around. You know, um, we don't give recommendations that I can tell you that J. C. Penny, which has been a turnaround story for some time has had mixed reviews on you know, whether they'll fall at prey to the h broader trends ever seeing in the department store space, which is lack of traffic, lack of disinterest in buying apparel, and I think they're doing interesting things up their stories, like adding appliance so as they are

also focusing in on their InStyle boutiques, the centered core and differentiating themselves from the rust. So while still a department store, they're making a lot of headwind headway into getting the consumer back into their doors. Punamgoyle, thank you so much for joining us. Punamgoyle, senior US retail analyst breaking down earnings from Macy's, coals Nords from j C. Penny.

We're gonna get them all this week and we will be keeping track of the uh frankly somewhat beliegaled, beliaguered retail industry that has really been uh bearing the brunt of the lack of wage increase set is finally starting to take ups or perhaps we'll see some better earnings there coming from there. And Lisa Brahmoys, I'm here with my co host Pim Fox. This is Bloomberg. I want to take a look at what I think is probably the biggest casino UH in the past three days, and

that is gold. I mean, gold has been bouncing around. First touch funds were piling in putting long bets on gold, UH to sort of offset the chance of a Trump victory. Now gold is falling the most in a month. I want to get some more insight on this, UH. Mike mclaughn commodity strategies from Bloomberg Intelligence. What's your take on all this? Well, I think today is a good example. It's with you know, the highest probability of events with a Trump election would be gold going up. So obviously

we're seeing the opposite today with gold going down. You know, it seems unlikely it will happen. But the key thing to remember for gold is still on the year and why global interest rates negative interest rates US might be tightening. The dollar hasn't increased as much. So as far as an election relation, I think it's the highest probability in commodities that gold would go. But you know, knocking around today, I mean the news was pretty significant. Look at the

stock markets up, it's up, the opposite of gold being down. Today. So it's kind of like are you Are you a popular guy now, because I mean, boy, you were not popular at the beginning of the year anything to do with commodities. Everyone wanted to stay about a hundred and fifty feet away if we wanted to be in your neighborhood.

That is very true. And that's part of the reason I'm a Bloomberg is because I was at a firm name for the last three years and the commodity aum just went straight down and finally they hit their stop and I ended up in a better place. But I'm becoming more popular, I guess. And it's a discussion we had earlier. But you know, you look at gold a few years from now, and I you know, we all

hope gold would be down because everything is doing better. Commanities, the commanity, the economy is doing better, and the Fed doesn't have to you know, we don't have to, like stock markets doing better. But gold is still the the attractive hedge, and partly you see it in negative interest rates.

Now we can move on the other commodities for instance, Like, what's really would be a big problem I think if Trump were to be elected, is his anti trade status so you think of commandities that US really exports corn, wheat, soybeans, that would be a problem there because that extra it would kind of hurt that export market. Well, but wouldn't it be the same for Clinton because she's sort of taken an anti TPP stance as well. I think so,

But it's already kind of factored in. Any Any type of anti trade for things we export will be bad, but Trump more so. Um well, okay, So going back to gold, I mean you said, you know it's up the year regardless of who wins. Do you think that there's a direction for gold? Uh, it's really independent of this latest bout of volatility, Yes, exactly, And um it's up. Well, good, it's up for now. But it's all commondities and gold has just been one of the leaders. It just got

a little expensive relative of the commanities. But it's also look at the environment. Their interest rates are near negative and what's the next step If the central banks are successful in creating inflation, that's traditionally the best thing for gold. So so in other words, I didn't mean stay glad to hear it because I have one a bet one way. Um No, it's more just you know, generally up is a positive, but in this case it actually might be

a negative with respect to the global economy. I mean, do you think that that the bets on gold and the and the gains that gold has has experienced really is a vote of of lack of confidence in the economy. Yeah, exactly. Gold is generally the inversion of the U. S. Dow. It's it's the inversion of the stock market. Gold really stopped going up and started going down in two thousand and fourteen when the stock market started making new highs, and you know, and it's it's done the opposite there.

This year it's done well even though the stock market has gone up. So it's still it's the ultimate quintus. I guess you could say the diversified acid, you know, the the free, the the the clear asset that you can use to diverse it your but your other your other other other investments. Still is I want to just go through a bunch of commodities. Give me the bullet bear case and that, you know, give you five seconds, because I want to get through a bunch of them.

Silver best performing assets so far this year thirty one percent gain year today, Silver bullish bush bullish. Why it's um down from the highest and the supply demand turns are very positive. All right, we did go that's up more than Tell me what's going on with things like palladium and platinum. I always here that they're tied to the auto somewhat different. Palladium definitely much more tied to gasoline vehicles. Demand is still picking up, most notably from China,

So still somewhat bullish. Platinum a little different, more focused on diesel vehicles and what happened with Volkswagen is pressuring it. But although platinum is still three still less than gold historically it's very cheap. Tell me about soft commodities, things like corn weed. I know we've got a big ethanol issue having to do with corn, and we've got a lot of well, we had a good harvest corn and wheat just made ten year lows and because of that,

demand is really picking up. So they've been down for quite a while. It's just how sustainable are these trends. Demand is quite strung, specifically in wheat, corn, soybeans. Soft commodities, if you want a specific soft command to speak of, sugar, and sugar is up in the air, coffee, also coffee to which we have to drink. But the thing about sugar, it's a direct relationship to corn because of ethanol, so

it might pull corn prices up. Anything that you want to tell us about the energy complex that we need to know, natural gas, heating oil, gasoline, overall glut. We still have a glut. Range trading. It got a little expensive, little bit, a little bit overweight above fifty when crude oil is fifty recently, but getting near forty it might do the opposite. Was stuck in a range, still a glut,

and at some point that was going to change. But you talked about technology earlier, and that's the key thing that's impacting energy conservation more supply, and it's the opposite, and things like silver word technology is creating more demand and not increase in supply. I was going to get that for Lisa. I was going to get it as a gift. Always just gonna ask real quick, what is the one commodity that we're gonna be talking about most

next year? Good question. I still I still think it's silver, partly because it's not really widely watched and this supplied to mentor the supply demand trends are very positive. Mike McLoone, thank you so much for joining us. Mike McLoone, Commodity strategist for Bloomberg Intelligence and All Things Commodities. We got a lots, We got a lot there, Pim, I like that, I like the list. This is Bloomberg. Thanks for listening

to the Bloomberg pen L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm out there on Twitter at pim Fox. I'm out there on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio. Thank