Thursday, May 31, 2012

NYC ban plan makes restaurants gulp

The franchisees of fast-food restaurants in New York City are about to be hit with a sales killer they couldn’t have imagined two months ago. In case you haven’t heard, City Hall has decided to prohibit restaurants from selling sugared soft drinks in servings larger than 16 ounces.

If the Board of Health rubber-stamps the directive from Mayor Michael Bloomberg, as it’s universally expected to do, big drinks could be outlawed before the second quarter of next year.

That means no more one-liter bottles in coolers, no more promotions of 20-ounce fountain drinks, and no more upsizing of packaged meals.

Most worrisome, for restaurants everywhere, is what happens next. Will large-sized French fries be outlawed? How about providing more than two sugars for a coffee or tea?

And, remember, this is the city that pioneered menu labeling, transfat bans, a smoking restrictions even in bars. The health measures we hammer out tend to roll across the nation.

Not that the proposed big-drink ban would apply to all foodservice places, even within the city itself. Convenience stores are exempt. Bloomberg said that street carts would be covered, along with movie theaters, but didn’t say if food trucks would be obliged to follow the rules.

In fairness: The regulation would exempt diet drinks and, strangely, given the anti-obesity intention of the proposal, milk shakes. So restaurants could hopefully redirect customers to sizes of sugar-free drinks that would still yield the accustomed margins.  But that’s if customers make the switch.

It could be particularly difficult to keep a beverage sale for takeout orders. If you’re a customer who prefers regular Coke, and you can’t get a 20-ounce bottle from the sandwich shop where you buy lunch, why not pop into the 7-Eleven and grab one?

So why would franchisees be hurt more than, say, McDonald’s Corp.? Well, royalties paid to the home office could indeed be trimmed. But franchisees would really feel the profit loss. They’d be on the front line, both in feeling the sales impact and in having to deal with the city’s enforcement efforts.

Keep in mind that this is New York City, a place notorious for its business-management challenges. So most chains seek out local franchisees who can navigate a grossly irrational marketplace. Chances are high that the local outlets of national brands are franchised.

Just a guess, but many of those franchisees are going to start thinking that Nassau or Westchester Counties’ real estate prices don’t look so bad after all. 

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