May 27, 2016

National Restaurant Association Show - EMV Liability-Shift, Food Safety Key Themes

BRG AU, CMG, DPZ, EAT, MCD, NCR, PNRA
By Justin Pillette
The EMV liability-shift, food safety and managing labor costs were key topics for many restaurant operators at the 2016 National Restaurant Association Show, while many vendors lacked awareness about McDonald’s joint-employer lawsuit.

Food Safety
On the heels of Chipotle Mexican Grill Inc.’s well-publicized struggles with food safety issues and the signing into law of the Food Safety Modernization Act (FSMA) on Jan. 4, food safety was a hot topic at the National Restaurant Association’s (NRA) annual convention, which took place May 21-24 in Chicago.

Educational sessions, which followed the thread of recent outbreaks and new regulations, focusing on prevention rather than reaction, included “Novovirus: Managing Risk of Foodborne Viruses,” sponsored by Ecolab Inc., and “Why GFSI [Global Food Safety Initiative], Why FSMA and Why Now?,” hosted by McDonald’s Corp. and Wholesome International (which runs franchised Five Guys Holdings Inc. Five Guys Burgers and Fries stores in the Northeast, and Choolaah, a new fast-casual Indian concept). A key takeaway from these sessions was that restaurant operators enacting stringent preventative food safety measures, especially those who go above and beyond what is required by law, are the most likely to be rewarded with improved sales and share gains. Small to midsized operators were called out (as a group; no specific companies were cited) as having the most to gain, as larger companies typically have already-well-developed safety protocols in place.

Dozens of new or updated food-safety products were on display at the show, with two – Nemco Food Equipment Ltd.’s RinseWell and Strahman Valves Inc.’s HydroSwivel Sweeper – winning the 2016 Kitchen Innovation Awards. However, a longtime supplier source for OTR Global with a strong knowledge of “sous vide” cooking (discussed in OTR Global’s April 25 note on Chipotle) cited PolyScience Culinary’s (Breville Group Ltd.) Control Freak induction cooker as one of the strongest new products at the show. The source said the Control Freak would be great for large operators like Panera Bread Co., who require employees (often with very little culinary training) to cook delicate food products, such as eggs, that can be harmful if undercooked but also are easily overcooked. “When you are cooking something like eggs, a change in temperature of even one degree can make a big difference in how long it takes to cook the product properly – so that it is cooked enough to be safe, but not overcooked and rubbery. But in a lot of restaurants they are cooking with flame or a hotplate where just a small adjustment can increase or decrease the temperature by 60 degrees, so it is very hard to get a consistent product, especially if you are a larger chain with normal [employee] turnover. Imagine if a Panera had [the Control Freak induction cooker]. They could have even the newest employees cooking their eggs at exactly the same temperature for exactly the same amount of time on every order!” he said.

EMV Liability Shift
One of the big issues for restaurant operators being discussed at the show was the “liability-shift” that took place in October associated with the transition in credit-card payment from cards with magnetic stripes (magstripe) to more secure chip-embedded “Europay MasterCard and Visa” (EMV) cards. As of Oct. 1 2015, the liability for fraudulent credit card use shifted from credit card issuers to merchants accepting chip-embedded cards. However, as of late May, many large restaurant operators, such as Brinker International Inc.’s Chili’s Grill & Bar, which runs NCR Corp.’s Aloha POS and accepts magstripe credit card payment through thousands of Ziosk LLC tabletop tablets, have yet to update their systems to allow customers to “dip” EMV cards. “That’s been a big problem for a lot of businesses lately, especially with bottle [alcohol] sales,” a POS systems supplier said. “Criminal groups have been targeting businesses that have not updated their systems. They run up thousands of dollars in charges on stolen EMV cards, and because the merchants allowed the cards to be swiped, not dipped, they are automatically liable for those charges. They can still try to bring a civil suit, but the credit card companies will not reimburse them for the charges.”

Ziosk, which recently added Darden Restaurants Inc.’s Olive Garden, Red Robin Gourmet Burgers Inc. and Uno Restaurant Holdings Corp.’s Uno Pizzeria & Grill as customers, is addressing the issue with new batteries for its Ziosk tablets. The new batteries are the same size and shape as the old batteries but include an EMV-compatible credit-card slot, as well as new chips that allows the devices to read near-field communications (NFC) and communicate with Android Pay (see OTR Global’s May 24 note on Chili’s Grill & Bar). A rep at the Ziosk booth said, “Battery technology has improved enough since we first launched the tablets that we need less than half the space for a battery that lasts just as long or longer than the original. So we kept the shape of the original battery and are using the extra space for the EMV credit-card slot and an NFC chip for communicating with Android Pay.” The rep did not discuss what the cost to Chili’s or other operators would be to replace the batteries but noted it is a cost all operators with older systems (accepting credit cards) are dealing with.

Implications from “Joint Employer” Lawsuit
In OTR Global’s May 11 snapshot looking at potential implications in the restaurant industry related to the National Labor Relations Board (NLRB)/McDonald’s “joint-employer” lawsuit, labor-scheduling software companies were identified as a group vulnerable to changes already taking place in the franchisor/franchisee model. But little concern or even awareness about the lawsuit was noted in discussions with representatives from several labor-scheduling and full-service POS solutions providers, such as Red Book Connect LLC's HotSchedules, Squirrel Systems Inc. and NCR. “What is the McDonald’s join-employer lawsuit?” one said. Another suggested the joint-employer issue may not be registering for many solutions providers at the moment because other issues – particularly rising minimum wages and recently passed overtime regulations (see OTR Global’s April 5 snapshot) – are front and center. “Most of the conversations we are having right now are with companies concerned about managing rising wages and being in compliance with new regulations,” he said.

However, the joint-employer issue may start to come into focus for more franchisors and franchisees in the coming months. On Tuesday, the New York attorney general sued Domino’s Pizza Inc., alleging it was liable as a joint employer for alleged underpayment of employees by one of its franchisees.