KPBS anchor Ebone Monet and SDSU marketing lecturer Miro Copic discuss some of the week’s top business stories.
Q: 200 people are expected to lose their jobs now that San Diego based South Pacific Tuna says it's downsizing. The company blames U.S. regulations for cutting into profits. South Pacific Tuna is a major player in the industry. What will this proposed scale back mean?
RELATED: San Diego-based tuna company selling boats, blames U.S. regulations
A: It's important to know that they're just selling the boats to other tuna operations from other countries like China, the Philippines, and South Korea. So the amount of tuna that's going to be fished is going to be the same, but it still takes 70,000 tons of U.S. fished tuna out of the market. One of the issues that they say is government regulations. What these regulations do, they're focused on sustainability and labor practices. A lot of countries don't follow the same rules. Even though there are international treaties, they don't follow the same rules.
But the real issue, in this case, is not just the regulatory side, which has an impact, but the economic. So there are four things that have happened in the last couple of years that really made it hard for tuna fishermen to make money. First of all, the price of tuna has gone down by 50% per pound. So that makes it very hard if your labor costs are high when the price per pound goes down that far. Second, fuel costs have gone up substantially. Third, the fees to fish in really good waters especially in the South Pacific have gone up a lot. Everyone has to pay those fees regardless. And the last thing is our competitors, the competitors to the South Pacific Tuna, they have newer boats. They have better fuel efficiency, more capacity for the tuna they carry. So it makes it very hard for tuna operators to be successful in this in this market, which is very sad.
Q: Jack in the box just this week completed a $1.3 billion refinancing. Now company leaders say they're no longer looking for a new buyer. What's the overall status of the company's restructuring?
RELATED: Jack in the Box completes $1.3 billion refinancing
A: I think they, in this case, are more just buying some time. Just a quick recap: last fall, the franchisees almost unanimously had a vote of no confidence of the CEO Leonard Comma. At the same time, activists investors led by Jana Partners bought 5% of the company and we're going to go into a proxy takeover fight. And so what Jack in the Box management did is they said “look, we'll do this strategic review”—which they completed in the spring—“and we'll give Jana Partners two board seats in on the Jack in the Box board.” When they found no buyer, they got this refinancing to retire expensive debt—that leaves them about $300 million for operations. They haven't decided whether it's going to go to operations to improve marketing, or whether they're going to buy back the stock. The only people who are going to benefit from buying back the stock are Jana Partners—if they decide to leave after making some good profits. So right now the management team has its work cut out for them in a very competitive quick-service market.
Q: McDonald's franchisees say they want a premium chicken sandwich like Chick-fil-A. With McDonald's being so much bigger than Chick-fil-A with locations across the world why would franchisees want to follow the lead of Chick-fil-A?
A: There's only 2,000 Chick-fil-A's. There are 14,000 McDonald's restaurants, but every place where McDonald's franchisees are finding Chick-fil-A competition they're losing the chicken sandwich battle. Chick-fil-A sandwiches are superior. McDonald's just doesn't have a premium chicken sandwich. Franchisees are finally upset at McDonald's.
So McDonald's just followed a two-prong strategy. They've tried to go upscale. They had all these franchisees invest in technology for these new artisan burgers that they discontinued a few months ago. At the same time, they did a lot of discounting and took the most profitable item that the franchisees have, which is soda, and it made it $1 for each soda instead of different prices for different sizes. So franchises are finally saying "before Chick-fil-A becomes a real issue let's address it right now." McDonald's is going to launch some new chicken items in the fall: spicy chicken sandwiches and spicy chicken McNuggets. They're testing a Southern Chicken Sandwich similar to Chick-fil-A. We'll see how they do, but they're finding listening to the franchisees.
