A conversation with Zingerman’s Ari Weinzweig

By Mary Ellen Slayter on October 17, 2011

Ari Weinzweig co-founded Zingerman’s Delicatessen in 1982 with a $20,000 bank loan. Today, the company is an Ann Arbor institution, and Weinzweig has branched out into a number of other businesses. We approached him recently to learn more about his leadership philosophy and his approach to innovation.

Describe your leadership philosophy.

There are many elements to it, but above and beyond all else, it’s centered around Servant Leadership. It’s the philosophy we learned from reading the work of Robert Greenleaf. The approach is based on the belief that our responsibility as leaders, first and foremost, is to serve the organization, not the other way around. One key element of it here is that it means that we—the leaders—view the staff as our customers. We need to give them great service every day to the people who work in our organization. The service that the staff gives to our front line customers will never be better than the service we give to them.

When you’re looking to hire, how do you decide if someone is right for your team?

There’s a wealth of ways to explore an applicant’s potential in the organization. But the most important issue for us is really values alignment. Obviously people need to be able to do the specific work at hand—baking, making sandwiches, marketing, etc. But the most important thing is do they share our values? Are they eager to learn, to work collaboratively, to give amazing service to everyone they interact with, to bring positive energy to work every day, etc.?

What is the biggest challenge your business is facing this year?

I think they’re pretty much the same challenges as every other year really. To continue to improve in every area of our work—to make our food better, our service better, to improve the quality of our workplace, to continue to develop our financial health, to live our values effectively every day. It’s hard to do but that’s the work.

Describe your approach to innovation.

I don’t think we have one actually. It’s interesting because we have highly developed approaches in writing and woven into our training work for almost everything else—we have “recipes” for giving great service, handling complaints, doing visioning, setting up training, tasting food, order accuracy, great finance, etc. Because the way we work—our food, our approach to organizational life, etc—is so different than the way others work, over the last few years we’ve had a fair few requests through ZingTrain (our training and consulting business) for me to present on our approach to innovation.

At first I was a bit stumped, feeling badly because we didn’t have a formal system for innovation. But after reflecting on the subject for a bit, I realized that innovation for us is just what we do. It’s so much part of everyone’s work here every day that we don’t need any formal “program” or policy on innovation and improvement is implicit in every “recipe” we have, in every process, and in everyone’s day to day activity. Everyone here is learning to lead, to run a sustainable business, to improve the quality of what we do.

For us, I think innovation is basically like showing up for work—you just get here and, in essence, it’s just part of what you do all day, just like smiling and greeting customers, checking quality, going the extra mile for coworkers, etc. In fact, I almost can’t imagine working without it. My belief is that most people are innovative and creative. I just think that they’re put into organizational settings in which they’re trained to turn their creativity off and do what they’re told to do. It’s a big loss for the country.

Outside of your own industry, whose work do you admire most?

I’ve already mentioned Robert Greenleaf. Peter Drucker and Edgar Schein also wrote some extremely helpful and insightful books about leadership. Brenda Ueland’s book on writing from 1938—“If You Want to Write”—was hugely inspiring. I’m also learning a lot from a number of the 19th and early 20th century anarchists. Emma Goldman had some pretty powerful things to say. Honestly I admire pretty much everyone who goes into whatever they do—parenting, business, sports, bussing tables, shining shoes, music, art—trying to do great things every day, and do it in a way that’s caring, kind and contributing positively to those around them.

If a recent college grad came to you and said he wanted to start his own business, what advice would you give him?

Without question I’d tell him—or her—to start by writing a vision of greatness. Visioning is a huge piece of what we do here at Zingerman’s. The vision is a picture of what success will look when you get to where you’re going at a particular point in the future. It’s got a good bit of detail—it’s a rich picture of what that future looks like, with plenty of detail about how big your business is, what you’re known for, what the people who work in it think about their jobs, how the community views you. It’s hugely helpful to do a personal piece as well—getting clear about how you feel about your work, what sort of work you do, how much money you make, how much you work, etc. is really valuable to know before you start.

There are no “right” or “wrong” visions—but if you’re not clear on where you’re going it’s pretty unlikely that you’re going to get to where you want be. A vision is not the same as a strategic plan. We do those too. But the vision is where you’re going; the strategic plan is how you’re going to get there.

The Best Job Interview Questions You Should Ask

Posted on September 8, 2011 by Seth

If you would have asked me the answer to the question contained in the title to this article in the year 2000, you would have received a confident “command” response. I was fresh out of my 4 year stint in the military and was thoroughly ingrained with the chain of command do as I say mentality. I knew how to take orders and felt anyone in a position below me should know how to obey orders.

Over the past 11 years I have had a great deal of time to grow into a more mature outlook. I have learned that while there are times when command is necessary, more often than not coaching will help me to get further with my team members. In return the team members being coached are not dejected as a result of being chided, and I am able to give them the reasons why certain processes are used.

As I sit here writing this post I have just realized I actually used both of these methods today. This morning I arrived at a store to drop a few items off and talk to a manager about some cash handling issues. Upon a bit of investigation I revealed several deposits in the location that should have already been deposited. I lost it. I have not really freaked out on anyone in a long time, but today was one of those epic moments. I used language I shouldn’t have, and continued on for several minutes. I finally stopped and asked the manager if he understood why I was so upset and the reasons that this issue should not occur. He acknowledged my concerns and promptly left for the bank.

Later this afternoon, I had the opposite experience. I received a text message from district manager stating she had to take tomorrow off due to feeling that she was going to have a nervous breakdown. I called her to figure out the issue and found that she was trying to handle many issues at one time without the consultation of any peers or superiors. I took the time to explain to her that it is my job to help her deal with the issues she is having and she has to call me. This will help her to decompress occasionally which will in turn keep her slightly less stressed.

Do I think each situation was handled correctly? I could go either way. I do not feel my reaction to the bank issue was completely warranted, but I did have to make a point. This was a serious issue and I wanted to ensure he would handle it as such in the future. As for the DM, I do believe this was handled appropriately. If you are of a different opinion I would love to hear it.

Thanks….Seth

“Who does she think she is?”

I’m sure that ran across your mind as you read my headline.

“We pay good money to agency recruiters! THEY should be asking the question…How to provide a great service to US!”
Believe me, we think about that all the time. Most of us are consumed by that question! We have attended dozens of motivational seminars, logged multiple webinars, and read countless books on how to provide a great value to our clients.

In spite of our earnest endeavors, however, frustration can develop in the Recruiter/Client relationship. Maybe you consider us over-enthusiastic. Or not enough. Maybe you hear from us every day. Then we disappear. Maybe it seems we aren’t acting with urgency. Maybe we ask “Why?” a little more than you’d like. You don’t want to completely sever the relationship with us, because the next candidate we provide could be your next hire! But we are doing things you consider perplexing.

I believe I can help you with that. I recently surveyed Third Party Contingency Recruiters with multiple agencies, in several markets, and across various disciplines…and I captured their thoughts on relationships with clients. It’s a glimpse into the world of the Agency Recruiter. It is my hope that reading a sampling of their answers below could only strengthen the bond between you and those you choose to work with.

It’s no secret that we Recruiters are handling multiple positions with multiple companies in a given time period. And it’s also no secret that some of our clients get the red carpet treatment, while others don’t. So I asked my Survey Group…”What motivates you to give certain clients 110%?” Surprisingly enough, the answer was *not* “the client who pays the best fee.” Instead…

-A client who views, and treats me as a partner, not a vendor or commodity.
-A client who works with me exclusively or as part of a very limited number of recruiting firms.
-A client who takes the time to get to know my background and qualifications.
-A client who listens to me when I say to them: “Just trust me. Even though this resume is not your ideal profile, I believe you need to interview this person.”
-A client who gives me repeat business…of course when I’ve earned it.
-A client with a consistent message…rather than changing their position regularly.
-A client who continues to communicate as they move our candidates through the interview stages, and provides honest feedback.

So I followed up with this question: How does a client fall into disfavor with you?

-When the client sends out mass emails to a dozen different recruiting firms with their needs list. It signals that I’m just a vendor to these companies, and not a partner in talent acquisition.
-When they only want to communicate via email, and never by phone. This doesn’t permit me to ask relevant questions about their projects and get a ready answer.
-When they take a pass on my candidates and will not explain why. I need this information so that I may redirect my search or narrow my focus.
-When they give me “urgent” job orders. Then they take several weeks to schedule interviews with my candidates. I worked extra hours to respond to this “urgent” need. What changed?
-When they give us a job order, interview our candidates, and decide to fill the position internally. We are willing to accept that our candidates may not have been as good as their internal. However, we also suspect we are being used to “comparison shop.” That’s not fair.
-When the client changes the criteria of the job order so many times, it feels like a moving target.

So then I became even bolder, and asked my Survey Group: “What one thing do you want a client to know…but are a little scared to tell them?”

-Don’t ask us for a discount without a reason. If you want a certain amount, or percentage off my going rate, be willing to agree to an exclusive. Or volume orders.
-We are inclined to give priority to clients who use us frequently and take our work seriously.
-If you ask for a dramatically reduced fee arrangement, and if I agree to it, you will not get the best talent in the market from me. The best candidates will be directed to clients who honor the work I do with a fair rate.
-There’s no reason not to return my messages. I am working for free out here, until I find the right candidate for you. The least you can do is return my calls.

I turned the tables on my Survey Group, by asking them to take some responsibility for client relationships that have gone awry. So I posed this question: “What one thing did you do to a client that you regret?

-Didn’t return their calls/messages quickly enough. They found another recruiter who did.
-Didn’t cover the search adequately, and the client found their candidate on their own.
-Didn’t respond with urgency. I thought I had the exclusive and all the time in the world.
-Didn’t replace candidates who had been eliminated from the search with more candidates. I thought I had my superstars the first time.
-Didn’t check in on my client after submitting four candidates. Just thought he/she could take it from there.
-Tried to read the client’s mind. I should have just called or emailed and asked the question.
-Wasn’t sensitive to the hiring authority’s schedule and demands. I kept calling him in the middle of the day when he was busiest and couldn’t concentrate. I should have asked which time of the day worked best, or set up a standing appointment.

People get fired every day. It’s not often when a Recruiter fires their Client, but it does happen! So I asked my Survey Group, “Have you ever fired a client, and why?”

-I caught my client in a mistruth more than once. I couldn’t trust them after that.
-The client was passing on my candidates. I found out a year later that they were called directly and hired outright.
-The client was looking for ways to avoid paying my invoice. Gave me a lot of excuses.
-The client waited a whole year to pay the invoice. We had to call collections.
-The client didn’t disclose to me that they had already known about my candidate. But they watched me go through the process, scheduling interviews, checking references, negotiating the package, without this disclosure. And in the end, I was told I would not be paid for the placement.
-Never making the hire. The client gave us multiple positions to fill. Lots of talking and talking. But no traction. No results.

I acknowledge that I have shone a light on very real and very raw observations and experiences of a sample group of Third Party Contingency Recruiters. And after reading this, you might be tempted to wave the white flag, retreat to the corporate office, and just do this recruiting thing yourself.

That was not the intention. You just got a rare glimpse into the world of the Agency Recruiter. Now you know how we tick, and how your behavior can affect our results. Therefore, I encourage you to continue to use our services, and remind yourself why you originally engaged us in your recruiting efforts. Your reasons will likely match the answers to my Survey Group’s final question: “What value do we provide our clients?”

-We give our clients their jobs back! When they are not screening, scheduling, checking references, networking, and asking for referrals, they are attending to the rest of their responsibilities. Let us do the footwork!
-During the recession, Human Resource Departments were decimated. But Recruiting real talent cannot stop. View us an extension of your HR Division!
-We provide industry (or market) specialization, and a network to go with it! What may take the client months to place…we might be able to accomplish within weeks.
-Empty positions cost a company money and customer loyalty! Rather than settling for someone that you could find in a short time…use a Recruiter to produce a larger selection of qualified and interested candidates.
-If the client is uncomfortable calling desirable employees from their competitors, reach out to me! I’ll do the calling!
-If the client is at the end of his/her rope…and if they’ve looked everywhere for the perfect candidate…
I might be the solution! I might be aware of the person for which you have been combing the earth!

Dr. Henry Cloud on “Necessary Endings”

By Ruchira Agrawal

The times we live in today are very different from just 10 years ago. Job security and staying in the same career for your entire life are almost a thing of the past. Most people will change careers between 5-7 times in their lifetime according to recent studies.

Why would someone want to change or reinvent their career?
1.Losing enthusiasm for the work – After you spend a number of years working in one field, you begin to feel a loss of connection with your work. This sometimes happens with high-achievers
2.Need for personal fulfillment – Your work just doesn’t feed your soul; it doesn’t bring any fulfillment or satisfaction. You may be good at it but it doesn’t align with who you are. This mostly happens around mid-life for people.
3.Personal aspirations aren’t aligned with work anymore – People grow and change and so do their desires, goals and aspirations. Ten years ago, perhaps something else was important and now your needs have changed. Work can then starts to become a barrier rather than providing fulfillment.
4.Circumstances – Perhaps the industry you were involved is stagnating or even dying. Or you have crossed a certain age and jobs are tough to come by. Circumstances such as these may also put somebody in a position where they think about reinventing their career.

Reinventing your career is really about your personal journey of self-discovery. Whatever your reason for wanting to make a change, the desire to do it must come from within. The desire to take charge of your career and life should be there as well.

Here are 6 important steps to bear in mind that will give you a head start:

An open mind – An open mind–like a blank slate with no pre-conceived notion of what you can or cannot do–serves very well as you look for a career that’s new and different. Explore your options by reading about them and talking to people, try to just absorb everything instead of judging things right away. Don’t be afraid of the “New”. This will help you expand your mindset.

What will I be when I grow up – If you had a childhood dream, something that you always wanted to do and couldn’t, this is a time to connect with it.

Passion, abilities, needs and values – Often running our lives on auto-pilot, we forget what our interests are, and this is a great time to remember them. What really grabs your interest? The best way to reinvent your career is to first discover what you really want to do and then excel in it by becoming good at it. Pay attention to everyday things and events however miniscule they may seem–your answer may be hidden there. Do people come to you for advice automatically? Are you good at organizing things neatly and effectively and love working with people? There could be things you are already doing and enjoying, but you may not have paid attention.

Don’t forget to use your intuition – Your intuition is such a versatile tool and it can be easily used in both personal and professional situations. As you are trying to look for answers, let your instincts guide you.

Applying the same discipline as your corporate job – Once you’ve identified what you would like to do, start learning so you can move into it. Don’t be afraid to take courses or get help from experts in the industry. Speak to those who have already blazed the trail before you.

Fear is not your friend – Once you’ve identified your likely choices, then it’s time to take action. This can be frightening and often makes people freeze and stay in one place. You have to identify your fears – failure, the unknown, and so forth, and realize that they are not realistic. It’s true that there is no guarantee for the future but that shouldn’t stop you from taking forward steps.

Change and reinvention should be an exciting prospect as you are looking towards your bright future.

By Dee Adams

If you’ve ever dreamed about starting your own business, you are not alone. There were almost 9 million self-employed workers in 2010, according to statistics compiled by Challenger, Gray, & Christmas. Each year, a percentage of the workforce trades in their 9-5 jobs for the entrepreneurial life, but some workers start a sideline business to supplement their salaries.

Business startup cuts across all socio-economic groups; from managers, executives, and professionals to blue collar workers. Success stories include:
•A Harvard graduate with a degree in mathematics and economics who left management consulting to pursue her passion for desserts. She started a bakery and Café, and began writing cookbooks.
•A Ph.D. in political science from University of Chicago who opened a motorcycle repair shop. He wrote a book about the value of working with one’s hands.
• A web designer and consultant fired from her job because of her personal blogging. She built a lucrative home-based empire with her mommy blog.
•A firefighter who invented better fire safety equipment for the consumer and industrial marketplace, and created a multimillion-dollar venture.

But, for many other would-be entrepreneurs finding the right startup is challenging.

Many issues may cloud the process, and certain questions asked and answered in the pre-planning stage can pinpoint conflicts and problems, and their solutions.

Here are several important questions:

Do you know how many aptitudes you possess?
Aptitudes are inborn natural talents and should not be confused with acquired skills. Each person has an average of six innate skills, some unused and some hidden.

While a percentage of the population may be able to determine their own aptitudes by self-assessment, most people are not aware of their full potential, according to writer Margaret Broadley. Over a 40 year period, Broadley documented the work of the Johnson O’Connor Research Foundation, a nonprofit organization specializing in the scientific research of human abilities.

What are your least favorite skills?
Create a checklist of work tasks that you dislike and have trouble executing.

What feels more comfortable, introverted or extroverted personality traits?
Make a checklist of your actual patterns of behavior in work and social interactions, not what you believe your traits are.

Note: Some people adapt their personalities in order to fit into social or working situations and may have an opposite personality from the traits that they often exhibit.

What is your motivation for choosing self-employment?
Using a single sentence, describe why you want to be your own boss.

What is your history with money?
Your money history includes your family’s relationship with financial issues, the messages you learned as a child, and your pattern of behavior and attitude toward money as an adult, which may be reflected in your current credit history.

Summarize your answer in two or three short sentences.

Socio-economic factors, like the state of the economy, the ability to borrow money, or to easily relocate have an impact on the number of people who pursue entrepreneurship each year, but many aspiring entrepreneurs ignore national economic trends in pursuit of their dreams. Those who succeed keep their risks low, and instinctively review their personal development homework beforehand.

What other issues are standing in your way?

By Michael Neece, Monster Contributing Writer

1. Confusing an Interview with an Interrogation
Most candidates expect to be interrogated. An interrogation occurs when one person asks all the questions and the other gives the answers. An interview is a business conversation in which both people ask and respond to questions. Candidates who expect to be interrogated avoid asking questions, leaving the interviewer in the role of reluctant interrogator.

2. Making a So-Called Weakness Seem Positive
Interviewers frequently ask candidates, “What are your weaknesses?” Conventional interview wisdom dictates that you highlight a weakness like “I’m a perfectionist,” and turn it into a positive. Interviewers are not impressed, because they’ve probably heard the same answer a hundred times. If you are asked this question, highlight a skill that you wish to improve upon and describe what you are doing to enhance your skill in this area. Interviewers don’t care what your weaknesses are. They want to see how you handle the question and what your answer indicates about you.

3. Failing to Ask Questions
Every interview concludes with the interviewer asking if you have any questions. The worst thing to say is that you have no questions. Having no questions prepared indicates you are not interested and not prepared. Interviewers are more impressed by the questions you ask than the selling points you try to make. Before each interview, make a list of five questions you will ask. “I think a good question is, ‘Can you tell me about your career?’” says Kent Kirch, director of global recruiting at Deloitte. “Everybody likes to talk about themselves, so you’re probably pretty safe asking that question.”

4. Researching the Company But Not Yourself
Candidates intellectually prepare by researching the company. Most job seekers do not research themselves by taking inventory of their experience, knowledge and skills. Formulating a list of accomplishments prepares you to immediately respond to any question about your experience. You must be prepared to discuss any part of your background. Creating your talent inventory refreshes your memory and helps you immediately remember experiences you would otherwise have forgotten during the interview.

5. Leaving Your Cellphone On
We may live in a wired, always-available society, but a ringing cellphone is not appropriate for an interview. Turn it off before you enter the company.

6. Waiting for a Call
Time is your enemy after the interview. After you send a thank-you letter to every interviewer, follow up a couple of days later with either a question or additional information. Try to contact the person who can hire you, and assume that everyone you met with has some say in the process. Additional information can be details about your talents, a recent competitor’s press release or industry trends. Your intention is to keep everyone’s memory of you fresh.

Zacks Equity Research, On Thursday July 28, 2011, 4:10 pm EDT

The restaurant industry is finally showing improvements and seems poised for long-term growth. Riding on the back of a slowly reviving U.S. economy and the consequent rise in comparable-store sales, restaurant operators have managed to post improved results in recent months. We expect restaurant companies to continue delivering better numbers in the upcoming quarter over the year-earlier period.

In second quarter 2011, most big names in the industry outperformed the Zacks Consensus estimates. More good news came from the NPD foodservice market research report, which stated that annual visits to restaurants are expected to increase by 8% over the next ten years.

A recent survey by the National Restaurant Association revealed that the Restaurant Performance Index (RPI), measuring the health and outlook on the U.S. restaurant industry, was 99.9 in May, down 1.0% from April. The slowdown in May was temporary.

For the first time in six months, the RPI stood below 100 in the month. The RPI run-rate in the last six months connotes improvements in same-store sales and customer traffic.

The Current Situation Index, which measures comparable-store sales, traffic counts, labor costs and capital expenditures in the restaurant industry was 99.2 in May, down 1.1% from April. The Expectations Index, which measures restaurant operators’ six-month outlook on the above indicators, stood at 100.6, down from 101.5 in the prior month. Restaurant operators’ capital spending plans are also on the rise, reaffirming their optimistic outlook on the industry.

Going Forward

Looking ahead, we see solid top-line trends. We believe well-positioned companies will drive above-average traffic trends and enjoy pricing power, leading to same-store sales increases in 2011. The economy is continuing to improve, albeit at a modestly lower rate, but a sluggish labor market, over-supply of restaurants in the industry, higher gasoline prices and food cost inflation may weigh on industry profitability.

Restaurants have been trying to win back cash-conscious guests by revamping promotions, offering discounts and focusing on value-for-meal menus. However, the tendency to offer discounts has been moderating. We remain cautiously optimistic over the near-to-medium term, with consumers continuing to look for value, distinct dining experiences, as well as convenience and enhanced menu deals in a gradually improving economic backdrop.

Drivers of the Restaurant Industry

The U.S. restaurant industry consists of Quick Service Restaurants (QSR), Midscale Restaurants, Casual Dining, Non-Commercial and Fine Dining/Upscale restaurants.

In the midst of what is considered to be a moderate recovery, there are three potential drivers of net income growth for the restaurant industry: unit expansion, same-store sales, cost-containment efforts and marketing tools.

Unit Expansion: Emerging from a lackluster economy, most of the companies have accelerated their pace of restaurant openings. With the expected recovery in consumer confidence, companies are turning back to unit expansion, though not aggressively.

BJ’s Restaurants Inc. (NasdaqGS: BJRI – News) plans to open 12 to 13 restaurants in fiscal 2011 compared with 10 restaurants in fiscal 2010. In the long run, there still exists room to open at least 300 outlets. Chipotle Mexican Grill Inc. (NYSE: CMG – News) plans to open 135–145 new restaurants in 2011, maintaining a growth rate of 13%.

In fact, the companies are set to explore international markets. While Chipotle is primarily concentrating on European countries including U.K., Germany and France, Buffalo Wild Wings Inc. (NasdaqGS: BWLD – News) will expand its overseas footprint by opening more than 50 company-owned and franchised restaurants in Canada over the next 5 years. Another restaurant, P.F. Chang’s China Bistro Inc. (NasdaqGS: PFCB – News) has also eyed the Canadian market.

Darden Restaurants Inc. (NYSE: DRI – News) announced a formal area development agreement with Americana Group to spread its operations in the Middle East. Several food chains including Denny’s Corp. (NasdaqCM: DENN), Pollo Tropical of Carrols Restaurant (NasdaqGM: TAST – News) and Starbucks Corporation (NasdaqGS: SBUX – News) intend to tap the fast-growing Indian market.

McDonald’s Corp. (NYSE: MCD – News) and Yum! Brands Inc. (NYSE: YUM – News) already have considerable coverage in India. Companies like Yum! Brands and McDonald’s are aggressively expanding in China to capitalize on the fast-paced economic growth in Asia.

Same-Store Sales: The second driver consists of menu price increases and traffic counts. Restaurant operators reported positive same-store sales and customer traffic growth in recent months. Growth in menu price has accelerated, as per figures from the Bureau of Labor Statistics.

Cost-Containment Efforts: Some cost cuts have been achieved through integrated information systems, including point-of-sale, automated kitchen display, labor-scheduling and theoretical food cost systems.

Marketing Tools: Social media as a marketing tool has created ripples in the industry. As per National Restaurant Association, 8 out of 10 operators support the view that social media will become an important marketing tool in the future. Hence, they are likely to incorporate Facebook, online review sites, Twitter and blogs into their marketing mix over the next two years.

OPPORTUNITIES

With the economic outlook improving, the fortunes of a number of industry players have turned around. These companies promise long-term growth opportunities:

Buffalo Wild Wings (NasdaqGS: BWLD – News) offers investors one of the strongest growth stories in this space. Buffalo Wild Wings had also been able to consistently deliver positive comps during the height of market turmoil.

With consistent earnings and a healthy balance sheet, McDonald’s (NYSE: MCD – News) provides relative safety and moderate growth opportunities in the current scenario, as well as exposure to faster-growing international markets. McDonald’s U.S. comparable-store sales have been showing continued uptrend since the last few months on strong sales of beverage as well as core menu products.

Boasting a unique position in the hyper-competitive bar and grill segment, yet another stock, BJ’s Restaurants (NasdaqGS: BJRI – News) offers investors a strong growth story with a viable business strategy and debt-free balance sheet. The company delivered impressive second quarter results in terms of earnings per share and same-store sales growth.

Improved Californian Market

The core California market, which was badly hit by the recession resulted in a high rate of unemployment and weak consumer confidence, has started to turn around. We see plenty of growth opportunities in the California and Texas markets. BJ’s Restaurants and Red Robin Gourmet Burgers Inc. (NasdaqGS: RRGB – News) are expanding rapidly in California.

Job Growth in the Sector

The restaurant industry is the major contributor to job growth in the U.S. According to the National Restaurant Association, Texas and Florida will likely show the strongest job growth over the next 10 years.

Remodels and Menu Innovations Remain Key to Success

Additionally, restaurants are accessing different means to plug the problems of heightened competition in a somewhat over-supplied domestic market. Companies continue to reduce their energy consumption and are remodeling their restaurants to give an up-market feel. They are rolling out new, smaller prototypes to augment the perception of value and drive traffic thereby reducing construction and occupancy costs to enhance returns on capital.

While Darden has embarked on an extensive remodeling plan for its core brands like Olive Garden and Red Lobster to spur their same-store sales, Chipotle Mexican Grill is introducing typical Southeast Asian cuisine coupled with naturally raised food, for which it is well known.

The introduction of small plates or individual appetizers by several chains such as California Pizza Kitchen, BJ’s Restaurants and Buffalo Wild Wings has already tasted success. Limited Time Offers are also on the rise following the success of Buffalo Wild Wings and Red Robin Gourmet Burgers.

Franchise-Driven Business Model

Most of the companies are transforming to more a franchise-centric model to reduce the volatility in earnings and increase cash flow generation. However, Panera Bread Co. (NasdaqGS: PNRA – News) is slightly more inclined toward company-owned unit openings, which speaks to the company’s fundamental strength and makes us optimistic on the stock.

Breakfast Menus a Key Driver

Breakfast has accounted for nearly 60% of the U.S. restaurant industry and remains a key driver of traffic growth in recent years. Over the past five years, morning meal traffic has increased at an average rate of 2% per year, while lunch visits were flat, and supper traffic declined 2% per year on average.

We can thereby conclude that growth potential remains mainly in the QSR markets. Leveraging the trend, The Wendy’s Company (NYSE: WEN – News) has expedited its breakfast menu in different markets. The company targets to have about 1,000 restaurants serving its new breakfast by the end of this year.

According to an analysis by NPD, which has a ten-year projection of foodservice trends based on aging, population growth and trend momentum, servings of breakfast sandwiches are projected to outpace the industry’s growth forecast. Annual servings per capita of breakfast sandwiches at foodservice are expected to jump from 11 in 2004 to 14 in 2019.

Currently, there are a number of stocks in the restaurant industry universe with a Zacks #2 Rank (short-term Buy rating). These include BJ’s Restaurants, Buffalo Wild Wings, Chipotle, Darden, McDonald’s.

WEAKNESSES

Higher Food and Gasoline Prices

Food costs account for about one-third of restaurant sales. Wholesale food prices have been on the rise this year. Prices of corn, wheat, coffee and other commodities have also trended up, mainly due to a decline in the U.S. and Russian production prospects, compelling many restaurants to raise prices on some of their products.

The companies are expecting industry-wide increases in commodity and energy costs for fiscal 2012 as well. Dairy and beef prices witnessed a steep rise on a year-over-year basis.

With more expensive food and a spike in gasoline prices, people will have less disposable income and will prefer to dine at home. In our opinion, most of the restaurants will try to safeguard their margins by passing the cost increases to consumers. While big and established chains like McDonald’s, Yum! and Starbucks will survive the price increases due to their broad customer base and larger economies of scale, smaller chains will feel the heat of rising commodity costs.

Steep Competition and Promotional Offers

Competition among casual dining restaurants is expected to remain fierce with respect to price, service, location and concept in order to drive traffic. The environment is still value-sensitive. High discount rates applied to menu prices in order to battle difficult economic conditions are resulting in price wars among competitor companies.

Hence, the failure of any promotional offer will put pressure on the company’s same-restaurant sales growth. Dishes featured in the Olive Garden promotion from February to May failed to be accretive to Darden’s growth, for instance.

Shutdown of Regional Restaurant Chains

A large number of independent U.S. restaurant units fell victims to the downturn, while chain restaurants did relatively better. Large national chains, which attract mainly higher-income visitors, are performing better than regional restaurants as upscale-customers are recovering faster than the lower-income group.

Lag in Traffic Growth Barring Fast Casual Restaurants

According to a recent NPD foodservice market research report, visits to the leading fast casual restaurant chains grew 17% over the last three years while the rest of the industry experienced its steepest traffic declines. However, fast casual unit availability increased 12% since 2007.

Visits to the leading fast casual restaurant chains like Chipotle and Panera were up 6% for the year ending December 2010 versus a year ago. This compares with a 1% decline in total industry visits for the same time period.

Given the lack of overall earnings catalysts, it is difficult to be enthusiastic about a number of restaurant stocks. There are still quite a few names that lack the earnings catalysts of their better positioned peers. These include Brinker International Inc. (NYSE: EAT – News), Yum!, The Cheesecake Factory Inc. (NasdaqGS: CAKE – News), Einstein Noah Restaurant Group Inc. (NasdaqGM: BAGL – News) and Domino’s Pizza Inc. (NYSE: DPZ – News), all of which retain the Zacks #3 Rank (short-term Hold). Jamba Inc. (NasdaqGM: JMBA – News) and Denny’s (NasdaqCM: DENN) retain the Zacks #4 Rank (short-term Sell).

Conclusion

The restaurant industry is not immune to uncertainties in the macro economy. Companies appear to be in a good position to take advantage of an improved economy as evident from their capital budgets. Easy comparisons from the prior year will likely place this year’s performance in a favorable light.

On the consumer front, while they were previously struggling

By Liz Goodwin | The Lookout – 3 hrs ago

A study by the National Employment Law Project finds that middle-wage jobs–those that pay between $13 and $20 an hour–have been the biggest casualty of the recession. This year’s job market has 8.4 percent fewer jobs in that pay range than existed prior to the onset of the crash in 2008.

This is leading to an “hourglass economy,” the researchers write, with disproportionate numbers of Americans finding themselves at the top or bottom of the wage scale.

Most of the job growth since the recession has been in low-wage jobs, which shot up 3.2 percent in 2010, even as real wages for those workers have declined. The researchers say “retail salespersons, office clerks, cashiers, food preparation workers and stock clerks” have seen the fastest growth in available positions.

The economy has seen a 4 percent drop in higher wage jobs (those paying between $20 and $53 an hour) and a .3 percent decline in low-wage jobs since early 2008. But those wage sectors have still sustained a better recovery than mid-wage jobs have.

The lag actually pre-dates the ’08 collapse, researchers say, with mid-wage occupations such as machinists and pre-school teachers growing at a markedly slower pace than higher-wage and lower-wage jobs did. “Growing wage inequality in the United States is a phenomenon that’s three decades in the making, and which the recession