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Dear Regal theaters: It’s the customers, stupid

Dear Regal theaters: It’s the customers, stupid

Last updated on: April 24, 2013 at 4:11 pm by Fred Clark

Dear Regal theaters: It’s the customers, stupid 2013-04-24T16:11:03-04:00 Fred Clark

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Regal Entertainment Group — the corporation that runs the Regal theater chain — employs corporate accountants. It needs to hire some economists.

Company accountants can keep track of the company’s books. That’s useful and important, but if it becomes the only thing the company looks at, then it becomes profoundly misleading. Not only will the company fail to see the bigger picture and the bigger context, but they’ll have a distorted picture of even the company balance sheet over which they’re obsessing.

This is why Regal Entertainment Group is mistakenly freaking out about health care reform:

Several major companies in the fast food and service industries have dug in their heels against Obamacare, deciding that they would rather protect their bottom lines than provide their employees basic health benefits. On Monday, Regal Entertainment Group — which operates Regal Cinemas, Edwards Theaters, and United Artists screens in 38 states — joined the war on health reform, announcing it will cut back non-salaried workers’ shifts to 30 hours per week in order to avoid giving them basic coverage.

The theater chain claims that it is simply trying to “manage [its] budget … in accordance with business needs.”

That’s the kind of dumb move that comes, in part, from listening to accountants without also listening to economists. The myopic bean-counters in Regal’s corporate accounting department saw the basic health benefits in health care reform as a new expense for the company and only as a new expense for the company. Thus, for Regal, the Affordable Care Act came to be viewed as a law that has one and only one effect on Regal’s theater chains: A slightly higher cost per-employee for the thousands of non-management workers for whom the company had previously refused to provide those basic benefits.

The workers who made these Model T Fords were paid enough that they could afford to buy Model T Fords. The people who work for Regal Entertainment can’t afford to go out to the movies.

Yes, yes of course, there’s also an obvious moral element here that Regal Entertainment Group is refusing to acknowledge. Only a company run by odious jackwagons would think that denying employees basic health care is an acceptable way to keep down costs — particularly when that company’s executives are also paying themselves lavish salaries and bonuses. But there seems to be little point in trying to reach the executives who run Regal Entertainment — or Hobby Lobby, or Darden restaurants, or any of the other chains opposing the “cost” of Obamacare — with an argument based on morality. These are morally stunted people for whom such arguments are meaningless. They attend morally stunted churches where they listen to sermons preached by morally stunted pastors and sing morally stunted praise songs to a morally stunted god.

I suppose we could try to convince them that treating their employees fairly is also in those executives’ own best interest — to recast the moral argument as a complement to their selfish pursuit of self-interest. That’s a slightly more promising approach. If convincing these folks not to be odious jackwagons is a futile endeavor, perhaps we could at least convince them that it’s in their best interest not to appear to be odious jackwagons. This is the RDL Factor.* Karoli of Crooks & Liars highlights the disastrous backlash against the theater chain from potential and/or former patrons who would prefer not to spend their entertainment dollars at Regal so long as the chain thinks denying health benefits is an acceptable way of doing business.

The anti-Regal Facebook postings Karoli samples, as well as those in this Huffington Post piece, are an expression of solidarity. That’s a Christian virtue and a Christian duty, by the way. Solidarity is not optional. Anything less is an attempt to dodge the great commandment by pretending that our neighbor is not our neighbor and that we are not our brother’s keeper.

We’ve yet to see how formal this nascent Boycott Regal movement will become. It’s possible it will grow into something that might get the attention of the chain’s executives and maybe even force them to change course. It certainly should grow into that. We’ll see.

In this post, though, I’m not mainly concerned with the futile attempt at moral persuasion or with the obligation of moral coercion. Here I just want to suggest that Obamacare might just be the best thing that’s ever happened to the Regal Entertainment Group.

Right now, all that the Regal executives can see is what their accountants see: the slight additional cost per employee that Obamacare will mean for the company. Fine. Write that down in the company ledger. Health care reform will increase the company’s costs per employee.

But if Regal execs could look beyond what their accountants see, they might notice that this is not the only thing that health care reform will do. It will also result in tens of millions of otherwise uninsured Americans getting affordable health insurance. And tens of millions more will save lots of money every year in household health-care expenses.

That’s tens of millions of potentially movie-going Americans who will now be able to afford movie tickets they would not otherwise be able to afford.

It’s the customers, stupid. Obamacare is good for Regal’s customers. And therefore Obamacare is good for Regal.

Just consider one small piece of the health reform law that has already taken effect. Millions of young adults in America have taken advantage of the law’s provision that says they can keep their health coverage under their parents plans until the age of 26. That’s millions of 18-to-26-year-old Americans with more money in their pockets.

I’m not an expert on the movie business, but my impression is that young people aged 18-26 are kind of an important demographic when it comes to ticket sales.

How big a boost to Regal’s bottom line will health care reform provide? I’m guessing it will be large. Much larger, I think, than whatever new costs-per-employee the law entails for the company. That calculation is a job for the company’s economists.

Unfortunately, the company doesn’t have any economists, only accountants. That’s short-sighted, misleading and counter-productive. They need to hire some economists.

Regal Entertainment Group isn’t alone in this blindered approach of allowing accountants to pretend they provide the whole picture. Peter Bensen, the top accountant for McDonald’s, said that Obamacare will cost the company $120-$420 million a year to provide benefits previously denied to its workers. And since that is the only thing Bensen is looking at, that is the only thing Bensen sees. He hasn’t looked at — or even imagined the possibility of — the ways in which Obamacare will benefit McDonald’s customers. He is an accountant, not an economist, so he has forgotten that what’s good for McDonald’s customers is good for McDonald’s.

It’s the customers, stupid.

David Overton, the CEO of The Cheesecake Factory, is worried that health care reform will involve new costs for new benefits for his factory workers. But Overton — who is allegedly a business-man — hasn’t even glanced in the direction of considering what health reform will mean for the customers and potential customers of his business. Obamacare is good for the restaurant’s customers, and therefore it is good for the restaurant.

It’s the customers, stupid.

(My guess is that the hostile reaction of both McDonald’s and The Cheesecake Factory is also partly due to health reform’s provisions involving the disclosure of nutritional information. “Would you like me to Super-size that for you?” may be an exception to the principle that what’s good for the customers is good for the company.)

In 1914, Henry Ford made a bold move to reduce turnover and attrition in his workforce, announcing a new wage of $5 for an 8-hour day. This “more than doubled the average autoworker’s wage.”

Henry Ford had reasoned that since it was now possible to build inexpensive cars in volume, more of them could be sold if employees could afford to buy them.** The $5 day helped better the lot of all American workers and contributed to the emergence of the American middle class.

Regal theater workers should be able to afford to go out to the movies once in a while. People who work for The Cheesecake Factory should be able to afford to go out to dinner once in a while at places like The Cheesecake Factory. It might seem cheaper, from an accountants-only perspective, if every company kept its costs down by not providing workers middle-class wages and benefits. But the more companies take this accountants-only view, the fewer customers there will be for every company.

It’s the customers, stupid.

– – – – – – – – – – – –

* Earlier this year, the City of Seattle passed a law requiring paid sick leave. One local coffee chain proclaimed its opposition to the new law by putting signs on all its cash registers announcing a new “Sick Leave Surcharge of 1.5 percent on every order.”

The people of Seattle thus learned that this chain had not previously provided paid sick leave — meaning it was likely they were serving up steaming cups of contagion from sniffling workers who couldn’t otherwise afford to stay home for the sake of their own health and the health of their customers. Yuck.

That led to this memorable comment from one never-shopping-there-again former patron:

“There were many ways [Cherry Street Coffee owner Ali Ghambari] could have dealt with this. He could have upped prices slightly to compensate, for example.” But instead, says Whitney, “he chose to call himself out as a royal dickhead for life, because now we all know he wasn’t paying for sick leave before forced to by law.”

Companies should keep the RDL Factor in mind when they publicly try to keep their costs down by harming the well-being of their workers and customers. Rebranding your brand “as a royal dickhead for life” is a self-inflicted marketing wound that well-run companies avoid.

** Googling for that story, I came across this 2012 column by Tim Worstall of Forbes, which is so perniciously obtuse it requires a response. Worstall and the barons of Forbes are so eager to dismiss any argument for middle-class wages that they were willing to write the following nonsense, in public:

There’s an argument you see around sometimes about Henry Ford’s decision to pay his workers those famed $5 a day wages. It was that he realised that he should pay his workers sufficiently large sums to that they could afford the products they were making. In this manner he could expand the market for his products.

It should be obvious that this story doesn’t work: Boeing would most certainly be in trouble if they had to pay their workers sufficient to afford a new jetliner.

The Model T Ford was a mass-produced automobile intended to be sold to consumers. A Boeing jetliner is not. Boeing doesn’t need to pay its workers enough that they can all buy huge passenger airplanes. But Boeing does need to pay its workers enough that they can all afford to buy an airplane ticket once in a while. With no middle class, no one can afford plane tickets. If no one can afford plane tickets, no airline can afford to buy planes.

But Worstall, at least, acknowledges that Ford’s higher wages did in fact have the desired effect of reducing turnover in his Model T factory. That was a benefit for the company.

This is something that the accountants, as accountants, have failed to account for at Regal Entertainment, McDonald’s, et. al. Providing better health care benefits for their workers costs more, but it also saves money by reducing turnover. That’s something the accountants are supposed to be including in their accounting, but they’re not. So not only does Regal Entertainment need to hire some economists, they also need to fire their accountants and replace them with some competent ones.

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